Linking capital markets and last mile families

Kofi Annan’s legacy - data driven digital dignity and true sustainability for African Communities

Paul Clements-Hunt reflects on Kenya’s chance to shape global sustainable development. As a United Nation’s Official working for Nairobi head-quartered UNEP, Clements-Hunt coined ESG in 2004 and then Founded The Blended Capital Group in 2012. He also acts as a Director of Mishcon Purpose, the sustainability arm of UK law firm, Mishcon de Reya LLP

Can Kenya be first to the summit of sustainable finance for Africa and create a model for emerging economies worldwide??

A wild dream? Not at all.

The digital revolution, capital markets waking to the upside of sustainability, and the long burn Magic of the late and great United Nations Secretary General Kofi Annan, have converged to create one of the investment opportunities of the 21st Century as we race to save the planet.

I believe Kenya can link last mile communities with the world’s capital markets ahead of other states. A convergence of Kenyan developments will enable an investable, replicable, and scalable model to deliver on the UN’s Sustainable Development Goals (UN SDGs) and confront climate change at the community level.

In 2007, the late UNSG Annan brokered a successful peace deal in Kenya after serious post-election violence that threatened to escalate precipitously.?A year before, in late April 2006, Annan had launched a set of UN-supported responsible investment principles in an iconic Opening Bell Ceremony at the New York Stock Exchange. We just celebrated this launch, some 16 years ago to the day last Thursday.

In 2023, the UN-supported Principles for Responsible Investment (PRI) are backed by 5300 global investment institutions representing US$ 120 trillion in assets aligning with ESG (environmental, social, governance) disciplines. ESG, which sits at the heart of Annan’s 2006 responsible investment idea, has gripped the entire investment world in recent years.

Finance and investment institutions have sought to rebuild their reputations following the 2007-8 global financial crash and to distance themselves from climate change and planetary destruction. Many banks, asset managers and insurers have a long way to go to build their sustainability credibility and this includes Kenyan institutions.

Now, I am convinced that Annan’s ideas have the power to propel Kenya to become a powerful green finance example across the emerging markets. Annan, Africa’s UNSG, understood that smart collaboration by communities, investors, business and government are the key to climate action and broader sustainable development.?

How does a sovereign country position and project to attract and retain massive inflows of ESG-aligned investment??

A dramatic convergence of factors places Kenya, an evolving East African economic powerhouse, in a prime position if the country’s policymakers, investment and finance institutions move boldly to catalyse community action. Multiple questions remain.

Are large Kenyan banks, insurers and investors capable of this and do they have the imagination to conceive, develop and roll out new sustainable finance products? Can the Nairobi Securities Exchange (NSE) double down on its early sustainable finance vision when in November 2022 it mandated that listed companies in Kenya had a one year “grace period to integrate and comply with” new ESG reporting standards?

Can Kenyan policymakers follow up with focus on President William Ruto’s climate vision??At UN CoP27 in Egypt in late 2022, H.E. Ruto flagged that carbon credits could top US$600 million by 2030?and become one of the country’s largest sources of revenue, equivalent to double the value of coffee, Kenya’s largest current export.

Kenya is on the sustainability frontline in so many important respects covering both risk and reward.?

1.?On the risk side: manifest climate risks; water stress and food insecurity; deepening inequality and raw pockets of entrenched poverty; and both terrestrial and marine ecosystems with challenges born of development and environmental trade-offs.

2.?On the opportunity side: it is the African home for the United Nations, multiple innovative sustainable finance initiatives, and a rapidly evolving impact investment?community; a massive “green bank” of renewable assets notably in the form of widening solar take up; a peerless mobile money network which leads the world; and Nairobi as an attractive African base for the world’s leading financial institutions.

Clearly, there are huge challenges. The African green climate finance crown is Kenya’s to lose with other countries positioning to generate their share of the US$ trillions needed for the continent to effectively address climate and broader sustainability issues as part of a Just Transition.??

So, how can Kenya build on President Ruto’s UN Climate CoP27 gambit to position the country as the go to African choice for impactful climate finance at true scale?

Pivoting off its unparalleled leadership in mobile money the country needs to create the?M-PESA?equivalent of a sustainability-aligned mobile money system – M-ESGA perhaps??

Get it right and Kenya will see massive ESG flows catalysing green action by incentivising Kenya’s population of 57 million plus people to become the global leaders in grass roots sustainability leadership.?

How can we connect the massive and deepest pools of capital in the world with the most vulnerable, while so often vibrant and entrepreneurial, communities? This challenge goes to the very heart of true sustainable development as coined by the 1984-7 UN Brundtland Commission, named after the formidable Norwegian lady Prime Minister Gro Harlem Brundtland.??

What does this really mean in practice? Let’s look at it from the edge of space as an idea.

Last mile communities across Africa have virtually zero historical carbon footprint contrasted with the oil and gas guzzling populations of the G7/OECD countries.?

What is a last mile community? Let’s take two examples:?

·?????the farming and fishing families around Kenya’s Lake Victoria abutting the vibrant city of Kisumu in the West of the country, and

·?????those combined mining-farming families who underpin Kenya’s increasingly important artisanal small-scale mining (ASM) communities.

It is my firm belief after 30 years of climate involvement, including building last mile for profit businesses, there should be an immediate, incentivising mobile money payment for these families, ultimately attached to global carbon capital markets.?For every positive climate action such families take, whether swapping kerosene lamps for solar on fishing boats, implementing climate aligned farming techniques, or employing solar technologies at the mine site, there should be an immediate, incentivising mobile money payments rewarding their climate aligned actions.

Everything is in place to allow this as we see the digital, blockchain, artificial intelligence, machine learning and chip empowered, mobile money revolution underpinned by grassroots solar unfold. And don’t let’s forget the use of satellite intelligence to boost farming productivity and trigger immediate climate-related pay-outs for family farmers.?

The systemic potential goes so far beyond the provision of solar home lighting systems and solar empowered, next generation agricultural equipment.?

How to get there? Kenya’s public and private financial architecture, and the powerful institutions which serve it, need collectively to commit to make the sustainability equivalent of M-PESA a reality. The economic means are there and the technologies are there. By connecting the coming US$ trillions in carbon markets to last mile communities is not about charity or philanthropy but rather a coming together of tech innovation and for-profit market dynamics.

Data, data, data is required to inform the most impactful M-ESGA model allowing the best of decisions to be made with actionable data at the critical epicentre of this formidable while deliverable challenge.?

Let’s just take one sector of immense importance to East Africa as well as the Pan African economic context, and with a complex value chain. What do leading global experts think in the context of critical minerals, climate action and sustainability?

Rob Karpati, a Toronto-based special advisor to The Blended Capital Group on critical minerals, explained: “Data is the starting point for conflict-free mining.?Understanding ground level realities as well as downstream integration of mining value chains is a prerequisite for building the bridges needed for conflict-free supply growth.”?

Rob added: “Africa's vast mineral reserves make it ground zero for the energy transition.?Business and geopolitical competition will be fierce for decades, energy security the prize.?Value to be had is astounding.?Do we know how to interpret data that is necessary for growth on the continent??Are cultural differences appreciated??Do we have fast flexible informal infrastructure in place for gathering and interpreting data??Do we understand how to combine high-tech data, satellite information as an example, with low-tech data, subjective interpretation based on discussions with local community members??There is a huge amount of work ahead.”

Data that describes mining in Africa needs to include more than information on mining operations.?Understanding neighbouring communities, the way people live, their infrastructure, values and socio-economic realities is a key step toward building relationships that shift tones from conflict toward collaboration, explained Mr Karpati.??

Tony Wines, Founder of Turnkey, a Singapore-UK based, ESG data, analysis and strategy platform, visited Kenya in late April to meet with NSE, local business leaders and sustainability focused companies.?“With the new NSE regulations kicking in later this year requiring ESG reporting, we feel Kenya has taken a massive step allowing companies to explore how both to more effectively manage risk but more importantly how to create more value for the communities they work alongside and their employees,” explained Wines.

Turnkey already has clients in Kenya and is looking to deepen its ESG data and analysis offering to the country’s public and private institutions. “If Kenya fashions a state-of-the-art ESG data capability then it will be at the very front of the queue to attract the ESG aligned financial flows that will underpin a maturing carbon market. Linking capital markets and last mile communities, where so many of the employees of major corporations come from, will be a climate change game-changer,” explained Wines. ”Our trip to Kenya convinced me that this is a market really awakening to the economic power of verifiable, first rate ESG data capabilities across business, capital markets and within grassroot communities.”

Brett Wallington, Founder of Paragon Impact, an ESG data, advisory and strategy company, believes a deeper understanding of key ESG builds a company’s fundamental resilience.?

“There’s a glaring gap in how the market?interprets ESG with limited focus on risk to the business. We developed a more complete view of ESG that measures the impacts of a business outward onto society and the environment, which in fact provides for a more robust risk due diligence since an impact a business has in one form might return as risk to the business in another form.”?

Canadian Karpati encapsulates the challenges ahead for meaningful data acquisition in Kenyan mining with lessons for the broader Pan African context:

·????Data is hard to gather and to interpret around mining in Africa.?The infrastructure doesn't exist to support the kind of data gathering that western democracies take for granted.??

·????Gathering data in challenging environments is more art than science, requiring targeted ways of going after important details on how people live, on what reserves look like, on whether mining projects are following responsible standards and on how mines are interacting with communities.

·????Lack of development in Africa makes it hard to gather data on opportunities.?Infrastructure isn't in place, literacy is not universal and active conflicts reduce access to communities.?

·????Understanding communities is the first step toward understanding what approaches make sense for interacting with communities.?Without this, there is a risk of flying blind, triggering the wrong engagement solutions that increase conflict instead of collaborative.

And what’s the upside for Kenyan communities?

To execute on its 2030 climate plans, the country needs US$64 billion and can only hope to achieve this through a genuinely innovative approach to carbon capital markets. The link between capital markets and reward for last mile communities will be critical to build the understanding, momentum, and grassroots belief that climate action is worthwhile. If Kenya gets it right then there’s a model in the making for the two billion unbanked globally who remain the victims of the unfolding climate crisis with none of the upside promised by a new global commodity market. The wisdom of UNSG Kofi Annan will percolate through the global system for decades to come.

Nairobi Business Monthly Magazine David Wanjala: https://www.dhirubhai.net/in/david-wanjala-06b899101/

BBC Zawadi Mudibo: zawadi-mudibo-2533b619

Standard Media Group Carole Kimutai: https://www.dhirubhai.net/in/carole-kimutai-9b932736/?originalSubdomain=ke

Daily Nation Allan Odhiambo: https://www.dhirubhai.net/in/allanodhiambo/

The East African: Business Section James Anyanzw? https://www.theeastafrican.co.ke/tea/business