FSD Africa, a UK Government financial sector programme, is making an initial investment of £650,000 in a digital solution that will increase access to carbon markets by connecting carbon credits from small-scale green projects across the global south to international buyers.
The investment will deliver funding through the test phase of the solution being developed by Nick Hughes, who led the development of the African mobile money service M-PESA.
Hughes is co-founder and managing director of 4R Digital, a green fintech start-up developing financial solutions for a range of business partners committed to climate positive projects in Africa spanning distributed solar energy, electric mobility and nature-based schemes. The company is building a solution that connects these projects to investors looking to offset greenhouse gas emissions (GHG) at the same time as supporting locally-led climate action.
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Voluntary markets allow individuals, organisations or governments to offset their GHG by purchasing credits from projects that prevent, reduce or remove an equivalent level of carbon. However, the markets are currently dominated by large-scale projects such as wind farms and waste-to-energy plants while smaller players struggle to complete the complex and costly process of verifying the emissions they have helped avoid or absorb. 4R Digital’s Carbon Value Exchange (CaVEx) is being developed in response to this challenge.
CaVEx leverages technology such as the Internet of Things (IoT) and machine-to-machine connectivity to remotely monitor tiny levels of activity by connected devices such as solar pumps and e-vehicles and to calculate their impact on carbon emissions.
By pooling and aggregating these data, the platform centralises verification of emission reductions, significantly cutting the cost for these projects to issue high-quality carbon credits. The exchange also enables micro-payments from the sale of carbon credits to be digitally transferred directly to the individuals involved in the projects, increasing the flow of capital to locally-led initiatives that both combat the climate crisis and support incomes in developing economies.
To ensure the exchange meets international standards for verification, 4R Digital will engage a third-party organisation to audit the system. This evaluation will give purchasers confidence that each carbon credit they buy translates directly into an equivalent reduction or removal.
Over the last year, FSD Africa has been working with 4R Digital to test the feasibility of using digital technology to open access to climate finance, committing £250,000 in grant funding. It has now approved a further investment of £400,000 in the form of a convertible grant to enable 4R Digital to build a functioning version of the platform around several use cases, bringing the total investment to £650,000.
Growing carbon markets, one of many FSD Africa green finance ventures
The investment is one of several new initiatives by FSD Africa that form part of its increased focus on green finance. By working with partners to develop robust regulatory and policy frameworks FSD Africa aims to strengthen the continent’s capacity to tap into the growing pool of international ESG funds whilst also building a pipeline of investable and scalable projects that are aligned with a low-carbon and climate-resilient future.
Nick Hughes said: “There are many projects that simply cannot access climate finance because of the overhead costs associated with the processes involved and concerns on the ’buy side’ about the accuracy of credit sources. Advances in digital technology and connectivity let us remove barriers on both sides and ultimately enable more finance to flow to worthwhile initiatives in the global south. We’re pleased to move this from concept into pilot with partners who are committed to seeing real action on the ground.”
Director of Digital Economy at FSD Africa, Juliet Munro said: “This investment is a demonstration of the important role development finance can play in providing early-stage funding for high-risk, high impact projects that would otherwise struggle to find the necessary capital.
“It is illogical that Africans highly exposed to environmental change find themselves barred from carbon markets intended to fund our fight against the climate crisis. 4R Digital is developing a revolutionary solution with the potential to throw open international sources of finance for entrepreneurs, farmers, and small businesses in developing countries.
“The early-stage funding FSD Africa has committed so far will enable it to take the next step of its journey, delivering a viable product to demonstrate its enormous potential and opening the way for private finance to play its crucial role”.