Green Deals Via Offshore Financing

The British Virgin Islands (BVI) offer African fund managers exciting opportunities to raise funds for green projects. Nicholas Kuria, counsel at Conyers, explains how.

Climate change is the challenge of our time. Within global finance, “green investing” is reshaping conversations and investment priorities. In recent years, the allocation of capital to greener purposes has grown rapidly.

Green bonds now account for 8-10% of global bond issuance. According to the Climate Bonds Initiative, 2021 was a record year for green bond issuance; the market hit $350bn. That said, Africa has been the slowest adopter of green bonds. Research by the Brookings Institution shows that the continent constituted a mere 0.4% of the global green bond market between 2007 and 2018.

So, what’s to be done?

“Africa’s demographics and increasing foreign direct investment provide a compelling backdrop for private capital investment,” says Nicholas Kuria, a counsel at law firm Conyers based in the BVI. “Finance and investment can either harm environmental outcomes or help them. We have a window of opportunity and it’s important to get it right.”

Green project finance (GPF) is any structured financial activity that’s created to ensure a better environmental outcome. This includes loans, debt mechanisms and investments that encourage new project developments that limit harm to the planet. In the African context, investment deficits in sectors such as infrastructure, and growing opportunities in sectors such as agriculture, will drive investment.

For African fund managers and service providers, GPF offers the chance to make a positive difference to the climate conversation, whilst delivering a return for investors. But there are challenges too. Finding an appropriate way to structure GPF deals across jurisdictions can be problematic.

“Generally, we'll have investors in multiple jurisdictions looking to come together to find a neutral platform to enable them to invest,” Kuria explained. “Typically, this will involve clients setting up a tailored, flexible and low-cost special purpose vehicle to meet their specific investment requirements.”

For many investors, the BVI has been their jurisdiction of choice for a number of reasons. For a start, it’s recognised for its tax neutrality. BVI investment vehicles are also recognised globally and are often listed on international exchanges in New York and London. From a GPF fundraising perspective, that’s ideal.

For the uninitiated, skilled legal counsel is vital throughout the process. Conyers is active in giving legal advice on the most appropriate capital structure and governance issues. “We have a long, distinguished track record as one of the pre-eminent firms in the BVI for advice on corporate and finance matters,” Kuria said. “We provide that legal expertise alongside our Conyers Trust arm, which is the entity that sets up and manages investors’ special purpose vehicles.”

As the green revolution marches on, Kuria cautions against some possible investor blind spots. “Currently, there's no globally accepted reporting mechanism for ESG investments. That presents a significant risk if a fund is exaggerating its ESG credentials,” he concluded.


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