Kwang Poon (Chairman, Africa Europe Asia Business Council): “For Mauritius, it is literally a question of survival for the IFC to go green”
With climate change posing existential threat to Mauritius, Kwang Poon is of the opinion that Mauritius needs to lead the way by leveraging its existing status as a reputable IFC to promote the climate agenda. Through the Africa Europe Asia Business Council that he has founded and is chairing, Kwang Poon presented in March a concept note for the positioning of Mauritius as a green finance gateway. Still in its infancy, and in need of a conducive environment and direction to kickstart, the CFC project ambitions to place the carbon credit exchange at the core of its initiatives.
At the penultimate Public-Private Dialogue, you submitted your proposal for the positioning of Mauritius as a Green Finance Gateway. Has this idea gained ground during the various working group meetings held so far, and in particular during the last Public-Private Dialogue held in March?
Since the Africa Europe Asia Business Council (AEABC) has submitted the Concept Paper on the Green Finance Gateway (GFG) to the Ministry of Finance and Economic Planning on 24th January 2022, I have noted that the government has fasttracked the Variable Capital Companies Bill, which Cabinet has approved during its meeting on Friday the 16th April 2022. The players in the Mauritius International Finance Centre (IFC) have by and large welcomed this development as it enhances the competitiveness of the financial services sector by diversifying the product base of the Mauritius IFC. It is worth noting that the VCC Act is in line with the decennial blueprint for Financial Services Sector.
From your participation in the public-private dialogue in the context of the 2022-2023 Budget consultations, would you say that the green transition of the Mauritian economy and the decarbonisation of the most polluting and energy-intensive sectors of activity are high on the agenda of the business community and the government?
mmunity and the government? I do feel that the government is giving due consideration to promoting the green economy and sustainable development, although there is always room for improvement. In particular, the Minister of Energy and Public Utilities, Joe Lesjongard, unveiled the roadmap for the energy sector with the ambitious target of attaining 60% of renewables in the energy mix by 2030. Back in 2021, the objective was already publicized to phase out the highly polluting coal for electricity generation by 2030. In addition, I understand that production of electricity via renewables and less polluting sources will be further incentivized and democratized.
In addition, I note with great pleasure that the Sector has taken the initiative to go green. Initiatives such as sustainable tourism, eco-tourism have been put forward in order to reduce the carbon footprint of the travel industry.
The Mauritian jurisdiction has been removed in March from the European Union’s list of highrisk third countries. Does it make sense in our renewed marketing campaigns to reaffirm and promote its status as a sustainable-led and reliable international financial centre?
‘Green as new gold’ is now the leitmotiv in the financial world. Just to take one example, the market for so-called green bonds, or more generally sustainable bonds, hit a record level of USD 650 billion in 2021. This represents nearly 10% of all bond issuance worldwide and a 32% year-on-year growth from 2020. By 2019, the cumulative value of sustainable bonds already exceeded the USD one trillion mark and the value of annual green bond issuance is set to exceed the trillion-dollar mark by 2025.
“By 2019, the cumulative sustainable bonds already exceeded USD one trillion mark and the value of annual green bond issuance is set to exceed the trillion-dollar mark by 2025”
Climate change is priority action area and every country, every sector, every company is expected to do its part. It is clear that the fight against Climate Change will go up crescendo and is here to stay for the next few decades.
Corollary to the fight against Climate Change, we have increased emphasis on Environmental, Social and Governance (ESG) issues which investors are paying greater attention to. Pension Funds, Sovereign Wealth Funds and other large institutional investors are looking for green investment and evaluating these opportunities within an ESG framework.
Therefore, it makes sense for Mauritius to position itself as a Green Finance Gateway and to seek to capture a share of this compelling and fast-growing market.
Green finance has the potential to foster virtuous investments and stimulate low-carbon industries, companies and solutions. Is the environment sufficiently favourable, the diversity of banking and financial solutions sufficiently varied, and access, especially for SMEs, sufficiently wide for the local financial centre to act as a gateway?
In the Concept Paper, I have proposed the Government to come forward with fiscal incentives with regards to green financial instruments in line with the Green Transition. The package of incentives should be formulated following a benchmarking study comparing various jurisdictions in order to come up with a competitive and compelling offering.
At the local level, we expect the local banking institutions to play along to offer Green Loans and other products with more attractive terms. We already note the existence of attractive loans for the purchase of electric or hybrid vehicles and the installation of PV systems, but more can be done in promoting the Circular Economy, for example.
These measures are on the consumer side and we also need products on the producer side. Therefore, facilitating financing to entrepreneurs with a viable green project would be able to orient the economic recovery towards Sustainable Development Goals. It is thus heart-warming to see that the banks are picking up on the trends and going green.
To implement the identified climate change mitigation, compensation and adaptation measures, Mauritius plans to invest $5.5 billion by 2030, but needs support from developed countries or dedicated international funds. Could the Green Finance Gateway be the alternative to conventional assistance and credit lines, like G2G credit lines?
I would say the GFG would rather complement the traditional financing rather than replace it. There are many ways to view the GFG. First, the GFG is a new strategic positioning and branding of our IFC in light of current global trends. Then, it modifies the DNA of the financial sector to align it with the carbon-neutral and sustainable future that we are aspiring to.
At the Business Council level, we are prepared to bring our humble contribution but the government is responsible for the setting of the general direction, setting up policies and creating a conducive environment to promote the Green Transition.
Your concept for a Green Finance Gateway includes the creation of a green fund and an alliance of pro-ESG investors, among others. As the bearer of this vast and complex programme, the AEABC needs what level of technical and financial support to carry it out?
The AEABC is engaging with various stakeholders to drive the GFG forward. The idea for the GFG was hatched following the UN Climate Change Conference in Glasgow (COP26) which took place from 31 October 2021 to 13 November 2021. As you have rightly noted, the Carbon Credit Exchange will form the pièce de resistance of the GFG. It will be based on a carrot and stick system whereby polluters will be taxed while green entrepreneurs will be rewarded, thus creating a virtuous circle. Initially, we can pilot the project on a small scale locally before propagating it regionally.
Mauritius, being a Small Island Developing State (SIDS), experiences the negative effects of climate change in a direct manner through severe coastal erosion. In fact, the Mauritian PM, Pravind Jugnauth, has highlighted that climate change may even pose an “existential threat” to Mauritius. Other small island states such as the Maldives are also experiencing the same issues in an even more acute manner.
Therefore, Mauritius cannot remain a spectator in the side-lines in the fight against Climate Change. It has to step up and lead the way by leveraging its existing status as a reputable IFC to drive the Climate Agenda and by speeding up the decarbonisation drive. For Mauritius, it is literally a question of survival for the IFC to go green.
When could the initiatives under the GFC realistically be rolled out?
We are still in the early stages and performing evangelization. However, the Financial Services Sector is looking forward to positive signals in the upcoming National Budget 2022-2023. Incorporating the Green Finance Gateway into an amended financial sector blueprint will put us in good stead vis-à-vis realizing the vision painted in the Concept Paper.
If all stakeholders move in the same direction and work together, we hope to create enough momentum to reach the tipping point for going green.
The Global Gateway, a funding plan of up to 300 billion euros extended to 2027, promised by the European Commission at the last Europe-Africa Summit, aims to support clean and green investment projects in Africa and encourage physical connection to achieve the ambitions of the ZLECA in particular. Can it be a potential funder for the AEABC project?
Announced on the 1st of December 2021 during the EU-Africa Summit, the Global Gateway, with its emphasis on green development and viable infrastructure, to name a few, would like to follow the principles of good ESG.
I am pleased to add that the AEABC is ready and willing to partner with all organisations, be it at national or multilateral level, which work towards a greener and more sustainable world. Other than the Global Gateway (GG) by the EU, it is worth highlighting similar programs such as the Build Back Better World (B3W) by USA, the Green Belt and Road Initiative (BRI) by China and the International Solar Alliance (ISA) by India.
According to the Africa Europe Asia Business Council (AEABC) concept note, the project to register Mauritius as a gateway to green finance will focus on Africa as a land of opportunity. Could investment flow through Mauritius via this project to finance sustainable and inclusive projects in Africa?
Electric Vehicles (EV) are seen as key development to reduce emissions and achieve carbon neutrality. One of key components of an EV is the rechargeable battery and certain minerals such as Lithium, Cobalt, Nickel, Graphite, Manganese, which go into its manufacturing, have become highly strategic and actively sought after. Some of the recent acquisition of mines in Africa aimed at supplying the EV industry are actually carried out via the Mauritius IFC.
At the same time, the GFG should take the initiative to promote responsible and sustainable ESG frameworks with respect to these deals. This ‘label of quality’ will then attract more environmentally-conscious institutional investors to the Mauritian GFG.
Another example is the natural gas sector which some African countries, notably Mozambique which is close to Mauritius, possess in great abundance. Thus, they have requested some flexibility in the transition away from fossil fuels in order to reap the full economic benefits from their natural gas reserves.
‘I see Mauritius having the potential to become a financing conduit for green energy production in Africa which has a huge pent-up demand for electric’
Given the Ukraine-Russia conflict, several Western countries are looking to wean off Russian gas and are looking to diversify their importation of gas sources. Amidst every crisis is an opportunity. Under the GFG umbrella, such trade and investment deals between Africa and the West can be structured in the Mauritius IFC
Furthermore, I see Mauritius having the potential to become a financing conduit for green energy production in Africa which has a huge pent-up demand for electricity. For instance, an Independent Power Producer (IPP) with photovoltaic (PV) plants in multiple geographies in Africa may set up its regional HQ in Mauritius. The regional IPP can leverage the Protected Cell Company (PCC) structure to optimise its operations, secure financing under attractive terms or exchange its Carbon Credits in the Mauritius IFC.
I believe that Green Financing has a bright future ahead and incorporating the GFG into our IFC will better position Mauritius to seize a slice of the pie.