First lesson: A robust climate policy is necessary to align the portfolio to the Paris agreement.
The team invested in a portfolio consistent with SDG 7 and SDG13 and aligned with the Paris Agreement. STOA rejected several projects that were not aligned with its climate policy since its creation. This was possible since this discussion on Paris alignment took place at a very early stage of project cycle in order to preserve relationships with clients.
Second lesson: An ambitious climate co-benefits target is necessary.
Initially set at 30 %, this target was increased to 50 % in 2020. Currently, 74% of projects include inherent climate benefits.
| Date Policy Established | STOA’s Climate policy was implemented since STOA’s creation, with an initial goal of financing 30% of projects with inherent climate benefits and to align its portfolio to the Paris Agreement. In 2020, we set our sights higher, with a goal of ensuring that at least 50% of the projects we finance have inherent climate benefits. | How established | STOA’s Climate policy derives from AFD’s strategy. As climate is a strategic pillar of the fund, a dedicated training on climate change was given in November 2018 by Benoit Leguet, managing director of I4CE to embark all STOA’s employees on this issue. |
| How implemented | STOA inherited AFD’s climate ambitions and standards, and in this respect, benefited from AFD’s climate tools and procedures. This package was adapted and implemented internally by the E&S team and checked and approved by the board. | Additional capacity required (e.g. staff, resources, other) | STOA’s Climate procedure is the result of the E&S team’s work. |
| Monitoring, reporting tools | Once in the portfolio, projects are monitored every month on E&S aspects and carbon footprint is evaluated every year. |
Introduction to the Policy/Approach/Tool
From its inception, STOA was conceived as an innovative financing tool for the development of the African continent, the fight against climate change and, more globally, impact investing. As such, the fund has inherited AFD’s ambitions and standards regarding climate issues. Our Climate policy is the result of these ambitions.
STOA’s Climate policy is part of a larger framework of commitments, which include impact objectives (measured by Accessibily, Functionality and Cleanness KPIs) and our E&S procedure. Our climate policy was designed to help us achieving our climate objectives, i.e. to finance at least 50% (30% initially) of projects with inherent climate benefits, and to build a “Paris Agreement” portfolio. Our climate policy is aligned with the MDBs-IDFC Common Principles for Climate Mitigation and adaptation Finance Tracking.Our climate procedure is subject to amendments, as strategic positions regarding climate issues can evolve with scientific knowledge progress and institutional perspectives.
Development and design
STOA inherited AFD’s climate ambitions and standards, and in this respect, benefited from AFD’s climate tools and procedures. This package was adapted and implemented internally by the E&S team and checked and approved by the board.
Before being financed, each project is submitted to STOA’s Investment Committee. Climate analyses (carbon footprint, climate context analysis, carbon lock-in, vulnerability,) are systematically presented to the Investment committee for discussion.
For each project, we evaluate its consistency with the Paris Agreement objectives. Besides the exclusion of projects related to coal-based and oil and gas energy solutions, this framework enables us to identify investments that are inconsistent with STOA’s strategy because of their high emissions and/or their non-alignment with the Paris Agreement.
Implementation
Our climate screening process for projects is based on three key steps:
- Calculating the project’s climate footprint, thanks to the AFD Carbon Footprint methodology.
- Evaluating the project through a selectivity matrix considering the country where the project takes place, and the level of the project’s carbon emissions.
- When the project’s climate impact is potentially too high, conducting a detailed analysis of the project’s country climate context, which includes a study of the project’s compatibility with the country’s low-carbon strategy, an assessment of the project’s vulnerability and resilience and a qualitative estimation of the carbon lock-in risk.
Experience and impact
Our current portfolio is well above this target as we invested 74% of our funds in projects with inherent climate benefits, equivalent to 201 Million euro. Total cost of these projects is 4,47 bn euro, illustrating the leverage effect of STOA’s equity investment.
STOA’s Climate procedure implementation has been instructive in many respects. Our experience reveals that a deep understanding and adherence to our climate procedure among relevant stakeholders is essential to ensure the fluidity and efficiency of investment process along projects life cycle.
In 2020 our investments led to the following impacts:
- 2,154,000 net T CO2-eq. avoided each year*
- €158 million committed to renewable energies
- 1,748 MW in renewable energy capacity to be installed
- 201 Million euros invested in projects with inherent climate benefit. Total cost of these projects is 4,47 bn euro, illustrating the leverage effect of STOA’s equity investment.
*Emissions calculated with the AFD’s Carbon Footprint Tool, based on the total capacities installed and estimates for the whole project cycle
Materials
Our climate policy is available on STOA’s website : https://www.STOAinfraenergy.com/en/climate-strategy/.
Additional information can be found on our Impact report 2021.