The Emerging Africa Infrastructure Fund (EAIF/the Fund) is backing green towers for more than just their positive effect on the environment. Green towers enable network investment to reach further into Africa’s interior to bring more people online, and reduce telecom’s dependence on Africa’s dangerous roads. Like many other investors, they are incorporating Environmental, Social and Governance (ESG) factors into their investment decisions, and towercos are responding.
EAIF describes itself as a “patient lender.” While it operates on commercial terms, it does so with greater flexibility then normally found in corporate debt markets. It can lend from US$10 million to US$50 million and occasionally more. It normally lends in US$ or Euros, though local currency lending can happen. Its “patient lender” approach – of loan periods up to 15 years and sometimes more – is particularly helpful to developers who need time to generate steady income or those operating in fragile states.
EAIF is one of six PIDG member businesses that operate as stand-alone entities. Frequently, two or more PIDG companies will come together tohelp projects overcome the financial, technical or environmental challenges, creating investment-ready, bankable infrastructure opportunities. An example of “one PIDG” is Acorn Housing, an affordable housing development in Nairobi that saw EAIF lend US$12.7 million, GuarantCo provided a partial credit guarantee and PIDG Technical Assistance’s role was a partly-refundable grant to help meet the costs of fundraising through a successful bond issue.
PIDG and its businesses are distinguished from almost all other development finance institutions in that it they are focussed solely on infrastructure. EAIF itself is also singularly focussed on being a specialist in raising corporate debt for African infrastructure projects, mainly promoted, built, owned and run by the private sector.
Recently EAIF anchored Helios Towers’ US$750mn bond issue. The fund is managed by Ninety One, formerly Investec Asset Management. TowerXchange speaks with Sumit Kanodia, Investment Director at Ninety One, and Christoph Scaife, its ESG specialist.
Join our free session on telecom energy, Greening the Network on July 15th. More details here.
TowerXchange: What is the general thesis for lending to developing world towercos?
Sumit Kanodia, Investment Director, Ninety One:
Our approach has evolved over time, with ESG concerns playing a larger, more explicit, role now than previously. When we started to look at towercos, we were interested because we believed tower sharing would enable greater telecoms investment. Operators opening up their networks to other operators supported increased demand, more subscribers and enabled operators to upgrade technologies. By making the African telecom sector more cost effective, towercos reduced the cost of rollout for MNOs and thus reduced the overall charge payable by subscribers.
In that way we see it as a naturally sustainable business. And because of the long-term contracts towercos have with Tier 1 MNOs the investment is also attractive from a credit point of view. Now towercos have evolved and are able to access capital markets themselves, as we saw with Helios Towers’ bond issuance in June, our role is subtly changing. Now we have a more explicit focus on sustainability and ESG.
Christoph Scaife, ESG Specialist, Ninety One:
Africa presents a particularly unique challenge. The geography is vast and villages and towns are spread out, making investment in infrastructure more difficult with economies of scale not easily to materialize. Traditionally, development would have required these areas connected by copper and fibre cable, however, that is not what is happening in Africa. Towercos can help bring development to these isolated communities through self-sufficient towers. The decreasing cost of solar enables companies to connect distant communities without being reliant on a fuel supply chain or poor transport inter-connecting city infrastructure. That is what we want to encourage through our ESG work.
TowerXchange: How can towercos augment their business model to become more ESG-friendly?
Christoph Scaife, ESG Specialist, Ninety One:
Let’s put Governance to the side for the time being and look at the Environmental and the Social as Corporate Governance is a conversation that has been explored and fully understood.
By greening towers through solar you’re reducing your reliance on the physical fuel supply chain. That enables towers to operate more independently, and it means you can expand networks further, while reducing reliance on Africa’s poor quality roads. Road traffic accidents are a significant problem in Africa and the maintenance and refuelling of telecom towers contributes to that. In fact, while climbing a tower may seem dangerous, the journey to the tower is a much larger contributor to occupational health and safety (OHS) risk.
A green tower that is reliant on solar is a tower which can be placed further away from an existing network. An expanded network utilising less fuel and safer operations is the main goal. As well as minimizing Scope 1 emissions from generators producing CO2, minimising Scope 2 emissions from vehicle emissions is an added benefit. TowerXchange: Many ESG initiatives also have a commercial rationale, where do you feel sustainable investing can add value?
Christoph Scaife, ESG Specialist, Ninety One:
There has been a commercial drive at many towercos to replace diesel with solar, but so far the logic has been predominantly commercial. The total cost of ownership for solar at a remote site is often much lower than for one powered by diesel gensets because of the reduced cost of operation. If a firm can see the benefits for itself of reducing unnecessary infrastructure for fuel transportation, then that is a good thing.
EAIF and PIDG want to highlight something which has been under-discussed – the interlinking of the supply chain operations and how safe and secure a company is. Road traffic accidents are part of how safe and secure a tower is, and affect how that tower sits within its communities. Towercos are lightly staffed organisations, but their sphere of influence and custodianship extends beyond their own walls, and that means making sure their contractors are safe and secure.
EAIF can help companies focus on their internal operations and shed light on their OHS. We are helping companies to report on what it is they do and how they do it. That requires recording how many kilometres they expect employees and contractors to drive; how often they perform maintenance; how many towers are in conflict zones; how they look after their employees; and how they maintain a social licence to operate.
Compare a telecom tower to a mine. A mine has four border walls and you can monitor and measure what happens within them. A telecom tower does not have that because towers are spread out over a very large geography and much of the supply chain operators off site, but you should expect the same monitoring of OHS. Mining companies protect people, and a towerco should too.
TowerXchange: What are the general conditions of investment and how does ESG fit into that?
Sumit Kanodia, Investment Director, Ninety One:
It is a constantly evolving field. We work in tandem with PIDG to understand and address the ESG impacts of changing technologies, newly identified threats and new information coming from the market and expert sources. We are keen on sharing knowledge and learning from others.
An ESG assessment is built into the conditions of our lending. We bind companies to a set of performance standards and base our standards on the IFC Performance Standards:
1. Assessment and Management of Environmental and Social Risks and Impacts
2. Labor and Working Conditions
3. Resource Efficiency and Pollution Prevention
4. Community Health, Safety, and Security
5. Land Acquisition and Involuntary Resettlement
6. Biodiversity Conservation and Sustainable Management of Living Natural Resources
Our investment decision making on an ESG assessment is an iterative process, we go back and forth. The ESG assessment is a module within the credit process, and we wouldn’t go to credit unless we were 95% satisfied things are right. There is a separate ESG paper to complete, and a separate ESG person in the pitch. If our ESG person says “we cannot invest here” then it would be impossible to close a deal.
Christoph Scaife, ESG Specialist, Ninety One:
We don’t want that to happen, but it has happened in the past at the EAIF.
As part of the investment we will link our continued support to performance standards between employees and OHS. We want staff to be employed in a safe working environment with the right knowledge on how to be safe. We evaluate the quantitative and qualitative risks and stick within an acceptable tolerance of performance.
TowerXchange: How much does ESG just require codifying the already existing benefits, how much is it setting up new initiatives?
Christoph Scaife, ESG Specialist, Ninety One:
You can codify your operations quickly, that’s not difficult, though of course it needs attention to detail, skilled people and understanding of why reporting is much more than box ticking.
But the implementation is where things become difficult, especially for companies which operate over various jurisdictions like most towercos. You can measure outcomes, but promoting and managing change in countries with very different facts on the ground is hard. Lots of companies have slight variances in how they operate market to market even if they expect the same standards and quality. The devil in the detail in implementation across large geographies.
Investors will be continually applying for more transparency over the next 5-10 years to ensure there is adequate disclosure. Investors can only be constructive if they know what they can and cannot do. It is very hard for those in London or Cape Town to make judgment calls without disclosure. This may sound rudimentary but it is the first point in which investors have the ability to say this is a good or a bad company.
Codifying and reporting properly allows for active engagement by investors. We are able to provide guidance and suggest where improvements need to be made. For example, we might suggest a firm bring in external consultants to look at reporting and identify failing systems. Or we might suggest that to take things seriously they need to employ someone full-time as an OHS manager.
TowerXchange: How important is it for towercos to address ESG? What capital is unlocked by having a solid ESG strategy?
Christoph Scaife, ESG Specialist, Ninety One:
Seven years ago, ESG related issues were used as an exclusionary criterion, so certain bad actions would preclude some investors from backing a project or firm. You also had investors who didn’t care about ESG and didn’t care what sort of company they invested in. But in 2020 I would say that over two thirds of investors were critically looking at the sustainability of a company.
In ESG terms, sustainability means development potential, the long-term profitability of a company and a social licence to operate.
We are now hopefully entering a post-COVID19 world. What you have seen is that companies with good ESG strategy have performed better in the downturn than those without. Guaranteeing a decent return even in the harshest of times is something investors will really prize.
As we enter a new period of uncertainty good governance and a social licence to operate will be important, those firms will survive and have better access to capital.
TowerXchange: For towercos without an ESG strategy, or who are looking to develop one, where should they begin their work?
Christoph Scaife, ESG Specialist, Ninety One:
There are seven key areas to focus on:
1. Uptime of towers not on the grid and the scope for solar
2. Proportion of your portfolio which is off grid
3. Your reach into non-urban areas, and your cross-subsidy model for those sites
4. Policies to address carbon emissions
5. Policies to address Occupational Health and Safety
6. Having technical teams in place to manage your OHS and carbon plan
7. A largely independent board
Sumit Kanodia, Investment Director, Ninety One:
If you are monitoring things in these areas and actively trying to improve then you are already doing the right things.
Join our free session on telecom energy, Greening the Network on July 15th. More details here.
About EAIF
The Emerging Africa Infrastructure Fund provides a variety of debt products to infrastructure projects promoted mainly by private sector businesses in Africa and parts of the Levant. The fund helps create the infrastructure framework that is essential to sustained economic stability, business confidence, job creation and poverty reduction. It has to date supported 75 completed infrastructure projects across nine sectors in over 20 African countries. As of the end of 2018, the fund had invested US$20.082 billion. EAIF is part of PIDG. EAIF was established and substantially funded by the governments of the United Kingdom, The Netherlands, Switzerland, and Sweden. It raises its debt capital from public and private sources, including Allianz, the global insurance and financial services company; Standard Chartered Bank; the African Development Bank; the German development finance institution, KFW, and FMO, the Dutch development bank. EAIF is managed by Ninety One.
About PIDG
The Private Infrastructure Development Group (PIDG) is an innovative infrastructure development and finance organisation which encourages and mobilises private investment in pioneering infrastructure in the frontier markets of sub-Saharan Africa and South and South-East Asia to promote economic development and combat poverty. PIDG delivers its ambition in line with its values of opportunity, accountability, safety, integrity and impact. Since 2002, PIDG has supported 157 infrastructure projects to financial close and provided 209 million people with access to new or improved infrastructure. PIDG is funded by six governments (the UK, the Netherlands, Switzerland, Australia, Sweden, Germany) and the IFC. PIDG can provide technical assistance and capital grants to the PIDG companies to meet a range of needs associated with an infrastructure project’s life-cycle. PIDG can also provide up-front viability gap funding grants to support PIDG projects that require concessional funding to make a project with strong development impact financeable.
About Ninety One
Ninety One is one of the largest third party investors in private equity, credit, public equity and sovereign debt across the African continent. The Emerging Africa Infrastructure Fund (EAIF) is managed by and fully integrated into Ninety One’s African investment platform. Ninety One manages the entire process on behalf of the EAIF. It markets the fund, seeks projects, evaluates loan applications, including due diligence, manages transaction administration and monitors the loan portfolio. Since May 2016, when it was awarded the management mandate, Ninety One and its EAIF team have closed over 20 infrastructure transactions with a capital value of USD 650 million. The team also led EAIF’s last round of fundraising, raising US$385 million, including US$100 million from Allianz Global Investors and US$50 million from Standard Chartered, a long-standing lender to EAIF. Ninety One is an independent, active global asset manager listed on the London and Johannesburg Stock Exchanges. Established in South Africa in 1991, as Investec Asset Management, the firm was a pioneer in emerging markets in Africa. In 2020, almost three decades of organic growth later, the firm de-merged from Investec Group and became Ninety One. Today, Ninety One offers distinctive, active strategies across equities, fixed income, multi-asset and alternative investments to institutions, advisors and individual investors around the world.
