Ten years on from the Paris Climate Accord of 2015, the negative impacts of climate change continue to exacerbate the existential threats to ecosystems and society – both globally, and in Africa. In fact, despite the fact that Africa contributes only approximately 4% of global carbon emissions, seven out of 10 countries most at risk from climate change are African.

According to the World Meteorological Organisation, African nations are losing up to 5% of their GDP per year due to extreme and catastrophic climate-induced events, and many African nations spend as much as 9% of their national budgets on climate adaptation policies. There is also a massive, growing health risk – rising temperatures, shifting rainfall patterns, and more frequent extreme weather events are impacting nearly every dimension of human health in Africa. Since 2019, there has been a disconcerting increase in the proportion of deaths related to malnutrition, and vector-borne illnesses like malaria and dengue fever, as well as water- and food-borne diseases, such as cholera, are resurging or appearing in new areas as the climate becomes more erratic.

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Food production shocks due to climate increasingly threaten food security in the region. According to the International Labour Organisation, agriculture provides livelihoods for more than half of Africans, and agriculture systems both contribute to climate change and suffer from its effects. For example, overgrazing increases the risk of drought, which may degrade pastures and water sources. At particular risk are pastoralist communities in African drylands, where precipitation is already highly variable and uncertain.

These variables make for a climatological witches’ brew that data reveals is reaping dire consequences for citizens across the continent and around the world. Amid this challenge, the private sector can play a crucial role by investing to support resilient and sustainable infrastructure.

Private investment can be part of the solution

In this context, institutional fund managers Scalar International and Mergence Investment Managers have, in partnership, launched a private equity fund to finance clean energy and digital infrastructure in sub-Saharan Africa, with a target size of US$100-150 million. The Africa Decarbonisation Fund will invest in energy-efficient / decarbonisation projects in the private commercial and industrial (C&I) sector within SADC, with a focus on women- and youth-led SMEs. The potential is significant as, according to Bloomberg, by 2030, the electricity demand in Africa’s C&I sector is expected to grow by more than 270% compared with current levels.

The target is to reduce 1 GT of carbon emissions by 2030; achieve energy efficiency in 30,000 buildings by crowding in investment of at least $400 million; and create 15,000 full-time jobs.

Scalar is a black-owned international venture capital and private equity firm with experience in clean energy and other programmes in the US; Mergence is a leading black-owned institutional fund manager with a strong impact investing track record in SADC.

Scalar is one of only five fund managers chosen out of 66, as part of the 2024 cohort of the International Climate Finance Accelerator (ICFA) – a programme powered by Accelerating Impact. Accelerating Impact is an independent non-profit initiative, set up as a public-private partnership in 2018 by the state of Luxembourg and a dozen private partners with deep experience in impact finance, with a mission to accelerate the impact finance leaders of tomorrow across the globe.

The ICFA is a unique multi-year programme that includes technical and financial support to selected impact investment managers in their start-up phase, who have strong, innovative climate investment strategies and are in the process of fundraising. To date, 39 fund managers have been supported.

The Scalar-Mergence Africa Decarbonisation Fund is also one of only 10 so-called “Article 9” funds worldwide, launched recently by the EU’s Sustainable Finance Disclosure Regulation (SFDR) to facilitate the attraction of Limited Partners to private equity funds.

The fund’s pipeline of projects is primarily in the data centre and manufacturing sectors, which have seen a 40% decrease in grid energy reliability due to their reliance on the regional energy pool. Most SADC member states consume their energy from the Southern African Power Pool, which is primarily 40% hydro energy and 50% coal-powered energy.  

The fund is in advanced negotiations with European Development Finance Institutions in support of the EU-Africa Global Gateway Investment Package. The fund seeks to work with local pension funds in support of South Africa’s national determination contributions, together forming a Global Just Transition Partnership using the Scalar platform.

Investments will be guided by four of the United Nations Sustainable Development Goals (SDGs) – 7 (affordable and clean energy); 8 (decent work and economic growth); 10 (reduced inequalities); and 13 (climate change).

Investee businesses will be put through their own incubator and accelerator programme by the Scalar-Mergence fund, providing training and technical, as well as financial, assistance.

Clean energy in an African context

Africa holds 60% of the best solar resources globally, yet has only 1% of installed solar photovoltaic capacity. Furthermore, women make up 48% of the global workforce, yet account for less than 20% of labour in the renewable energy sector.

According to the International Energy Agency, 43% of the African continent’s population lack access to electricity, and many African governments are struggling with power infrastructure – South Africa’s power utility being no exception.

Massive investment is clearly required, and given the growth potential, investors could see robust and steady long-term returns while making a significant impact on the lives of millions of people in Africa.

Gutsa is CEO of Scalar International, and Mohkanoi, CCO of Mergence Investment Managers