How African finance can ride the green wave

25/03/2021 Africa finds itself in a precarious predicament when it comes to climate change: it is one of the regions most at risk of its consequences but contributes just 4% of global CO2 emissions. At the same time, the financial resources necessary to mitigate the impact are scarce, with the IMF estimating a $50bn deficit in green finance initiatives that could help societies adapt to the changing climate context, and most of the countries lacking funding for such initiatives are in Africa. The public sector cannot address this alone and the private sector needs to help by scaling green financing efforts.

The climate crisis is a defining challenge of our time and the COP26 summit in November 2021 is widely seen as our last chance to avoid disaster. Green climate finance, covering green bonds, green funds, taxonomy developments, ESG investments, pollution rights, investments in renewable energy and infrastructure (and more), is crucial to reducing GHG emissions to net-zero and limiting global warming to below 2°C. Africa cannot afford to stay behind the curve, yet the amount of green funding arriving in Africa remains remarkably low.

Connecting efforts to bring down the deficit

In 2020 green bonds worth $1trn were issued globally, but Africa accounted for just $3.5bn of the total. That deficit is made starker by the reality that getting to net-zero is a very different challenge depending on where you live: for the ‘developed world’, net-zero is about finding low carbon ways to continue living decently, but in the ‘developing world’ going net-zero must be balanced with development imperatives.

The solution to boosting green finance could lie in connecting the currently disparate efforts of national, international, public sector, and private sector organisations. Optimism is warranted as the financial industry increasingly understands it has no option but to contribute, not just for CSR reasons, but because the climate crisis generates major financial risks and opportunities that banks and investors cannot ignore.

Projects making green progress across Africa

Across the continent, the financial sector has already made significant headway, with multilateral development banks, governments, and private capital teaming up to promote agroforestry, boost clean energy and halt deforestation.

Key projects include:

The Great Green Wall

Spanning 11 countries, it aims to build an 8,000km expanse of vegetation from Senegal in the west to Djibouti in the east. The project’s goal is to fight desertification and promote agroforestry to boost food security. It recently received $14bn in new funding from the African development bank, the French government and the World Bank.

Benban solar park and BIOVEA

Around 60% of people in Africa have no reliable access to clean and affordable energy and energy needs are expected to increase by 80% in the next 30 years with the doubling of the African population and growth of the economy. With the abundance of solar wind and geothermal resources available on the continent, renewable energy is seen as low hanging fruit.

  1. Benban solar power park in Egypt: with a total capacity of 1.8 GW and a $4bn budget, it is one of the largest solar power plants in the world. It is co-financed by IFC, international lenders and private banks.
  2. BIOVEA energy: a joint venture between EDF, Meridiam and Biokala, it is a 46MW biomass power facility project in Ivory Coast that uses agricultural waste as fuel. Financial partners include the French Development Agency, Proparco and the emerging Africa infrastructure fund.

Congo Basin Sustainable Landscapes programme

The Congo basin contains 70% of Africa's forest cover and is one of the largest natural carbon absorbers in the world. Financed by international lenders and central African governments, the Congo Basin Sustainable Landscapes programme supports conservation and sustainable management of the Congo Basin through landscape approaches that empower local communities and forest-dependent people.

Role of policymakers in guiding and implementing change

There is no shortage of public and private sector partnership opportunities, but the challenge is how to efficiently use public money to mobilise private capital and scale climate finance initiatives. This is where policymakers come in. Once more, the continent has laid strong foundations. In South Africa, the Just Transition Pathways create dialogue between the country’s government, business community, societal groups, and others, to identify concrete action to take, for instance.  

Senegal conducted a study in 2019 to assess options for a national carbon pricing scheme and is working on implementing carbon taxes. Meanwhile, the Eastern Africa Alliance on Carbon Markets and Climate Finance aims to foster the active and coordinated participation of delegates into UNFCCC negotiations and others. And the Bank Al-Maghrib is taking a leading role on the continent by integrating green issues into financial regulation.

Ride the green wave and mitigate climate change

Climate change is everyone’s business and the impact of the public and private sectors working together on green finance initiatives cannot be overstated. While progress is being made, there are still steps to take: the financial services sector should increase its awareness of green opportunities and leverage blended finance tools to capture them; governments need to further define ‘transition pathways’ to provide certainty to investors and guide the implementation of fiscal policies; and central banks should seek ways to further integrate environmental issues into financial regulation.

These steps, taken together, will boost Africa’s potential to ride the green wave, mitigate the impact of climate change, and make societies on the continent – and across the world – more resilient to a defining challenge of our time.

Mazars recently assessed the extent to which banks around the world embed sustainability into their commercial practices. You can see the findings and download the report here