European Microfinance Week 2021

PRESENTATIONS

Hannes GRAEF, the co-founder of YAPU Solutions opened the session by welcoming the participants and introducing the panel. He gave the floor to Marta MONEO, the programme officer climate change adaptation from UNEP. She presented the outcomes of the UNEP Adaptation Gap report 2020, which found that while nations have advanced in planning, huge gaps remain in finance for developing countries and climate adaptation. She pointed out that in addition to the poorest and most vulnerable populations, entire economies are at risk that are highly dependent on commodities.

Moneo presented three key innovations needed for climate action: 1) Understanding risk and complex systems; 2) Enhanced planning; and 3) Revolution of financial mechanisms to create resilience. She added that adaptation investments can lead to economic, social, and environmental benefits. However, mobilising private finance has been challenging and the cost of adaptation is substantial, expected to reach USD 140-300 billion in 2030.

Though it is not a full solution, Moneo emphasised that microfinance is a useful mechanism to up-scale ecosystem-based adaptation. It reaches the most vulnerable parts of the population and has a well-established network and market. Moreover, microfinance has the potential to deliver funding, information and technical capacity at the smallest scale and on a demand-basis. It can support an immediate response and minimise the adaptation deficit, while offering an opportunity for innovative investment and business models.

The main challenges for adaptation finance include how to allocate benefits, alignment of objective and indicators, transition risk and limited enabling conditions and incentives. To overcome these challenges, building an ecosystem for climate adaptation is key. UNEPs Microfinance for Ecosystem-Based Adaptation (MEbA) project supported the development and dissemination of microfinance products and enhanced know-how on ecosystem-based adaptation (EbA) in MFIs, while also providing technical assistance to producers. An upscaled version of this project recently started, aiming to increase climate resilience in the dry corridor in Central America.

Luca TORRE, the Co-Founder and Co-CEO from GAWA Capital, shared the fund management company’s journey towards investments in climate resilience solutions. After investing in financial inclusion, GAWA Capital’s set up the fund Huruma to focus on agricultural finance; supporting MFIs to offer better financial services to farmers in rural areas. Torre added that the company’s next goal is to develop services and products that help farmers become more resilient to climate change. Torre stressed the importance of designing a fund around the desired impact it should have, building an investment strategy around a theory of change to address the problem and including a Technical Assistance component.

To address the complexity related with climate resilience, Torre emphasised the importance of using an ecosystem approach. Therefore, GAWA Capital co-initiated “Scale for Resilience”, a young initiative in the UNFCCC “Race to Resilience”, which addresses the entire financial value chain by bringing together MFIs, investors, and research institutes. The initiative plans to increase the adoption of Nature-based Solutions and will address both financing and technical constraints. Its goal is to make 3 million farmers more resilient to climate change by 2030, with the participation of 100 MFIs and 5 billion USD in disbursed credits. Torre also presented the articulated taxonomy established to track development. He invited MFIs and other investors to join this initiative, as it has tangible plans to create value for all stakeholders that want to join and increases visibility opportunities for its members.

Next, Graef gave the floor to Anaïs DUFOUR, a Social and Environmental performance analyst at SIDI. SIDI is a private investor created by a French NGO that provides both financing and Technical Assistance to the microfinance sector and agricultural value chains. Dufour presented SIDI’s new strategy that is based on social and ecological transition. She explained that as a blended offer is key to act for climate resilience and biodiversity preservation, SIDI provides investees with patient capital with a focus on the rural sector, as well as Technical Assistance. For example, SIDI supported an MFI in Burkina Faso to develop its incentives policy based on agroecological practices. A study on agricultural practices of the MFIs clients revealed that two-thirds faced soil degradation. SIDI helped the MFI to realise how to foster sustainable agricultural practices, using an incentive policy.

Internally, SIDI organises team trainings on climate finance and sustainable agriculture. In addition, Dufour stated that SIDI developed an analysis tool for agroecological practices to understand what is sustainable. This tool includes water/energy resources, cropping practices, input management and socio-economic viability. SIDI also developed a new monitoring system that includes social and environmental indicators to monitor progress made by investees and identify technical assistance needs.

Dufour agreed that an ecosystem approach is key to climate resilience, adding that SIDI supports local networks and collaborates with investors. SIDI has joined the Climate and Biodiversity Positive Initiative for Smallholder Finance where investors can exchange on challenges and solutions for climate resilience. It covers both financial and non-financial support and has developed transparent metrics on green lending activities, which are based on the Green Index 3.0 and inspired by MEbA from UNEP. The next step will be to test and evaluate the indicators together with FSPs.

DISCUSSION

Graef thanked the panellists for their contributions. He asked all members to point out the most pressuring challenges for mainstreaming inclusive financial climate change adaptation. Moneo stated that actors and stakeholders first need to align on the problem and objectives in climate change adaptation, as all seem to have a different understanding. She also pointed towards the limitations of using microfinance mechanisms in climate adaptation. Torre agreed with this perspective, stating that the ecosystem approach needed for the complexity of climate adaptation is a challenge, as well as simplifying aspects needed to mobilise private capital. At the same time, he welcomed the increased focus on adaptation, which has led to an increase in available funding. Dufour added that collaboration with other investors has proven key to solve these issues.

In closing, Moneo stated that it is encouraging to see the initiatives presented in the session. She is confident that opportunities to build knowledge and evidence will be plenty in the coming years. Torre predicted that adaptation is the next big frontier in impact investing. Dufour echoed these statements, inviting participants to join the e-MFP Green Inclusive & Climate Smart Finance Action Group. Graef thanked the panel and participants, adding that all initiatives presented are open to new members.