Overseas green finance ‘is in everyone’s long-term self-interest’

Last year BII invested £1.3 billion in markets across Africa, Asia and the Caribbean, including in renewable energy, financial services, infrastructure and agriculture. Formerly called the Commonwealth Development Corporation and 100 per cent owned by the UK government, it was founded by Lord Reith in 1948 with a mandate to “do good without losing money”. Its investments have helped to create an estimated million jobs worldwide since then.

Over the past decade BII has also made a net return of about £1.3 billion on behalf of the UK taxpayer, it says. Last year there were 94 transactions taking the total number of investments in the organisation’s history to nearly 1,560 across 65 countries. Nearly two thirds of investments in 2023 were in Africa but Maasdorp wants to move into more countries that need to decarbonise, such as Indonesia and Vietnam.

It comes after the previous government set a target for half of BII’s annual budget to go towards the poorest and most fragile countries by the end of the decade amid concerns that it was not doing enough to tackle poverty.

A 2023 report by the Commons international development committee had highlighted BII’s “large concentration” of investments in middle-income countries, which it warned did “not appear to be targeted towards the poorest and most marginalised people”. The report also called on the Foreign, Commonwealth and Development Office to increase its oversight of BII and take a non-voting seat on the BII board. The Foreign Office rejected the latter proposal, saying it did not believe it would enhance BII’s governance arrangements.

Despite the criticisms BII can claim many successes. In Ethiopia, for example, it invested alongside Vodafone in Safaricom, the country’s second largest telecoms mobile operator, which led to the cost of internet for broadband coming down by more than 60 per cent and improving access.

In India, BII invests in S4S Technologies, a winner of the Earthshot Prize. S4S Technologies provides rural communities with solar-powered food dryers, enabling smallholder farmers to preserve crops and turn produce that might otherwise go to waste into valuable products.

Leslie Maasdorp’s career has spanned development finance, climate finance, investment and politics

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Also in the subcontinent, BII set up a renewable power platform called Ayana in 2018 to accelerate development of wind and solar energy. It attracted more than $2 billion in capital and has recently sold Ayana to an Indian government-backed entity in what is described as a “profitable exit”.

Profits are recycled into new investments which in turn pay taxes that enable their governments to build hospitals and schools, so-called “economic multiplier benefits”.

BII points out that it does not invest where there is a commercial capital alternative. Typically, the organisation takes on more risk than commercial investors owing to a lower returns hurdle of 2 per cent so it can search for opportunities that deliver the “greatest societal and economic impact”.

“Our businesses employ women, they support entrepreneurs, they help these countries,” Maasdorp said.

It does not lend to governments nor invest in any government-owned entities. “For us, the private sector is the theatre, the laboratory through which we want to engineer social and economic development outcomes in these countries,” Maasdorp said. “In some cases, we start companies from scratch in some of the most risky, vulnerable frontier markets in the world where other investors will be very reluctant to go. We are talking about countries like Burundi, Sierra Leone, Nigeria, Democratic Republic of Congo and so on. They are not your traditional markets.”

Because of the “halo effect” of BII as a blue-chip investor, it creates the conditions for other investors to come in. “We make the pie bigger with our mere presence.”

The organisation already works with partners, notably other European development finance institutions, and plans to deepen these collaborations. Last Thursday the BII and the Swedish and Norwegian state-backed funds Swedfund and Norfund announced a joint $85 million investment in AgDevCo, a specialist investor transforming agriculture across sub-Saharan Africa.

Yet there is what Maasdorp calls a “finance gap” amid the push to net zero and as the UK aid budget comes under pressure. This makes mobilising private capital for climate finance and development the key to BII’s future success by derisking the investment proposition for private investors such as pension funds and asset managers.

“The amount of resources that we need to tap into from the private sector in order to meet the [net-zero] objectives is huge. We need to work in partnership with the private sector or find ways to mobilise more private-sector capital into development.”

Planet Solar will be Sierra Leone’s first large-scale solar project to be connected to the grid

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Maasdorp believes it is in everyone’s “long-term self-interest” to make this new model work and warns that climate change has the potential to unravel development gains made over decades. “Simply put, climate and development are inextricably combined.” The British government is “fully supportive” of what BII is doing.

BII and the investment advisory group Mercer recently announced a global competition to find a way to attract hundreds of millions of dollars into climate investments in emerging markets. It is hoped that the right mechanism will act as a catalyst for BII to “crowd in”commercial capital to climate finance. “There’s just not enough resources within the public purse.”

Maasdorp, who played a key role in the formation and growth of the New Development Bank established by the Brics states, is taking his climate message to the G20 in South Africa where he once held senior government roles after a period of high-profile political activism. In 1994 after the transition to democracy, he was appointed as special adviser to the minister of labour and in 1999 he led the restructuring and privatisation of the country’s state-owned enterprises.

So why has he chosen to lead the BII, which has attracted criticism from MPs for its spending on long-haul business-class flights — £7 million over two years according the Financial Times — and some increasingly generous six-figure salaries? “This institution has more than 600 people who wake up every day with a desire to be impactful. To be surrounded with people like that and to lead a team of very passionate practitioners for me is really exciting.” Maasdorp will be paid a similar amount to his predecessor, who had a base salary of just over £327,000.

There is much for BII still to do. Of the millions around the world who do not have electricity, he said: “To think there are people today who don’t have access to this most basic power source. It takes away all dignity not to have electricity. The solutions lie in technology.”