Two decades ago, nobody would have thought it was important to draw a distinction between investors based on their consciousness. Not today.
Today, investors who are conscious about environment, sustainability and governance (ESG) principles want to see every penny invested accounted for in a meaningful and impactful way.
These principles are not complicated. It is this idea that investors should be driven by the impact their organisations have on the planet (environment), the role they play in the community (social) - whether on their clients, their staff or the larger community, and of course how transparent these organisations are governed (governance).
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These crop of investors have grown in the last couple of years, perhaps because there's a greater push in the world that our environment matters more than anything else and so we ought to protect it, and who else can do that other than those who control the world's vast resources that more often than not whose actions affect the environment in one way or another.
ESG investors have been pouring money into Rwanda. It's quite interesting that such investors see Rwanda, a small country with not so great economies of scale, as a country where their money can go to work.
The latest announcement by Prime Energy Plc to issue the first-ever green bond in Rwanda is a testament to this growing ESG investor appetite. Prime says it wants to raise Rwf 9.5 billion from the seven-year tenor bond at a coupon rate of between 13.3% to 13.75%. That is a premium bond.
Prime Energy, although still little known in the market, has all the qualities that any sensible investor would want to associate with. From their prospectus, one could read a history of consistent profit making organisation, after all that's what investors care about.
At the same time, it has a sound management team and more importantly, it is investing in a sector that has proven over the years to hold potential to turn alpha.
Believe it or not, the energy sector, renewables in particular, is still a big deal mainly because demand for electricity has been forecast to increase as population and urbanisation grow.
Hydropower, a sector in which Prime Energy is a major player, accounts for 43.5 per cent of total installed capacity, according to the Rwanda Energy Group. The Government anticipates renewables will continue to drive energy access in Rwanda for the foreseeable future.
Renewable energy sources are considered clean. They emit less carbon to the environment and are abundant in nature. The sector provides millions of jobs in addition to possessing potential to connect the world's least connected populations.
Perhaps that reflects why investors would want to invest in the sector.
Alas! ESG investors' appetite in Rwanda did not start with Prime Energy.
Last year, the Development Bank of Rwanda (BRD) issued the inaugural Sustainability Linked Bond (SLB) which was oversubscribed at 110.59 per cent, raising Rwf 33.17 billion at a coupon rate of 12.85 per cent.
BRD made a compelling case to ESG investors that it would put their money to good use, including a commitment to mainstream environmental, social, and governance for partner financial institutions, raise financing for women-led businesses from 15.4 per cent to 30 per cent, and increase financing for affordable housing.
Investors have also poured millions of dollars in Rwanda Green Fund, an investment vehicle mandated with increasing green financing to prospective projects and companies. Until the end of last year, the fund had mobilized $274 million to invest in transformative green projects.
The fund has made a commitment to channel these funds to key projects such as establishing Rwanda's first e-waste management facility, and contributing to the country's thriving e-mobility industry.
One of Rwanda Green Fund's private investment facilities, Ireme Invest, recently announced investment into a local electric mobility company. Ireme Invest signed a loan facility to PREV Rwanda Ltd, a move that would enable the company to expand its fleet of electric cars on the market.
The list of companies that have won the trust of such investors extend beyond big players. Startups, too, including cleantech and climate technology companies such as Bboxx and BasiGo have raised significant funding as a result.
Rwanda has an ambitious Climate Action Plan to reduce greenhouse gas emissions by 38% by 2030 compared to business as usual. Achieving this will require investment of approximately $11 billion, made up of $5.7 billion for mitigation and $5.3 billion for adaptation. It is expected that this funding will come from both domestic and external sources.
Whether it is this ambitious but clear plan that is attracting ESG investors into Rwanda, or if investors deem it right that the country's economic fundamentals make more sense for them to invest is something up for further debate.
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Granted! Although ESG investors care much about where their investments are directed, they are, to a large extent, still considered normal investors who are driven by profits. That's just how the money machine works.
Despite being driven by the responsibility to protect the environment, ESG investors will want to put their resources in countries where it makes perfect sense to conduct business. Rwanda has proven not necessarily perfect, but a fertile ground to test new ideas and ventures.
Perhaps the great Nobel Prize-winning economist Milton Friedman would agree with some ESG investors who prioritise profits over social responsibility since he argued that the social responsibility of business is to increase its profits.
What Friedman meant was that corporate executives are not well equipped to enact social change i.e.; an investment banker only knows how to make deals not to curb pollution. Although Friedman's views are interpreted differently depending on who you ask, investors are profit-driven individuals, period.
In any case, the winning party in this debate is who is able to attract these investors, and Rwanda is doing just that.
The author is a Business Editor at The New Times
