Rise of climate finance in Africa
What you need to know:
- Green Finance facilities are beginning to emerge on the continent as private equity firms and banks lead local efforts to narrow the climate funding gap and accelerate a transition to clean energy in the fight against climate change.
Africa is eying increased climate investments inflows as foreign and local banks, private equity firms and startups begin to roll out green finance initiatives to accelerate clean energy transition.
Africa's biggest lender by assets, Standard Bank, and UK-headquartered Standard Charted have made the biggest commitments so far in local green finance mobilisation on the continent.
Recently, Standard Charted launched the African Natural Capital Alliance (ANCA) in partnership with the United Nations Economic Commission for Africa (UNECA), targeting the mobilisation of 300 billion US dollars by 2030.
The project, which will be implemented by Nairobi-headquartered Financial Sector Deepening (FSD) Africa, aims to reach a billion people.
Clean energy projects
In April, Standard Bank said it will mobilise US$17 billion for green finance by 2026 as part of its plan to cut down oil-related investments in favour of clean energy projects in South Africa. This is expected to complement US$ 200 million the bank raised in green bonds in 2020 that were directed to finance renewable energy projects, energy efficiency and green building construction.
Continental multi-lateral lender, the African Development Bank (AfDB) also announced in late March plans for an African Green Finance Facility Fund (AG3F) scheduled for launch in 2023, to tap into a lending opportunity it values at US$3 trillion.
The AfDB green finance facility is expected to provide technical assistance grants to help local governments and financial institutions design green finance facilities and develop pipelines of sustainable, green “Paris aligned” projects.
It will also offer countries an opportunity to capitalize green financing facilities and co-finance project pipelines by providing concessional resources and de-risking mechanisms to allow private investors to participate in green transactions.
“Mainstreaming the Green Bank Model presents a broad opportunity to fill the climate and environment finance gap for Africa,” said Audrey-Cynthia Yamadjako, fund manager for the African Development Bank Trust and coordinator of the Green Bank Initiative,
The International Monetary Fund (IMF) and the United Nations (UN) Economic Commission for Africa estimates that sub-Saharan Africa alone will need up to 50 billion US dollars in additional finance annually to adapt to the impacts of climate change.
Lenders are racing ahead to fill in this gap and take advantage of opportunities in green finance, with a recent survey showing that banks are becoming more aware of the need to address risks posed by climate change.
A 2021 survey by European Investment Banking in Africa shows that more than half of African banks view climate as a strategic issue and that more than 40 percent had their staff working on climate-related opportunities.
“Other financial institutions, including microfinance, private capital and insurers, are also filling market gaps in green finance, while policymakers are supporting these developments through regulatory intervention, technical support and financing, with initiatives at domestic, regional and international levels,” the survey stated.
Private equity investors and startups are also jumping on local fundraising as a means to make their mark in addressing climate risks - and to make the most of funding opportunities.
Earlier in August, UK-funded InfraCo Africa announced a 43 million US dollars investment into a climate-focused fund, Climate, Energy Access and Resilience (CLEAR). Private Equity firm Helios Investment Partners (Helios) is the fund’s advisor.
The multi-million financial commitments targets projects related to clean energy and energy transition, transport, green mobility, sustainable growth and consumption in Africa.
“CLEAR provides a missing piece of the puzzle and one which will be critically important if we are to accelerate action on climate change whilst also closing the infrastructure gap in Africa,” said InfraCo Africa’s CEO, Gilles Vaes.
South African start-up Igugu Global earlier in August also launched an initiative dubbed “Angel Investment” to promote green investments.
At least 1,000 companies across Africa have signed up on the platform that allow portfolio managers to benchmark the environmental risks of their activities and climate-related investment opportunities.
Igugu Global founder, Anele Makhwaza sees the fintech tool increasing the share of African companies engaged in climate finance, from less than two percent currently.
“The global green finance market has surpassed 1.6 trillion US dollars in bond issuance, but only 5.4 billion US dollars of that is for Africa,” according to Makhwaza.
The EIB survey attributes the low level of engagement to underdevelopment in Africa’s green finance sectors compared to those in other regions.
To shore up engagement, handbooks on sustainable finance are also springing up to guide countries on how to strengthen their green economies.
Egypt, the host of COP27 is coming up with guidebooks to help governments, multilateral development banks and the private sector decipher the climate financing ecosystem and to engage in the mobilization of climate funds.
In March, South Africa launched a manual in two municipalities - Tshwane and eThekwini – ahead of a national roll-out of the handbook, to help speed up preparations for the issuance of green bonds.