|Size||$677 million assets under management|
|Revenue Model||Loan repayments from end businesses|
|Private Investment/Finance Structure||Junior and senior shares, subordinated debt|
|Public/Philanthropic Investment||Public investors hold the fund’s junior shares. Public donors fund its technical assistance facility|
|Env/Social Impact||Biodiversity conservation, sustainable use of resources, climate change mitigation, job creation|
The eco.business Fund provides financing and technical assistance to both businesses and their financial institutions that are committed to driving sustainable practices in is priority sectors, such as fisheries and forestry. The Fund currently has $677m assets under management, and 35 partner financial institutions across 14 countries.
The eco.business Fund was initiated in 2014 by KfW Development Bank, Conservation International and impact asset manager, Finance in Motion, with financial support from the German Federal Ministry for Economic Cooperation and Development (BMZ). Finance in Motion has served as Fund Advisor since inception of the fund.
The eco.business Fund provides dedicated financing and technical assistance to local financial institutions and businesses that are committed to implementing sustainable practices in unique ecological landscapes both in Latin America and the Caribbean and in sub-Saharan Africa. The fund aims to promote business and consumption practices that contribute to biodiversity conservation, to the sustainable use of natural resources and to mitigate climate change and adapt to its impacts.
Its four priority sectors are agriculture and agri-processing, fishery and aquaculture, forestry, and tourism, which all consume a lot of natural resources and are greatly affected by climate change.
The eco.business Fund has a blended finance structure, with public investors and donors derisking the model for private institutional investors. It has two separate sub-funds, one in Latin America and the Caribbean and one sub-Saharan Africa. Funding for those two sub-funds comes from:
- The senior share class, which has investment from development finance institutions and private investors, such as Calvert Impact Capital
- Its junior share class, which has three investors: the UK government’s Department for Environment, Food and Rural Affairs (Defra), the German Federal Ministry of Economic Cooperation and Development (BMZ) and the EU
eco.business Fund also has some subordinated note holders, which are a mix of private and Development Financial Institution (DFI) investors. eco.business Fund’s development facility, the separate entity that provides technical assistance, is funded by public donors: BMZ, the UK’s Department of Farming and Rural Affairs, the Development Bank of Austria (OeEB) and the EU.
Investments in local financial institutions
The Fund then invests this money, either through senior or subordinated loans.
It predominantly provides senior debt to local financial institutions that are committed to the Fund’s mission and which have the capacity to reach the businesses that implement sustainable practices. “We mostly work with financial institutions because that’s a hyper regulated industry and that’s what we know best,” says Sandra Abella, Director at Finance in Motion, and Fund Director for the eco.business Fund.
In April 2021, for example, the Fund provided an investment of $10 million to Co-operative Bank of Kenya (Co-op Bank), one of the leading commercial banks in the country. The subordinated loan will be on lent to sustainably certified agribusinesses, such as those in the coffee, tea, and horticulture sectors, which need financing to enhance sustainable measures in their agricultural practices. The importance of these measures have been highlighted by the challenging operating environment created by the COVID-19 crisis.
By financing certified producers for sustainable measures, the aim is to boost production practices that help to conserve the unique ecological landscape of the country. Examples of these measures include solar and hydroelectric installations for tea factories that reduce reliance on fuel wood, and cold storage solutions that reduce post-harvest losses.
Direct investments in corporates
As well as lending to financial institutions, the Fund also lends resources directly to the Fund’s target businesses. The sub-fund in sub-Saharan Africa also provides financing to real-sector intermediaries, such as commodity buyers or aggregators that have made credible sustainable sourcing commitments. Abella says that the Fund has teams on the ground looking for potential investments in financial institutions or corporates.
However, finding corporates that are big enough to require the Fund’s minimum investment of $5 million in loan finance is tougher. “Our requirements are only met by a few corporates,” she says. “We also do very intense due diligence and not many companies are prepared to face such a process.” Abella adds that, although its sub-Saharan African fund can invest up to 50% of its assets directly in corporates, for its Latin America and Caribbean fund, the limit is 15% of assets. “We do want to do more business with corporates, but in Latin American and the Caribbean, it will always be a small portion of the portfolio,” she says. Corporate investees receiving eco.business Fund financing must either:
- Hold an eligible sustainability standard
- Implement either one of the practices outlined in its “Green List”
- Support a practice fully aligned with the Fund’s mission
Directing lending to businesses that hold internationally recognised sustainability standards is seen as a cost-effective approach to financing sustainable production. This is because the monitoring and verification of sustainable practices is led by certified and independent bodies.
Impact to Date
Since its inception in December 2014, in Latin America alone, the eco.business Fund has contributed to:
- 856,000 hectares of farmland under sustainable management
- 3 million tonnes of CO2 stored by agroforestry activities
- Saved 4.8 million cubic metres of irrigation water
- Avoided 500 hectares of soil erosion and supported 416,000 hectares of farmland that use soil conservation practices
- Avoided 134,000 litres of herbicides
- Supported 625 jobs
Finance in Motion is a signatory of the Operating Principles for Impact Management, and eco.business Fund’s impact management system is aligned with these principles. An independent verification was conducted in 2021 by the consulting firm BlueMark on the eco.business Fund. The verification found that eco.business Fund was strongly aligned with the Operating Principles for Impact Management.
Although it has focused on investing in primary production businesses to date, eco.business Fund will invest throughout the value chain. “We realised during the pandemic how important it was to strengthen local businesses that were providing food to the local population, rather than primary producers, which mostly produce things like coffee and cocoa for the export market,” Abella says.
Another new focus is the sustainable tourism sector, which has been greatly impacted by the pandemic. “There are countries in Latin America like Mexico, Costa Rica, Peru and Ecuador where tourism is a very important component of GDP,” says Abella. “I would say you will see both sustainable tourism and value chain investments in our portfolio by the end of this year.”
On the funding side, eco.business Fund is looking for more public investors in its junior shares in order to add more private investors to its senior share class. “We see a lot of interest from private investors, because we’ve been very successful, we provide a very solid impact framework. We have boots on the ground and we know the markets where we are operating,” says Abella. “I have private investors that are basically waiting to participate in the Fund, but we are at capacity until we can add more investment from public investors.”
She adds that many of these public institutions are not focusing on Latin America or Sub Saharan Africa at the moment and that the European-based institutions in particular are turning their attention to Ukraine. Abella comments “because of our structure, we need more junior capital to continue to grow, so we are constantly speaking with our current investors and trying to look for other sources of funding.”
- Interview with Sandra Abella, Director at Finance in Motion, and Fund Director for the eco.business Fund