Money can grow trees in Africa

Africa, the continent with the youngest median population age, faces the intricate challenge of providing its growing population with affordable, accessible green energy, aligning with global net zero commitments, and enhancing resilience to climate change impacts, all while balancing economic development.

The continent needs internal and external financing to support this agenda.

Investment is needed to develop Africa’s climate finance landscape

As of mid-2022, African governments had pledged slightly more than USD250bn from domestic public funds, accounting for roughly 10% of the USD2.8tn needed to fulfil their share of the Paris Agreement's nationally determined contributions between now and 2030 and mitigate the worst impacts of climate change.

The main sources of public climate finance for Africa in 2019 and 2020 were multilateral development financial institutions (DFIs) and climate funds (49%), which were followed by bilateral development partners, which included bilateral DFIs (22%), foreign governments (16%) and climate funds (4%). These metrics are a stark contrast to how climate finance is raised in developed countries where the majority of the finance comes from the private sector.

Additionally, African countries frequently face interest rates up to eight times higher when seeking financing from international lending organisations. Considering the urgent need for climate finance, it is important that when climate finance is provided it is offered at rates that do not place additional pressure on the country’s balance sheet. This said, African countries need to support international finance by improving governance structures that enable the effective use of the financing that is provided and also look to attract more private investment. To increase this private funding, measures could include adapting banking regulations to favour private sector lending and implementing governance reforms that enhance public finance management and debt transparency, thereby creating a more stable and attractive environment for private investors.

Innovative financial models can address Africa’s funding gaps. Some innovative solutions include climate-related debt relief (such as debt-for-climate swops), different types of bonds (like green and blue bonds) and dedicated climate funds. For example, the Seychelles was one of the recipients of The Nature Conservancy’s Blue Bonds for Ocean Conservation initiative. The funds raised from the bond issue were used to swap the country’s commercial debt with reduced loans on more favourable terms in return for environmental and policy commitments relating to marine conservation.

Building the base at the African Climate Summit

Africa’s first Climate Summit, which was held in Nairobi this year, focused on financing Africa’s transition towards a low carbon economy. Global leaders discussed closing the climate finance gap, harnessing the continent’s natural resources for economic growth and achieving a low emission “greener” economy.

During the summit, African leaders called for accelerated efforts to revamp the global financial system, citing initiatives like the Paris Summit for a New Global Financing Pact, the UN Secretary General’s SDG Stimulus proposal, the Accra-Marrakech Agenda and the Bridgetown Initiative. The leaders also advocated for a global carbon taxation system, covering fossil fuel trade, maritime transportation and aviation, possibly combined with a global financial transaction tax. This taxation plan aims to depoliticize resource allocation and provide dedicated funds for significant climate-positive projects. The summit proposed a new funding structure, including debt relief, restructuring and the establishment of a Global Climate Finance Charter by 2025 via COP and United Nations General Assembly procedures to address Africa’s needs.

Additionally, around USD26bn in climate investments were pledged by donor nations and organisations during the Summit. Notable pledges came from the United Arab Emirates, Denmark and the United Kingdom, as well as financial institutions like the African Development Bank and the Bezos Earth Fund. A variety of climate efforts are covered by these pledges, such as targets for climate financing, clean energy, carbon credits, green projects and adaptation. These investments note the reliance that the western countries have on Africa for its biodiversity and carbon credits which Africa can unlock by learning from other proven approaches and carbon markets, investments in technology and the enabling environment.

How has the money flown so far at COP28?

Even though we’re only four days into the 12-day event, we’ve seen some significant progress in the climate finance space for Africa and we expect more to come in the following days. Some of these announcements to date are:

• Loss and Damage Fund: The operationalisation of the Loss and Damage Fund, with over USD400m in initial pledges, which was announced on day one. 

• Climate-resilient debt clauses: A groundbreaking move by major financial institutions like the World Bank and African Development Bank to adopt climate-resilient debt clauses. These debt clauses pause debt repayments in the wake of natural disasters and offer a financial lifeline to African nations, allowing them to allocate resources towards immediate relief and recovery without the pressure of debt repayments.

• The UK’s climate finance and global partnerships: The UK’s pledge of over GBP480m as part of a GBP1.6bn climate aid package, along with the pioneering introduction of the first climate-resilient debt clause in Africa in partnership with Senegal and Guyana to support Africa’s journey towards climate resilience and sustainable development.

• Green Climate Fund replenishment: The replenishment of the Green Climate Fund, with commitments including USD3bn from the United States.

• The World Bank’s enhanced climate financing: The World Bank’s pledge to boost climate financing to 45% by 2025 signals more robust support for Africa’s climate adaptation and mitigation projects. 

• First Movers Coalition’s USD12bn pledge: Launched by the World Economic Forum, the First Movers Coalition has pledged USD12bn to green technologies offering significant potential for Africa's hard-to-abate sectors like steel and shipping. 

• Carbon market coalition: The collaboration to strengthen carbon crediting standards can significantly benefit Africa by unlocking financing opportunities, leveraging its natural resources for sustainable growth and climate resilience.