As the climate crisis intensifies, the urgency to finance and scale innovative, climate-smart solutions has never been greater. In this fifth episode of our spotlight series, we explore how impact investing is uniquely positioned to accelerate climate resilience in vulnerable regions, particularly through the support of early and growth-stage enterprises.

We speak with Charles Nyadero, Investment Manager at Kenya Climate Ventures (KCV), who shares a wealth of insight from KCV’s frontline experience. Charles delves into what climate resilience means for investors, the financing barriers facing climate-smart and gender-inclusive enterprises, and how impact capital, when deployed with intentionality can unlock the growth of locally driven innovations.

From hydroponic farming in Kenya’s arid zones to solar-powered cold storage and gender-smart finance strategies, this episode offers a powerful look at the intersection of finance, innovation, and community impact. Whether you are a funder, policymaker, entrepreneur, or ecosystem player, this conversation provides actionable lessons and bold perspectives on building a low-carbon, resilient future starting now.

1. From your perspective, what does climate resilience mean in the context of early and growth-stage investments?

From an investor perspective, three things are important in understanding climate resilience into investments in early and growth stage climate smart solutions, i.e. risk and adjusted return, illiquidity of investments and mastering the emerging technologies unit economics as we I will further explain.

Early and growth stage climate enterprises lack track record and detailed historical information that support risk identification and complete assessment to develop underlying risk mitigants unlike later stage businesses. Climate smart technologies like solar powered irrigation system or cold chain are not only new in the market but also the business models continue to evolve which creates uncertainty in modelling risk adjusted returns as they remain vulnerable to macro economic challenges, climate and business risks. In this regard an investor must sometimes be willing to take a catalytic position to the extent of being the first investor into the enterprise and willing to accept concessional or lower returns from the investments.

Secondly, it’s important to understand that investing in climate smart solutions are quite illiquid, example of investing in nature-based solutions like agroforestry or agriculture technologies that requires patient for a period of 7-10 yrs. Developing crop trees orchards like Macadamia or wood tress for carbon sequestration and reforestation requires 10 yrs to start earning stables returns. This brings the liquidity challenge away from the market that is used to short term liquid investments that you can invest today and chose to divest in a short period of time. This continues to be compounded by lack of secondary market for exiting most investments hence the investor must be patient until end of the period. This creates the need for blended capital where patient philanthropic capital can be blended along side the private capital. The philanthropic capital can provide base for attracting institutional long term private capital to guarantee long term investments in early and growth stage businesses, which can further support patient capital deployment through instruments like equity and convertible note.

Mastering the unit economics of the emerging technologies, will guide in understanding the commercial viability and level of scale of the proposed solution. To attract private capital that requires guaranteed return, the business case must be convincing to avoid bleeding the investors capital. This requires continuous deep dive into the technology and understand how money goes into it and how it generates cashflows for sustainability. From solar home systems, agtech digital platforms to waste and water management technologies, the entrepreneurs must clearly provide the business case, path to sustainability and ways of generating profits to guarantee its growth.

Climate resilience requires that we are building capacity and momentum to with stand potential physical and transitional climate risks like flooding, drought, changing adaptation and mitigation policies and technologies. It’s the path to reducing vulnerability to climate crisis and avoid losing the gains that have been made in achieving net zero carbon ecosystem. Hence the need for investments in climate smart solutions with a clear sense in what it takes to select and build resilient climate portfolio companies.

2. Can you share an example or two of enterprises we’ve supported at KCV that are actively enhancing climate resilience, whether through technology, systems change, or community impact?

Kenya Climate ventures, investment thesis is anchored in driving investments into climate smart solutions that contribute into climate mitigation, adaptation and community resilience. We have invested in fives sectors that include Agribusiness, Renewable Energy, Water and Waste Management and commercial Agroforestry. As an impact fund our impact measurement framework and theory of change makes us accountable on how our investments are supporting community resilience. However, to highlight the contribution of some of our portfolio companies.

First, KCV have invested in Hydroponics farming technology as a dry land Agriculture technology that is adaptable in dry and humid areas that experience low rainfall. This is a technology that crops are grown in a controlled environment using less water and low exposure to pests and climatic condition. Kenya, being 65% arid and semi -arid climate. These areas are largely occupied by pastoralists who depends on livestock for livelihood. During the period of drought and flooding, livestock die, and families starve, forcing them to migrate. To help communities overcome the physical climate risks and maintain their momentum in overcoming the challenges of poverty. Hydroponics farming technology provides alternative livelihood to the community, building their capacity to grow fodder and food crops that can make them survive during drought and flooding. This reduces communities’ exposure to climate shocks and helps them withstand climatic disruptions.

KCV has also invested in Dash Crop Limited, an aggregator and processor of drought resistant crops like sorghum, cassava and millet. In country that still struggles with food security and nutritional challenges that is always exacerbated by varying climatic condition. Dash crops support small holder farmers to grow drought resistant crops, providing them with market as the off taker for further processing into infant meals, adult porridge and cooking flour for selling in major urban towns. Without getting worried of low rainfall seasons, small holder farmers can plant crops knowing that there is available market as well ensuring that there is no food scarcity during drought and guaranteeing food security.

Finally, KCV has also invested in Rafode Limited, a micro credit finance institution that supports distribution of solar powered equipment’s that include solar home systems, chest freezers for cold storage and solar powered irrigation equipment that support rural communities in overcoming the challenges of access to energy for domestic and productive use. Access to energy for productive use is quite enabler for poverty alleviation and reducing exposure to climate risks. Through Rafode, farmers are enhancing their productivity and small traders can operate longer hours through solar lighting and be able to store perishable foods products for longer days.

3. What makes climate-smart and gender-inclusive enterprises particularly challenging or exciting to finance at the early stages?

The persistent challenge in investing climate-smart and gender-inclusive enterprises remains structural shortage of access to finance or capital. It’s a systemic challenge that is evidenced by the fact that only 1% of impact investments is deployed in climate smart solutions.

To further understand structural shortage of finance in climate-smart and gender-inclusive enterprises we need to understand it from the framework of demand and supply.

So let us look at SUPPLY SIDE: Traditionally, Development Finance Institutions, foundations and philanthropic organisation has been the suppliers of capital in climate finance. With continued pressure from global multiple demands, the pace of capital flow is not to the expectation of what had been anticipated, creating the need for private capital. While the private capital providers like commercial banks, Saccos and pension funds still consider climate investments as quite risky with low risk adjusted returns and creating the slag in deploying capital in climate smart investments to avert climate crisis and build resilience.

On the DEMAND SIDE we have entrepreneurs that are quite risk averse, inadequate financial information, novel business models and faced with unsuitably structured capital for their businesses.

This makes sectors like Agriculture that contributes to employment of 70% of people in the rural area, guarantee food security and earns foreign exchange through exported crops still struggles with access to capital, therefore, KCV catalytic approach to climate smart enterprises is a solution to de-risk early and growth stage enterprises. Mobilizing both public and private capital to be able to provide patient funding that allows the enterprises to grow. Providing suitably structured instruments like convertible debt and equity along side post investment technical assistance to the entrepreneurs to build their capacity and to help them navigate business risks while they scale.

The most exciting so far is the persistence of innovators that are developing local solutions to the local challenges. Every day we receive application or attend a pitching event where quite interesting technologies are show cased and are worth investment. For the period we have been able to build a pipeline of Kes.2.5Billion of investment worthy enterprises that we keep on tracking and conducting due diligence as we gradually invest in as KCV scales.

4. How does impact investing differ from traditional finance in this space, and what unique value does it offer, giving an example with KCV?

Unlike traditional finance that overlook positive and negative impact generated from the capital deployed in a portfolio company. KCV measures, verifies and reports all the impact generated from their investments. Using environment, social and governance (ESG) framework, we report CO₂   emission reduced or avoided, clean energy installed in Megawatts, tonnes of wastes recycled, volume of water conserved, Jobs created and sustained, households reached with goods and services and number of women and youths supported through the investment value chain. We also report financial returns achieved through annual IRR and MOIC.

Kenya Climate Ventures impact thesis is anchored on a theory of change and impact measurement framework that is aligned to the investment process from deal sourcing, due diligence, investment approval and portfolio management to exit of the investment. As impact fund we commit to the deliberate and intentionality of generating positive social and environmental impact along side the expected financial return hence we fore think on what level of scale of impact the investment will generate before investing.

5. Why is integrating a gender lens important in climate investing, and how has KCV approached this in our portfolio?

Africa is still replete with cases of patriarchal cultural traits often manifested by social exclusion and discrimination of women, entrenched masculinity that often leads to down grading of women, yet they are the primary cares givers in every household. This continues to stifle entrepreneurial culture in women with greater impact on poverty and exclusion. From our experience we have often received deal applications in a ratio of 30% women led enterprises against 70% male led businesses, that creates a need for deliberate action for re balancing the ratio and accelerating access to capital on women owned and led enterprises.

KCV strives to achieve a gender balanced portfolio, investing in value and supply chains which provide business and consumption opportunities of vulnerable groups and, projecting 60% will be women and/ or youth owned, and 65% of jobs created and sustained will support women by 2029, compared to the achieved 55% for women business ownership and 57% share of jobs to women as related.

Using 2x Global criteria and tools for assessing deals from origination to due diligence to deliberately ensure that entrepreneurship and ownership role is at least 51% and minimum of 30% of women are playing a critical role in leadership in enterprises that we onboard. In addition, KCV hires a roving gender lens inclusion support expert that is often engaged to build capacity of the portfolio companies to ensure these targets are achieved.

6. What conditions or partnerships are critical for scaling these innovations across regions or sectors?

As an Impact investment company, KCV views scale from the prospect of growth of small and growing business on boarded and the level of impact generated by the investments. We identify ventures with innovative technologies that can sustainably reach out to many people particularly the rural, peri-urban and the underserved markets. This gives the reason why, some of the most questions we ask is to help us understand what level of scale does the investee project in the market or what level of technology disruption does the product or service have in the market to guarantee business growth. An Investor would really want to put money into a business with a foreseeable growth, providing confidence that adequate cash flows will be generated and expected return on investment will be realized.

Further, in our diligence would really evaluate scaling from prospects of revenue growth and margins, customers, employee head count, operational or infrastructure perspective to clearly understand where the cash is going in and potential out put that could be realized from the investment. Scale is the differentiator between growing businesses and the stagnant almost to cash bleeding businesses. Is the path to move from small business to established corporate business.

From climate finance global perspective, scaling innovations requires ecosystem partnership and collaboration with actors like technology incubators, accelerators and enterprise support organization that provides technical assistance to continuously build entrepreneurs capacity and support them navigate business risks or market system developers that provides incentives to support in surfacing sectors. Collaboration is also required from seed funders and scale level funders to ensure we adopt, and scale right technologies based on the lessons learnt at stage of the entrepreneur growth.

Additionally, is no doubt large scale capital is still required in climate finance. Africa will not afford advanced and expensive technologies like carbon capture based on the competing needs of limited resources but has opportunity to invest in adaptation and resilience which requires both public and private capital. Initiatives like setting up fund of funds to support and catalyze SME funds that deploy capital into climate smart solutions, setting up local technical assistance and working capital facility are quite necessary to catalyze and scale the deployment of capital are important to grow the sector.

7. What trends or innovations are you most excited about in the climate resilience space over the next 3–5 years?

Based on KCV fives sectors of Investments, several innovations continue to emerge. Example of Agriculture sector the emergence of Hydroponics farming to support dry land agriculture, Kenya is 65% arid and semi arid that often worsened by physical climate risks like flooding and drought hence the need for adaptative technologies. Adoption of hydroponics has been quite slow due to high cost of acquiring the hardware’s but is one of the future methods of farming that needs scaling.

With demographic shifts, adoption of B2B2C ag tech platforms will increase that connects small holder farmers to last mile retailers in urban and peri urban areas. People are becoming conscious of the source of their food and are willing to pay a premium based on quality of the products.

In renewable energy, we have seen adoption of solar powered cold rooms in remote places that to not only reduce post harvest losses but also reducing the cost and increase access to fresh produce in dry areas like Turkana. Traders can buy in bulk and store for longer period stabilizing food market and security. Other interesting technology is e-mobility from 2 wheelers, 3wheelers to 4 wheelers which is not only contributing to reduction of direct co₂ emission but also supporting cleaner urban cities through reduced noise and air pollution.

Sectors like waste management are also gaining traction with continued demand for cleaner cities and low carbon environments. From inorganic and organic waste management business models that continues to build business case for private capital investments. Technologies like plastic waste pelleting for recycling, Black solder fly from organic waste to provide alternative protein to animal feeds and production of organic fertilizers will continue to attract investments.

Water technologies that provide water purification and filtration continues to emerge in the market that supports access to clean domestic water along side solar water pumps that drives water for commercial agricultural production.

8. Any advice for funders, entrepreneurs, or ecosystem players who want to advance impactful, scalable climate resilience solutions?

According to the intergovernmental panel on Climate change(IPCC)Africa has contributed the least to climate change, accounting for only  5% of global carbon emissions. Yet it has been projected as one of the fastest warming continents. The continent is expected to heat up 1.5 times faster than the rest of the world, with 35 of the 50 countries in the world has been marked as the most vulnerable to climate change.

The vulnerability to climate crisis, is often compounded by the traditional challenges like infrastructure funding gap and debt crisis hence climate finance has attracted only 1% of the global impact capital. Based on the existing challenges, Africa will not afford expensive carbon capture technologies unlike the developed nations. However, small scale local technologies continue to emerge that show that a low carbon future is within reach and perhaps as cheap as or cheaper than a high carbon examples of solar powered mini grids or ag-tech nature-based solutions that can be supported to scale to support adaptation and resilience of the continent. The fact that entrepreneurs and fund managers continue to struggle and experience inadequate suitable patient capital that can contribute to climate mitigation and adaptation requires global attention and justice from major emitters.

Collaboration, partnership and co-creation of local initiative is necessary to raise more capital to scale climate smart solutions. Adoption of initiatives like blended finance, creation of fund of funds that can provide first loss or catalytic capital to smaller funds that can scale technologies needs to be scaled. Continued knowledge sharing to build the ecosystem and scale right technologies through collaboration by the technology incubators, accelerators and enterprise support organizations and funders will support in scaling climate finance.

KCV stands at the focal point of providing patient capital and technical assistance for early and growth stage climate smart businesses to scale. Being a pioneer local Kenyan fund, we are always ready to share our lessons learnt for the 8years in operation and use our lesson as building block to build the ecosystem and increase access to climate finance.