Chronicle.lu recently had the opportunity to speak with Janice Kotut, Jenny Koh and Rachel Child, the three co-founders of Sustainable Links (present in Kenya, Singapore and the United Kingdom), whose Middle Market Climate Facility (MMCF) recently earned them a spot in the Luxembourg-based International Climate Finance Accelerator's (ICFA) 2022 Cohort.
This article follows on from a recent Chronicle.lu interview with another ICFA 2022 Cohort member, Katapult; interviews with the remaining three winners (Energy Peace Partners, Olduvai Capital and Incofin - Honorary Cohort Member) are set to follow.
Chronicle.lu: Could you please introduce yourselves and Sustainable Links?
Sustainable Links: We are three experienced female founders with a track record of mobilising climate capital at scale across developing markets and passionate about making a difference.
Janice is a lawyer by background and is a Kenyan who has worked in banking, farming and development finance and brings with her African networks, origination, structuring and execution capabilities.
Jenny is a Chartered Financial Analyst (CFA) holder and is a Singaporean who has worked in banking, private equity and development finance and brings with her Asian networks, new ventures, origination, structuring and execution capabilities.
Rachel has a background in climate finance and strategy and is a British national who has worked with carbon offset projects, funds and development finance and brings with her climate strategy development, carbon credit project qualification and delivery, climate risk screening and management and Task Force on Climate-related Financial Disclosures (TCFD) reporting capabilities.
Sustainable Links is a climate platform which aims to deploy climate finance at scale and is working towards our first managed facility, the Middle Market Climate Fund (MMCF), whose objective is to act as a demonstration vehicle, accelerating climate and gender smart investments and promotes thought leadership with middle market companies on net zero and climate resilience.
Chronicle.lu: How did you learn about the ICFA and why did you apply for the ICFA acceleration programme?
Sustainable Links: We heard about ICFA from friends. Sustainable Links recognises Luxembourg as an internationally recognised leading hub for sustainable finance and would be seeking to benefit from the financial leverage, visibility, credibility, training and community that the ICFA Luxembourg accelerator offers. In particular: validation of proposed fund concepts and governance approach and in-depth training around the Luxembourg ecosystem; technical assistance in areas of legal and tax structuring, impact measurement and Sustainable Finance Disclosure Regulation (SFDR) reporting, and access to tools where applicable; personalised coaching in the areas of fund raising and fund positioning.
Chronicle.lu: What kind of support did you receive from the ICFA? How has the award helped Sustainable Links to further its goal?
Sustainable Links: So far, we have had three training sessions that have been excellent in providing us emerging fund managers with insights in designing a facility of such nature, guidance on the latest impact management frameworks, training on SFDR but has also connected us with a cohort that is becoming a part of our community. More importantly though, due to the tight timelines around submissions, we have accelerated and refined our thinking to develop a market ready investment thesis.
The award will help us with the next stage of implementing our investment thesis and business plan and help position us with our target investor groups. Doing it alongside other cohort winners is also beneficial as we get to build comradery and learn from each other’s experiences and further widen our network.
Chronicle.lu: Please tell us more about the MMCF and its main goals.
Sustainable Links: MMCF is an innovative blended finance vehicle that will deliver high impact and mobilise funding for low carbon and climate resilient private sector investments in five African countries.
The funding gap for climate mitigation and adaptation is significant and the funding that is available does not automatically reach middle market companies. Most players, including Development Finance Initiatives (DFIs), are focused on microfinance and / or larger transactions (more than $10 million).
But middle market companies, that account for the majority of all enterprises and employment in our target countries, have a role to play in reducing emissions, both in their direct operations and in their supply chains. However, these organisations often need additional support to understand the risks of not addressing climate change and the opportunities related to climate and gender.
In the local financial system, the allocation of capital for this purpose is hindered by a lack of awareness and expertise to assess climate risks and gender opportunities.
MMCF will provide sustainability-linked loans to companies that will develop net zero targets with a gender lens. This will create businesses that are aligned with international standards on climate and also enhances the business case.
With further mainstreaming of net zero practices and climate finance, investments that may not seem profitable now will be profitable in the long run, as governments, clients and other stakeholders will require net zero targets. As such, the fund is a transitional vehicle that accelerates climate investments.
The holistic approach is to assess and finance both climate mitigation and adaptation / resilience requirements whilst also measuring and reporting on co-benefits and alignment with the [United Nations] Sustainable Development Goals (SDGs). These interventions are also expected to result in significant gender empowerment and economic development opportunities.
MMCF will endeavour to collaborate and co-finance with the local financial system and focus on the climate finance opportunities that originate from their portfolio of borrowers.
MMCF aims to drive systematic and collective learning through transparent quantification of CO2 emissions and emission reductions, monitoring and evaluation and provide thought leadership in climate finance, and how this benefits women and girls specifically.
Chronicle.lu: What are the main reasons for Sustainable Links's focus on five East African countries (Kenya, Uganda, Rwanda, Tanzania and Malawi)?
Sustainable Links: As this is our first managed facility, we wanted to have some focus and so selected a few markets, rather than going too broad which is actually what we had originally planned (covering Africa and Asia). These are also markets we know well from our previous experiences, where we have strong on the ground networks. As and when the opportunity presents itself, we will be able to hit the ground running.
The potential for additionality is also clear in these predominantly least developed countries that are also highly vulnerable to climate change and can be covered from one city (Nairobi) relatively efficiently.
Chronicle.lu: Could you please tell us more about some of the investments which Sustainable Links has already made in these countries?
Sustainable Links: In our previous lives, when we led businesses that invested in these countries, we mobilised and deployed capital into regional financial institutions, but more relevant is our experience structuring the first green bond in East Africa which is listed in Nairobi and London.
Currently, as we have been working on the facility setup, we are working on various advisory mandates that are also targeted at the region, involving support of the development of a local currency guarantee company, designing a road map for capital market financing for the water sector and designing strategies to align investment portfolios with Paris Agreement goals.
Chronicle.lu: What are the selection criteria for projects and initiatives financially supported by Sustainable Links?
Sustainable Links: Eligibility criteria: private sector; not on our exclusion list; demonstrably part of a company’s net zero pathway and resilience ambitions; willingness to adopt or enhance their gender policy.
Chronicle.lu: Sustainable Links wishes to mobilise and deploy climate finance with a gender lens. Could you please elaborate on why this is important?
Sustainable Links: Gender equality is in our DNA and integral to MMCF’s values and how MMCF operates. We will lead by example and we will promote gender equity through our investments because: gender equal companies are lower risk; women-led businesses have less access to capital due to collateral constraints; climate change affects women disproportionately; due to the traditional female role – women need to be a part of the climate solution.
Chronicle.lu: How did the COVID-19 pandemic affect Sustainable Links in terms of its fundraising and distribution efforts?
Sustainable Links: The main impact has been our inability to travel as much as we would have liked. As we move into a post-COVID world, the more pressing issue right now is the impact of the Ukraine-Russia war which is leading to food shortages, inflation and the high interest rate environment which is negatively impacting the markets we would like to operate in.
Chronicle.lu: What have been the main challenges so far in terms of investments in the developing African economies?
Sustainable Links: There are several challenges but the three we would probably cite are:
• the issue of scale which translates to the high costs to serve; investments are often smaller than the thresholds particularly around project finance which is why we plan to aggregate our investments;
• the second is around investment readiness, particularly as we focus on the climate and gender imperative, supporting companies recognise, think through and adopt net zero pathways, resilience and gender equity requires additional support which we aim to provide through a technical assistance facility;
• the third barrier is the high perceived and real risk as well as the return relative to risk which is why we have designed a blended finance facility, leveraging the use of catalytic capital to crowd in private sector investment to deliver development impact.
Chronicle.lu: What are the next major goals for Sustainable Links in terms of SDGs?
Sustainable Links: The outcomes of the investments serve over time as inputs to SDG impacts on SDG 5 (gender equality), SDG 8 (decent work and economic growth), SDG 13 (climate action) and SDG 17 (partnership for the goals).
In other words, our inputs (expert team, capital, business success factors), lead to activities (support for middle market companies on the climate and gender transition), which can then be used to generate outputs (number of middle market companies signed up to a net zero, climate risk mitigation, gender equity transition plan, etc.). These lead to outcomes (middle market companies supported in target countries / sectors / themes, impact incentive mechanisms in place, etc.) and possibly later the potential resulting outcome that the aggregated offset projects can be traded on the voluntary carbon markets.