Camco invests in activities that primarily contribute to mitigating and adapting to climate change and promote inclusive, resilient and sustainable development. Our investment approach is needs-oriented, with a strong emphasis on improving the profitability and ESG practices of SMEs in growth markets. Many of our funds are structured as blended finance facilities with the aim of using public finance to leverage private capital to the levels needed to scale progress.
Step 1: Identify the investment opportunity
Camco aims to adapt continuously to changing financial markets. We identify investment opportunities in line with:
- The goals of the Paris Agreement to limit global warming below 1.5°C to restrict climate-related risks to human health, livelihoods, food security, human security, water supply and economic growth.
- The goals of the 2030 Agenda for Sustainable Development to eradicate poverty and to build a better future for all people and the planet.
- 2X Challenge’s criteria for gender lens investing (2X GLI) to promote investment in companies that are female-owned and/or female-led and/or employ a substantial number of female employees, and have progressive employment policies and/or products and services that specifically benefit women.
Currently, the financing gap for achieving the 2030 Agenda and funding the global climate transition required to meet the goals of the Paris Agreement is enormous.
According to the OECD and UNCTAD, for example, the shortfall in SDG financing in developing countries worldwide is approximately USD 4tn, with the Climate Policy Initiative estimating that Africa alone requires USD 2.8tn between 2020-2030 to implement its Nationally Determined Contributions (NDCs) to address climate change.
In the Pacific, island nations require USD 5bn to implement mitigation and adaptation measures identified in their NDCs, according to Global Impact Investor Network estimates.
At the same time, female-owned and female-led SMEs worldwide face a USD 320 billion credit access gap, many of which could help to create much-needed innovation to decouple economic growth and environmental degradation.
At Camco, we view investing in local, small-scale projects and SMEs as critical for filling these gaps and for achieving social, environmental and financial progress. This is especially true in emerging markets, since it allows for the swift and cost-effective deployment of innovative technologies and solutions, leading to rapid change. This is supported by World Bank Group data, which shows that SMEs represent about 90% of businesses and over 50% of employment worldwide, thus underlining the great importance of SMEs in economic growth and job creation.
To use the energy sector as an example, small-scale renewable energy initiatives offer a fast and practical way to bring electricity to remote and hard-to-reach areas where establishing a centralised grid would be both time-consuming and expensive. This approach not only addresses the immediate need for energy, but also unlocks the doors to economic and human development, enabling the powering of essential facilities like schools, clinics, agricultural equipment and local businesses.
Furthermore, these projects can adapt more readily to local conditions, making them more robust in the face of the worsening impacts of climate change while improving the resilience of local communities through diversified economic income opportunities.
Step 2: Invest responsibly
Camco engages in responsible investment that incorporates ESG factors into investment decisions to better manage risk and generate sustainable, long-term returns for all investors.
All investment activities that we carry out are governed by Camco's policies and procedures, as well as those applying to the third-party funds that we manage. A significant focus here is on (a) ensuring that investees apply the appropriate policies and processes themselves to ensure environmental and social (E&S) safeguarding and (b) that we maintain appropriate levels of risk management.
Environmental and social safeguarding
Every company and project that Camco invests in through the funds and platforms we manage are required to meet principles listed below, in line with our Environmental and Social Safeguarding Policy.
In addition, investees are required to meet host-country legislation and comply with the International Finance Corporation (IFC)’s
Environmental and Social Performance Standards and the sustainability principles advocated by the UN Global Compact. Camco helps ensure compliance through training and capacity building provided to investee companies and through direct support. Investee companies are also required to establish an ESMS specific for their operations.
- Sustainability: All investees must incorporate E&S considerations into their project designs through project or investee-specific E&S impact assessments (ESIAs) and E&S management systems (ESMSs).
- Do no significant harm: Any financed activity must not cause significant harm to any of the following objectives: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.
- IFC’s mitigation hierarchy: The hierarchy is a planning and management approach for addressing risks and impacts to workers, affected communities and the environment. The hierarchy must be followed in the order of avoidance first, then minimisation, restoration and, finally, offsetting.
- Stakeholder engagement: Stakeholder engagement and information disclosure are essential for designing and implementing sound and sustainable projects and programmes. All investees must establish and implement an ongoing stakeholder engagement plan that allows for any person affected by the project or programme to have a say, and which provides women and men with equal opportunity to take an active part, as well as providing a suitable grievance mechanism.
- Fit for purpose: All investees must adopt a risk-based approach to ensure that E&S requirements and processes are commensurate with the level of risk and nature of their projects.
- Gender equality: All investees must adopt a gender-sensitive approach that identifies social risks and impacts and links corresponding gender risk management measures to activity-level gender action plans. All investees are required to establish a zero-tolerance policy on discrimination, gender-based violence and harassment. Read more about Camco’s approach to diversity here.
- Human rights: All investees must design and operate their businesses in a manner that promotes, protects and fulfils universal human rights as recognised by the United Nations, and must respect workers’ rights in line with the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work, prohibiting forced, compulsory and child labour.
- Indigenous peoples: The design and implementation of investees’ activities must be guided by the rights and responsibilities set forth in the United Nations Declaration on the Rights of Indigenous Peoples.
Risk management
Camco seeks commercially viable investments with sustainable impact. We believe high impact yields good returns along with an improved risk profile. Our risk appetite is designed to ensure we deliver on our strategic objectives in ways that remain true to our purpose and principles, putting investors, stakeholders and communities at the centre of our decision-making.
Camco’s company-wide risk management approach is embedded in our Risk Management Policy and Procedures, which is overseen by the Board through its Audit and Risk Committee, with day-to-day implementation managed by the Head of Risk.
The Policy identifies and outlines policies and procedures to manage strategic, business, financial and operational risks.
Climate change risk is defined as a “wide range of risks associated with physical changes in the climate, resulting in further impacts to people and communities, infrastructure and equipment, investment performance and the potential for reputational damage to Camco and its investors”. Both climate change and E&S risk considerations (including the potential for climate risks to translate into financial risk for Camco or for the funds it manages) are incorporated into strategic, business and operational risk assessments.
Step 3: Govern well
Camco’s approach to governance is grounded in our commitment to integrity, accountability and transparency and in our commitment to ethical conduct. By upholding our principles, we strive to maintain the highest levels of governance excellence, driving sustainable growth and value creation for all our stakeholders.
Our roles and responsibilities explained
The Board of Directors (Board) sets our strategy and reviews its implementation, including climate and impact-related opportunities and ESG and impact performance of Camco’s contractual obligations. The Board has three standing subcommittees:
- The Sustainable Business Committee monitors the social, ethical and sustainability performance of Camco and its subsidiaries and funds under management. Also ensures disclosure is aligned with UN Global Compact and the Task Force on Climate-Related Financial Disclosures (TCFD) and reviews Camco’s impact reporting.
- The Audit and Risk Committee oversees and reports to the Board on all of Camco’s audit and risk matters, including climate risk.
- The Culture, People and Remuneration Committee reviews and makes recommendations in relation to Camco’s culture and personnel management.
Camco’s Board and committees are provided with quarterly updates on progress made towards climate and impact targets, and fund-specific performance fees are tied to these targets.
The Investment Committee reviews proposed investments against investment strategy and recommends them to the relevant decision-maker. It also monitors the execution and performance of investments, including impact and ESG performance.
Camco’s senior management team recommends our strategy to the Board and manages its implementation.
Functions
Risk: Ensures that all investments are in line with Camco’s Risk Management Policy and Procedures and its Risk Appetite Statement. Responsible for ongoing monitoring, review, reporting and evaluation of the efficacy of risk mitigating actions already implemented to manage risk at both individual transactions level and the portfolio level within each fund.
Impact: Ensures all investments are in line with Camco’s Environmental and Social Safeguarding Policy and aligned to the company’s impact objectives. Responsible for the environmental and social due diligence of investments, as well as assessment, monitoring, reviewing, reporting and evaluating the climate and sustainable development impacts of investments.
Legal: Responsible for managing legal risk within the Camco group through providing transaction support, corporate governance and legal advice, and carrying out legal due diligence and know-your-client procedures of all transactions prior to investing. Ensures compliance with Camco’s polices and the individual funds’ reporting and audit requirements.
Investment and portfolio management: Responsible for originating and investing in a sustainable, low-carbon future in line with Camco’s investment strategy.
Camco’s ESG governance structure
Step 4: Create sustainable returns
Camco’s purpose and corresponding strategic objective is to deliver sustainable returns to our investors, alongside climate and impact outcomes. Allocating capital to more sustainable growth opportunities correlates with higher returns and a strong triple bottom line, and better ESG performance corresponds naturally with a reduction in downside risk.1
We adopt a needs-based investment approach to provide projects and businesses in emerging markets with access to finance, including by offering small ticket-size investments, where funding opportunities are typically limited to the largest and most bankable companies and projects. We also use public finance to de-risk and leverage commercial funding to support returns and accommodate for high perceived risks, including the uncertainty of the policy and regulatory environment.
Through our work, Camco has identified the following four approaches as the most effective ways of improving risk-adjusted returns and transforming the scale of private climate finance in emerging markets:
- Increase the volume of projects suitable for investment. Only by generating a critical mass of successful projects in emerging markets will investment flow at the necessary scale and both actual and perceived risks subsequently be reduced.
- Use and innovate financial structures well-known to the finance industry. Making familiar structures applicable to the challenging context of emerging markets increases investor comfort with the evolving asset class around clean infrastructure.
- Unblock the regulatory and/or policy barriers to market and sector-specific ecosystem development. The adjusted risk of investment in countries with an unstable business environment is significantly higher compared to those with table environments and can be a major deterrent for investors.
- Work as much as possible with local developers who know the context. Emerging markets each have their own culture and business norms and local developers can navigate these, reducing risk.
