FSD Africa, the UK government’s flagship financial sector programme in Africa, is making an initial investment of £650 000 in a digital solution connecting carbon credits from small-scale green projects across the global south with international buyers.
The investment will deliver funding through the test phase of the solution being developed by Nick Hughes, who led the development of Africa’s mobile money service M-Pesa.
Hughes is co-founder of 4R Digital, a green fintech start-up developing financial solutions for a range of business partners committed to climate positive projects in Africa spanning distributed solar energy, electric mobility and nature-based schemes.
4R Digital is building a solution that connects these projects to investors looking to offset greenhouse-gas (GHG) emissions at the same time as supporting locally-led climate action.
Voluntary markets allow individuals, organisations or governments to offset their GHG emissions by buying credits from projects that prevent, reduce or remove an equivalent level of carbon.
However, the markets are currently dominated by large-scale projects such as wind farms and waste-to-energy plants, while smaller players struggle to complete the complex and costly process of verifying the emissions they have helped avoid or absorb, FSD indicates.
4R Digital’s Carbon Value Exchange (CaVEx) is being developed in response to this challenge.
CaVEx leverages technological innovations such as the Internet of Things (IoT) and machine-to-machine connectivity to remotely monitor tiny levels of activity by connected devices such as solar pumps and electric vehicles and to calculate their impact on reducing carbon emissions.
By pooling and aggregating such data, the platform centralises the verification of emission reductions, significantly cutting the cost for these projects to issue high-quality carbon credits.
The exchange also enables micro-payments from the sale of carbon credits to be digitally transferred direct to the individuals involved in the projects, increasing the flow of capital to locally-led initiatives that both combat the climate crisis and support incomes in developing economies.
To ensure the exchange meets international standards for verification, 4R Digital will engage an expert third-party organisation to audit the system.
This evaluation will give buyers confidence that each carbon credit they buy translates directly into an equivalent reduction or removal, FSD notes.
Over the last year, FSD Africa has been working with 4R Digital to test the feasibility of using digital technology to open up access to climate finance, committing £250 000 in grant funding.
It has now approved a further investment of £400 000 in the form of a convertible grant to enable 4R Digital to build a functioning version of the platform around several use cases, bringing the total investment to £650 000.
The investment is one of a number of new initiatives by FSD Africa as part of its increased focus on green finance.