The Green Climate Fund (GCF) has committed a $40 million equity investment to the Novastar Ventures Africa People and Planet Fund III. The $200 million venture capital fund is designed to support early and growth-stage companies developing climate solutions across Africa.
This investment directly targets one of the largest challenges in climate finance: the gap between Africa’s needs and current private investment. An estimated $2.8 trillion is required between 2020 and 2030 for Africa to implement its Nationally Determined Contributions (NDCs). However, in 2019 and 2020, the continent received only 12% to 15% of the necessary investment.
The GCF’s investment aims to act as a catalytic anchor, helping to de-risk the fund for other private investors who have traditionally been deterred by perceptions of currency risk, political instability, and weak exit opportunities.
The $200M Fund’s Focus
Novastar’s new fund will channel capital into companies focused on three primary themes:
- Services that enable adaptation and resilience for climate-vulnerable populations.
- Clean technology that supports the decarbonisation of economic growth.
- Innovative climate technology for managing natural resources.
The fund will focus its investments in five key countries: Kenya, Nigeria, Rwanda, South Africa, and Egypt. The stated goal is to scale affordable climate solutions and build a durable climate-tech innovation ecosystem by engaging stakeholders and mobilizing private capital.
Novastar Ventures, established in 2014, is one of Africa’s largest VC firms, with over $200 million in assets under management and offices in Lagos and Nairobi.
A New Coalition of LPs
The GCF is not alone in backing the fund. Its commitment is part of a broader trend of development finance institutions (DFIs) and, notably, major Japanese corporations, investing in Africa’s tech ecosystem.
Other limited partners (LPs) who have committed to the Novastar Fund III include:
- British International Investment (BII): The UK’s DFI.
- Sumitomo Mitsui Banking Corporation (SMBC): Japan’s second-largest bank.
- Mitsui O.S.K. Lines, Ltd. (MOL): A prominent Japanese shipping company.
The participation of corporate giants like SMBC and MOL signals a growing strategic interest from Japanese capital in Africa’s emerging high-growth sectors, particularly in sustainability and technology.
GCF’s Broader “Local” Strategy
The Novastar investment is a component of a larger strategic shift by the GCF. At its 41st Board meeting in February, we reported that the GCF approved $686.8 million in new investments, with Africa receiving the largest share at 38%.
Crucially, the GCF Board also approved the establishment of new regional offices to move away from its sole headquarters in South Korea. This pivot reflects a new focus on decentralisation and country-level ownership.
“If climate action is local, then the Green Climate Fund must be local too,” said GCF Executive Director Mafalda Duarte. “The establishment of regional offices will improve the Fund’s ability to deliver on its commitments and support vulnerable communities more effectively.”
This “local” strategy also includes accrediting new implementing partners to facilitate direct access to financing. New partners include the Development Bank of Rwanda and the ECOWAS Bank of Investment and Development. By investing through a seasoned, on-the-ground VC firm like Novastar, the GCF is deploying its new strategy: using local and regional partners to channel global funds more effectively.
Since its inception, the GCF has committed $16.6 billion, leveraging a total of $62.7 billion with co-financing across 297 projects. This latest move into Africa’s VC landscape demonstrates its ambition to use venture capital as a key tool to bridge the continent’s pressing climate finance gap.