These efforts have led to large-scale and long-term change, providing access to financial services to over 10.2 million people and addressing issues related to financial exclusion.
FSD Africa, a UK aid-funded specialist development agency, today celebrated a decade of strengthening financial markets across Africa, growing economies, increasing incomes for vulnerable populations, and combatting poverty.
FSD Africa has made significant strides over the past decade by advancing policy and regulatory reforms, enhancing financial infrastructure, and increasing capacity, all while tackling systemic issues in Africa’s financial markets.
These efforts have led to large-scale and long-term change, providing access to financial services to over 10.2 million people and addressing issues related to financial exclusion. During the Covid-19 pandemic, FSD Africa observed a remarkable 87% increase in the demand for and use of remittance services, which played a crucial role in protecting families from the pandemic’s financial impacts.
FSD Africa’s market-building initiatives have resulted directly or indirectly in £1.9 billion of long-term capital made available for SMEs, affordable housing, and sustainable energy projects, among others. Its support for financial sector innovation has increased access to financial services for close to 12 million Africans, while its support for business growth has improved access to finance for more than 3 million African businesses and led directly or indirectly to the creation of over 35,000 new jobs.
Speaking during the event, Mark Napier, CEO at FSD Africa said: “Celebrating over ten years of our trailblazing work across Africa is special: in a short space of time, we have strengthened and developed financial markets and tapped into capital by using new instruments such as green and gender bonds. The future is key, and I look forward to continuing our hard work with our collaborative and innovative team. I have no doubt that we will continue to support and address Africa’s expanding needs as we move towards sustainable economic development.’’
Future-focused, FSD Africa’s strategy has evolved to address Africa’s expanding needs, with a greater emphasis on identifying innovative methods to mobilize resources for sustainable economic development. The organization has recently boosted its investment into projects that enable an equitable transition to a green future for Africa after several successful initiatives, including developing regulations and assisting green bond issuance programs in Kenya and Nigeria. The organization’s green portfolio and pipeline have expanded because of continuous investments in programs that provide environmental and social consequences, with close to £50 million being invested in green initiatives.
Jane Marriott, OBE, British High Commissioner to Kenya said: ‘”The UK is continually working with Kenya to promote green finance and economic growth as part of the UK-Kenya Strategic Partnership. FSD Africa is delivering on these priorities in Kenya and across the continent, creating over 35,000 jobs and leveraging more than KES 300 billion into sectors like renewable energy. I look forward to FSD Africa’s continued work in the years ahead.”
Prof. Njuguna Ndung’u, Cabinet Secretary, Kenya National Treasury said: ‘’Kenya’s partnership with FSD Africa has created a favorable environment for the growth of our local capital markets, resulting in increased interest from both domestic and foreign investors. FSD Africa also played a crucial role in establishing the Nairobi International Financial Centre (NIFC), positioning Kenya to receive more financial flows. We look forward to collaborating more closely with FSD Africa on green finance initiatives to promote sustainable development while addressing climate change challenges.’’
Nigeria’s Vice President, Prof. Yemi Osinbajo, said Africa’s share of the global carbon market can be scaled up massively to reach foreign direct investment (FDI) of between $120 to $200 billion annually.
The Vice President stated this during his keynote speech at the Rockefeller Foundation meeting in New York.
He identified a combination of capital flows, job creation, and the avoidance of long-term climate destruction as critical drivers of African leaders’ interest in supporting this effort.
According to him, Africa currently has only a small share of the carbon market. He explained the importance of this projected carbon finance stream, saying:
“For a continent that needs $240 billion annually in mitigation investment alone, this carbon finance stream could be the difference between transitioning and not (transitioning). As all of us in this room understand well, the priorities of the African continent are not just to act decisively on the climate crisis, but to also create significant growth opportunities for our young and growing population.”
“The investment required to advance the energy transition in Africa is huge. World Bank estimates suggest that Africa needs $6.5 trillion US dollars between now and 2050 for mitigation action alone to keep temperatures below 2 degrees of warming.”
VP Osinbajo also highlighted that the carbon market pipeline could create 30 million jobs in the next decade, with the potential to create more than 100 million jobs through climate-aligned projects by 2050.
Africa’s carbon markets: During his speech, VP Osinbajo noted that the rapid progress recorded in Africa benefitted from the support of a very engaged Steering Committee with the United Nations, Global Energy Alliance for People and Planet (GEAPP), USAID, and a range of other public and private actors, which resulted in the successful launch of the African Carbon Markets initiative (ACMI) in Sharm-el-Sheikh, Egypt during the COP-27 event.
“The strong commitment and presence from fellow African leaders demonstrate the willingness and leadership of Africa. We already have 7 African countries (Burundi, Gabon, Kenya, Malawi, Mozambique, Nigeria, and Togo) signed up to develop country carbon activation plans and over $200 million in advanced market commitments, which we must continue to further advance as this is going to be the critical driver of action on the continent.”
“I think it’s an auspicious moment for Africa to be participating more fully in the global carbon market conversation, especially in the light of the slowing pace of green investment flows into the continent. The work several of us have done together in the past few months makes it clear that while other sources of flows are slowing down globally, carbon markets are growing rapidly,” Osinbajo said.
Advancing carbon markets: VP Osinbajo also spoke about the essence of collaborations in developing carbon markets on the continent. He said collaboration is a key to unlocking opportunities in Africa’s carbon markets. He said:
“One of the strong points of ACMI and the way we must structure it going forward, in terms of governance, is the flexibility to smoothly work with other initiatives, and there will be many others. Two days before the opening of Cop 27, Senator John Kerry and I had a conversation about the proposed Energy Transition Accelerator and we both agreed that once the details were worked out, we would work out a collaborative framework with ACMI.
“Carbon markets will play a critical role in the implementation of this (Energy Transition) Plan – in mobilizing the capital required to move to our net-zero economy-wide trajectory. I want Nigeria to have the first Carbon Markets Activation Plan.”
In his contribution, the US Presidential Envoy on Climate Change, Senator John Kerry, commended VP Osinbajo for his leadership on the issue of energy transition. Kerry said:
“We are grateful for the leadership of the VP, grateful for the reception you gave me on my visit to Nigeria. I am honoured to share the platform with you on how to move the African Carbon Market Initiative (ACMI) forward.
“It is possible to create a high-integrity carbon market in a way to address Climate Change and African Development aspirations. We are all joined together looking forward to developing the financing.”
In case you missed it: The ACMI is a new initiative that was launched during the conference of parties (COP 27) event held in Egypt. The ACMI will be led by a fourteen-member steering committee of African leaders, CEOs, and carbon credit experts. The ACMI aims to dramatically expand Africa’s participation in voluntary carbon markets.
COP27 may be over but its impact will be felt for many decades to come.
Discussions highlighted nature’s pivotal role in tackling the climate crisis.
Here we reflect on 10 areas where progress is being made on climate action.
The implications of COP27 will likely be felt for decades to come, for better or worse. While a broad range of analysis has already been published on the ultimate outcomes of COP27, this summary includes reflections on how nature was the stand out topic at COP27 – here are the top ten takeaways.
1. Calls for structural reform of finance for nature and climate
It was impossible to pass a day at COP27 without having a conversation about finance – but finance means different things to different people. The breakthrough on loss and damage funding made the headlines, but this year there was much attention on structural reform of the financial system as well as the need to create innovative mechanisms that support nature and climate outcomes at national and ecosystem levels.
The Bridgetown agenda remained a central theme within these discussions. Before COP27, there was much focus on the need for financing adaptation measures – although in fact, very little progressed on this agenda from Glasgow. The multilateral development banks are also under scrutiny – sovereign bonds and sustainability-linked loans and bonds have been high on the agenda. Leading financial institutions from Japan to Norway to Brazil, all signatories to the Financial Sector Commitment on Eliminating Commodity-driven Deforestation have been moving forward with implementation through the Finance Sector Deforestation Action (FSDA) initiative.
FSDA members have published shared investor expectations for companies, and they are stepping up engagement activity and are working with policymakers and data providers. More broadly, the 10 point plan for financing biodiversity moved ahead at COP27 with a ministerial meeting between 16 countries representing five continents to set a pathway for bridging the global biodiversity finance gap – and looking ahead to the biodiversity COP15 in December 2020.
2. Biodiversity COP15 looms large
The biodiversity COP is usually a distant cousin to the climate COP, but in Egypt there was a considerable amount of attention on the need to create a “sister agreement” – a Paris moment for nature. The messaging that the climate and nature crises are deeply linked was made loud and clear at COP27.
On Biodiversity Day, the Paris climate champions urged leaders to step up action to address the accelerating loss of nature by delivering an ambitious biodiversity agreement at COP15 in Montreal. On the same day, more than 340 civil society leaders called on governments to prioritise the biodiversity COP, and a new survey from more than 400 experts from 90 countries revealed that a shocking 88% believe that the state of the world’s nature is “alarming” or “catastrophic and potentially irreversible”.
However, even though many countries were pushing for COP15 to be included in the COP27 text, the attempt failed – a disappointing outcome as net-zero emissions will not be enough to limit rapidly rising temperatures. Governments also need to halt and reverse biodiversity loss by 2030.
3. Strong signs of political will for forests
The creation of the Forest and Climate Leaders’ Partnership (FCLP), announced at the World Leaders’ Summit, is being driven by the reality that there is no time to lose when it comes to halt and reverse forest loss by 2030, with the intent to demonstrate success by COP28. The leaders of the 28 – and counting – FCLP member countries serve as key actors in the partnership, and its ultimate priority setters.
The FCLP will hold regular meetings, including leader-level moments at the beginning of climate COPs to encourage accountability. Starting in 2023, the FCLP will also publish an annual Global Progress Report that includes independent assessments of global progress toward the 2030 goal, as well as summarising progress made by the FCLP itself, including in its action areas and initiatives.
The presence of Brazil’s president elect, Luiz Inacio Lula da Silva, put a spotlight on the Amazon at COP27 – with Brazil promising to prioritise stopping deforestation and offering to host COP30 in three years’ time. Also, an announcement by Brazil, Indonesia and the Democratic Republic of Congo – made in Indonesia ahead of the G20 – signalled their intentions to work together to protect their vast swathes of tropical forests, earning the nickname “the OPEC of rainforests”.
This chart shows the total hectares of forest that have been destroyed in different countries. Source: Statista.
4. Implementation of forest pledges
Coming into COP27, there were clear signs that the global community is not yet on track to halt and reverse forest loss and degradation by 2030. Another UN-led report found that for 2030 goals to remain within reach, a one gigaton milestone of emissions reductions from forests must be achieved not later than 2025, and yearly after that, but that current public and private commitments to pay for emissions reductions are only at 24% of the gigaton milestone goal.
However, it wasn’t all bad news on the implementation front. Nature4Climate’s new joint commitment tracker found that 55% of the commitments tracked are demonstrating substantial signs of progress. There are also some bright spots to celebrate. For example, tropical Asia is on the path toward reversing forest loss by 2030: Indonesia’s deforestation rate dropped by 25% last year, and Malaysia also reported a fall of 24% in the pace of forest loss last year.
Forest pledges made in Glasgow at COP26 were also in the spotlight. In 2021, $2.67 billion was put towards forest-related programmes in developing countries – 22% of the $12 billion pledged at COP26, meaning that donors are on track to deliver by 2025. Private sector funds are also moving: for example, one year after launch, the IFACC initiative is scaling innovative financial mechanisms to help farmers without further conversion of the Amazon, Cerrado and Chaco ecosystems.
So far, commitments have risen from $3 billion to $4.2 billion and disbursements are expected to exceed $100 million this year. Similarly, the public-private LEAF Coalition has mobilised an additional $500 million in private finance, bringing a total of $1.5 billion in support of tropical forest protection. This is part of $3.6 billion of new private finance announced at the climate summit.
And exciting private sector initiatives worth noting include the launch of a new company Biomas (by Suzano, Santander, Itau, Marfrig, Rabobank and Vale) to restore 4 million hectares in the Amazon, the Mata Atlantica rainforest and the Cerrado. Also, 1t.org announced pledges from its first four Indian companies (Vedanta, ReNew Power, CSC Group and Mahindra) to join 75 other companies worldwide committed to planting and growing 7 billion trees in more than 60 countries.
5. Nature of negotiations
In the negotiations, nature-based solutions were included in the COP27 text for the first time, with forests, oceans and agriculture each having their own section. The Koronivia Dialogue – the track where food and agriculture is discussed at the UNFCCC – has finally been included in the text, but all eyes turn to COP28 for the focus required to truly transform food systems.
In the wonderful world of Article 6, things remain complex. Last year, at COP26 in Glasgow, countries decided on the basic framework of Article 6. Throughout 2022, countries have been focused on how to operationalise the Article 6 mechanism that allows countries to actually begin trading. In Egypt, the discussions were very technical – such as how registries are going to work, how countries will report on the trading, and what information should be submitted –with the aim of making things easy to track.
For nature, it was decided at COP26 that land use emissions were part of Article 6 – as it includes all sources and sinks. The focus in Egypt has been on article 6.4 – the mechanism for developing guidance on activities involving removals which includes reforestation, restoration, afforestation etc.
6. Technology meets nature
In a similar way to finance, “tech” gets everywhere at climate COPs, although historically that is not really the case when it comes to nature – not this year however. In Egypt, the need for high-tech solutions for nature and climate challenges was a constant refrain. The role of tech in improving transparency and accountability in monitoring supply chains (and tackling deforestation) and also in enhancing the integrity of carbon markets was evident everywhere.
Notable developments include Verra’s partnership with Pachama to pilot a digital measuring, reporting and verification platform for forest carbon. A new Forest Data Partnership was announced by WRI, FAO, USAID, Google, NASA, Unilever and the US State Department. WRI’s Land and Carbon Lab was on show demonstrating the new frontier of measuring carbon stocks and flows associated with land use.
Nature4Climate demonstrated a beta version of its new online platform (naturebase) to help decision makers implement natural climate solutions. And the new Global Renewable Energy Watch – a partnership between The Nature Conservancy, Microsoft and Planet – was also demonstrated. Capturing this emerging trend, Nature4Climate and Capital for Climate launched a report on the size and potential of the whole “nature tech” market that was discussed at an event in the Nature Zone.
7. Food finally arrives on the scene
Food was on everyone’s mind at COP27 in Egypt – but for the first time, it also made it onto the main agenda – being recognised in the final text and also with at least five event spaces solely dedicated to food and agriculture.
Important developments included the Food and Agriculture for Sustainable Transformation Initiative (FAST) launched by the Egyptian COP presidency – a multi stakeholder partnership to accelerate access to finance, build capacity and encourage policy development to ensure food security in countries most vulnerable to climate change.
Also related to food, 14 of the world’s largest agricultural trading and processing companies shared their roadmap to 1.5℃ – to mixed reactions – with detailed plans on outlining how they will remove deforestation from their agricultural commodity supply chains by 2025.
8. An increasingly blue COP
Observers have expressed encouragement at this being “an increasingly blue COP”, with the ocean called out in the final declaration and the first ever ocean pavilion in the blue zone. Several declarations reinforced the recognition of the fundamental role of the ocean in the climate system.
The critical role that Indigenous peoples and local communities (IPLCs) play as guardians of the forest is now firmly established and beyond question. At COP27, there was a polite but palpable frustration from IPLCs that climate funds are not reaching them. This massive deficit is increasingly being acknowledged by both by Indigenous and non-Indigenous actors, with a wide range of events dedicated to this topic.
While COP27 was a good space for Indigenous and non-Indigenous actors to share knowledge, to listen deeply to one another, to build relationships, it clearly can’t be the only space. While there are a number of encouraging signs of progress, including linking IPLCs with high-integrity markets, it’s clear the clock is ticking and IPLCs are getting impatient.
Clearly we must act with urgency, but it’s critical to take the time to build trust and mutual understanding, including absolute adherence to free, prior and informed consent protocols. This is necessary so that IPLCs can decide (or not) to participate in carbon markets with transparency, full understanding, and free consent. This takes time.
10. African-led initiatives take centre stage
While this was not the “African COP” that many hoped it might be, there were still a range of significant announcements coming out of Egypt that highlighted the continent’s potential as a natural capital powerhouse. These included the launch of the Africa Carbon Markets initiative, the Declaration for the Africa Sustainable Commodities Initiative, the launch of a $2 billion African restoration fund, a funding boost for Africa’s visionary Great Green Wall initiatives, and the announcement by the Global EverGreening Alliance and Climate Impact Partners of a new partnership to up to $330 million in community-led removal programs across Africa and Asia.
At An Average Investment Of USD 250 Billion Annually From 2020 To 2030
The African continent presents a massive investment opportunity for investors to advance the deployment of climate solutions in the coming decade according to a new report Climate Finance Innovation for Africa. However, this will require innovation in financing structures and the strategic deployment of public capital to ‘crowd-in’ private investment at levels not yet seen.
Current levels of climate finance in Africa fall far short of needs. Africa’s USD 2.5 trillion of climate finance needed between 2020 and 2030 requires, on average, USD 250 billion each year. Total annual climate finance flows in Africa for 2020, domestic and international, were only USD 30 billion (CPI forthcoming), about 12% of the amount needed.
Barriers related to shallow financial market depth, governance, project-specific characteristics, and enabling skills and infrastructure have stifled private investment in African climate solutions to date.
To overcome these challenges will require innovation in financing structures. But there is no one-size fits all. Public and private investors must tailor their financial instruments and strategies depending on the acute or chronic nature of the barriers identified.
Recommended actions for increasing deployment of innovative finance include:
Identify and understand barriers constraining finance by sector and geography. Private investors must have the data to assess the risks affecting each investment decision based on its geographic and sectoral context. Building on their role as a catalyst for change, public investors should then deploy capital in a targeted way to address the specific barriers constricting private investment.
Match instruments with barriers. Public and private investors must tailor their financial instruments and strategies depending on the acute or chronic- nature of the barriers identified. The framework developed in this CPI study can serve as a toolbox for investors to access when reviewing investment opportunities in climate solutions.
Match instruments with project and technology lifecycles. As climate investments are typically long-term opportunities, investors must look to deploy different financial instruments and strategies in direct response to lifecycle-dependent considerations.
Enhance engagement and co-financing with local stakeholders. International private and public investors must work in collaboration with local stakeholders. This can help build capacity among local investors and inform targeted action by governments to improve investment performance.
Support innovation by establishing conducive policy and regulatory frameworks. Governance barriers remain one of the key impediments to sourcing climate finance in Africa. Most importantly, policymakers and regulators can foster climate finance innovation by adopting policy frameworks and long-term roadmaps.
This work provides a framework for how these instruments and strategies can be efficiently deployed to overcome barriers to finance and capitalise climate solutions in Africa. Real-world examples include:
TerraFund for AFR 100 has deployed a standardized process to deploy early-stage catalytic finance and technical assistance to spur the growth of grassroots innovators operating in the challenging land restoration sub-sector. It has mobilized USD 20 million in its initial round of investment, doubling the fundraising target it set out to raise over three years in 2020.
The Sub-National Climate Finance Initiative’s use of blended private equity and technical assistance to overcome the project and governance barriers facing investment in mid-sized climate infrastructure projects. To date, it has secured USD 150 million in funding for its blended equity fund.
Revego Africa Energy’s strategy of aggregating a diversified portfolio of operating renewable energy assets into Africa’s first YieldCo to attract investment from key/blue chip institutional investors. With support from a public-private partnership between Macquarie and the UK Government, Revego has secured institutional capital from one of the largest pension funds in South Africa.
This brief provides an overview of financial and non-financial solutions to address sector specific barriers. It provides six groups of practical instruments: non-tradable finance instruments; capital market instruments; result-based finance instruments; risk mitigation instruments; structured finance mechanisms and non-financial tools. Each of these tools has the potential to address one or more of the barriers currently hindering climate investments in Africa.
As the international climate community prepares to descend on Sharm el-Sheikh in Egypt, new analysis shows just how far off their host continent is in terms of attracting the finance it needs to adapt to catastrophic global warming, build renewable energy plants and enhance its carbon-absorbing ecosystems.
At $30 billion, annual climate finance flows in Africa are just 11% of the $277 billion needed, according to research published Wednesday by the Climate Policy Initiative, a US-based nonprofit. The research was commissioned by FSD Africa, an organization funded by the UK government, the Children’s Investment Fund Foundation, a charity set up by billionaire hedge fund activist Christopher Hohn, and UK Aid. It’s the first to map climate finance flows in Africa by region, sector and source, and captures available data for 2019 and 2020.
Top of the agenda at the November UN climate summit in Egypt, known as COP27, will be demands from developing nations for more funding from rich countries to adapt to global warming and a financing mechanism to help them cope with natural disasters and extreme weather events. In 2009, developed countries committed to $100 billion of assistance for poorer nations every year. They have fallen significantly short of that target.
Africa accounts for a tiny fraction of the world’s carbon emissions but its nations will be among the hardest hit by global warming, already manifested globally in disasters ranging from heat waves in Europe to droughts in the Horn of Africa and floods in Pakistan.
“A report such as this allows us to measure whether the commitments of developed countries to provide finance to developing countries, is indeed being delivered,” said Valli Moosa, deputy chairman and effective head of South Africa’s Presidential Climate Change Coordinating Commission, in a statement.
Private sector finance in particular remains too low, the Climate Policy Initiative said in the report. Companies and commercial financial institutions contributed just 14% of total climate finance received in Africa, much lower than in other developing regions.
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Existing flows are highly concentrated, with 10 of the 54 countries on the continent accounting for more than half of Africa’s climate finance. These include Egypt, Morocco, Nigeria, Kenya, Ethiopia and South Africa. The Southern African region bears the largest financing gap in absolute terms, attributed by the researchers to the $107 billion annual needs of South Africa alone, combined with one of the lowest regional levels of climate investment. As a percentage of gross domestic product, countries in Central and East Africa face the largest investment gaps.
Investment Opportunities
South Africa, the continent’s most industrialized nation, is transitioning from reliance on coal for more than 80% of its electricity to renewable energy, meaning that billions of dollars will need to be spent on new power plants and an expanded electricity grid.
“Public and private actors must act with scale and speed to help bring Africa’s climate goals to fruition,” said Barbara Buchner, global managing director of the Climate Policy Initiative. “Africa offers a wealth of climate-related investment opportunities” and “the social, economic, and environmental benefits which could be realized are even greater,” she said.
Those investment opportunities are spread across a number of sectors, including clean energy plants and agribusiness. Annual investment in renewable power stands at just 7% of the $133 billion that the International Energy Agency estimates African countries need to meet their 2030 energy and climate goals, according to the research. Agriculture and forestry investments are also falling short of financing needs.
Kenya is among the developing countries that accounted for 50 per cent of total tracked private finance flowing into Africa, according to a new report by Climate Policy Initiative.
With private climate financing valued at close to 4.2 billion dollars (Sh506.5 billion) flowing into the continent in 2022, it means that Kenya and other developing countries received green financing amounting to Sh253.3 billion.
The report has, however, indicated that Africa needs nine times more climate financing annually than the 30 billion dollars (Sh3.6 trillion) inflows it received in 2020 to implement plans to cut emissions and adapt to the impacts of climate change.
https://youtube.com/watch?v=WpY2b7Q7RN4
The findings show that the private sector’s contribution towards climate-related financing in Africa was too low, at only 14 per cent (4.2 billion dollars) of total climate finance in Africa.
If Africa is to meet its 2030 climate goals and implement the Nationally Determined Contribution (NDCs), climate finance on the continent must hit $277 billion, a new study on the Landscape of Climate Finance in Africa says.
The study, commissioned by the Financial Sector Deepening Africa, the Children’s Investment Fund Foundation, and UK Aid finds that total annual climate finance flows in Africa – both domestic and international was $30 billion, which is just 11 percent of the needed $277 billion.
‘How to fund sustainable growth in Africa’ was a recent event held at London Business School’s Sammy Ofer Centre by the Royal African Society (RAS) and Standard Chartered which saw Bill Winters, CEO of Standard Chartered, in conversation with Arunma Oteh, OON, Chair of the RAS, about how to fund sustainable growth in Africa. The event was supported by London Business School’s Wheeler Institute for Business and Development and the LBS Africa Club.
The issue of sustainable growth is a significantly important topic for investors, banks and corporates around the world. Promoting sustainable finance to emerging economies is a growing priority for the global investment community, bringing together public and private sectors to ignite and grow climate and environmental finance, promote good governance, and support broader development goals. Standard Chartered Bank’s CEO Bill Winters addressed these issues and more on 5 October, and later engaged in discussion Royal African Society Chairperson Arunma Oteh.
Africa’s massive financing gap
The UN’s Economic Report on Africa 2020 estimated that the continent needed about $1.3tn a year to achieve the Sustainable Development Goals (SDGs) by 2030, a figure that could increase by 50% to $19.5tn as a result of population growth. A more recent report by Climate Policy Initiative (CPI), funded by CIFF and FSD Africa, Climate Finance Needs of African Countries, has estimated that the cost of implementing the continent’s NDCs (nationally determined contributions) under the Paris Agreement could be around $2.8tn between 2020 and 2030; the UN now estimates the figure to be over $3tn over the same period.
It is not fair or possible for Africa to meet these funding requirements. Africa accounts for only 2-3% of current global emissions (and about the same level of cumulative emissions) and yet is the continent most at risk from climate change. CPI’s report explains that African governments have committed $264bn of domestic resources for implementing NDCs, leaving a funding gap of $2.5tn. In comparison, the combined annual GDP across the continent is $2.4tn. If African countries were to fund the gap themselves, the annual expenditure of $250bn would more than double their combined spending on health. The CPI report notes, however, that “total annual climate finance flows in Africa, for 2020, domestic and international, were only $30bn, about 12% of the amount needed,” and that “most current climate financing in Africa is from public actors (87%).” In other words, there is a pressing need for much greater involvement of private finance in closing the funding gap.
Attracting private finance
For Standard Charters’ Bill Winters, there are three things that are required to access private finance at scale:
First, there needs to be continued development of a set of agreed standards against which to measure projects and their impacts. CPI’s report (cited above) emphasises the need to improve the quality and granularity of the data on the financing needs of each country, classifying them by economic sector and subsector and by public and private sources of finance.
Second, there needs to be a more effective model for public-private partnerships with MDBs (multilateral development banks). At present, there are two main challenges – the scale of MDB financing available and the ratio of private to public funds in the projects. Winters explained that MDBs currently contribute around $9bn annually (out of a total requirement of $1.3tn) and that for every 95c received from the World Bank only around $1 of private capital is contributed. When asked in the discussion’s Q&A session what he would do if he were newly elected president of a US MLB, he said he would ask his shareholders for at least a doubling of capital, request permission to increase funding for sustainable projects by fifteen times, and tell them that the expected loss on those projects would need to increase from approximately zero to 6-7%, the loss rate one would expect from a risky tranche of such projects. In this way, public financing would be catalysing, rather than substituting.
Finally, non-bank capital needs to be accessed at scale. With less than 2% of the AUM of the 300 largest asset managers targeted at Africa, there is scope for much greater involvement of private investors, but only if the products available can be standardised, understandable and rated.
The potential global benefits of Africa’s sustainable growth
A recent Standard Chartered report, Just in Time, has estimated that developing markets, of which Africa represents a large proportion, need $95tn between now and Net Zero. If the countries were to fund it themselves through taxation and borrowing, it could reduce household consumption by an estimated 5% p.a. This would be an especially unfair burden, given Africa’s low contribution to global emissions. If funded by public and private capital from developed countries, on the other hand, GDP could be increased by 3.1% in emerging markets and 2% worldwide (equivalent to $108tn to 2060). This would represent a welcome contribution to global growth in the mid-21st century.
Net Zero and Africa’s energy policy
During a Q&A session moderated by Arunma Oteh, Winters was asked about how the drive for Net Zero would affect the nearly 800 million people with no access to electricity, many of whom are in countries looking to increase the levels of emissions-generating industrial, educational and urban activities as part of their growth agendas. Winters acknowledged that Africa’s power deficit was enormous and that a just transition must be central to any successful sustainability action, and he accepted that the strong economic growth that was on offer would also entail a rise in emissions, before a reduction. But, given the target of a 45% reduction in emissions by 2030, he hoped that big investments in better power, manufacturing and agriculture would be made now. When asked specifically about natural gas, Winters explained that – as in the IEA’s likely scenario – gas usage would increase due to underlying growth and would represent an essential transition fuel for the continent.
COP26 and the Taskforce on Scaling Voluntary Carbon Markets
When reflecting on COP26, Winters felt that notable successes had been achieving greater involvement of the private sector, developing a clearer model for public-private relationships (and in the process overcoming some initial antagonism between the parties) and establishing good frameworks for measurement and assessment. One of the areas in which he felt there was more to do was Article 6 on market mechanisms and non-market approaches. COP26 saw the adoption of guidance, rules, modalities and procedures to be overseen by a Supervisory Board, and the introduction of instruments (ITMOs) similar to carbon credits in the voluntary carbon markets, but there remain some areas to clarify around past credits and the potential for double counting, amongst others.
Winters was then asked about his role as Chair of the Taskforce on Scaling Voluntary Carbon Markets (TSVCM), the private sector-led initiative working to scale an efficient and effective voluntary carbon market. He explained that it contains 450 members from a range of fields – NGOs, academia, private sector actors, including emitters, and intermediaries – who are seeking to get tens or hundreds of millions of dollars into environments at risk and to incentivise the development of carbon-reducing technologies that would otherwise lack investment. The first focus of these activities has been the Amazon, the Congo Basin and the Indonesian rainforests, currently home to the world’s largest existing carbon sinks.
Looking ahead to COP27
Oteh then asked Winters about his thoughts on COP27 and what his criteria for success would be for that meeting. He hoped to see ongoing focus on public-private partnerships, that is, an acknowledgement that the problem was too large to be solved by either party alone. Then he asked for greater specificity in the definitions in Article 6 about how national accounting reconciles to carbon markets. Finally, he said that governments had to deliver the funds they promised, if they were to have any chance of catalysing private sector financing in the volumes required.
Overall, Winters was positive that the required momentum was building behind this issue. As we look forward to COP27 and think about Africa’s journey towards sustainable growth, both he and Oteh were optimistic that Governments and MDBs can catalyse private sector finance to enable a just transition top Net Zero on the continent. We will be watching COP27 to see whether these hopes are realised.
This event was curated by the Royal African Society (RAS) and Standard Chartered and supported by the Wheeler Institute for Business and Development and the LBS Africa Club.
David Jones MBA 2022 is a Classics graduate and has worked as a teacher in Malawi, an accountant at Deloitte and in the finance function at the Science Museum in London. He completed an internship with the Wheeler Institute’s Development Impact Platform in Zambia over summer 2021 and is now continuing as an intern for the Wheeler Institute, contributing to the creation of content that amplifies the role of business in improving lives.
NMB Bank Plc has disbursed a total of 30.7bn/- or 41 percent fromJasiri bond proceeds to women Micro Small and Medium Enterprises (MSMEs) and businesses whose products and services directly impact women,during its first quarter.
File photo showing deputy permanent secretary, ministry of finance and planning Lawrence Mafuru ringing the bell during the listing of Jasiri Bond at the Dar es Salaam Stock Exchange (DSE) in April this year. Centre is the NMB Bank managing director Ruth Zaipuna and left is DSE CEO MoremiMarwa.
The segment disbursement ratio was at 78.22 percent, whereby 23.9bn/- disbursed to Micro and Small Enterprises (MSEs) and 6.8bn/- disbursed to Small and Medium Enterprises (SMEs), according to the bond’s quarterly disbursement report.
Jasiri Bond is NMB’s first gender bond whose net proceeds is used to (re) finance eligible projects/activities that are expected to support socio-economic empowerment of women and promote gender inclusion.
“In accordance with the bond framework, pending allocation proceeds have been temporarily invested in short term money market,” the report says.
The bond represents a promising financing vehicle for institutions committed to addressing and reducing gender inequality by improving women’s access to financing, leadership positions, and equality in labour markets.
Jasiri Bond collected a total of 74.268bn/- and unutilized portion of the bond is amounting 43.58bn/-. Tranche was over-subscribed by 297 percent from an offered 25bn/- with 15bn/- green shoe option.
The disbursement report says the bank intends to allocate all proceeds within 18 months of issuance, as stated in bond’s framework.
More than 1,600 investors in the NMB Jasiri Bond which was opened February 7, 2022 and closed on March 21, 2022 earn an interest rate of 8.5 percent per annum payable quarterly, throughout the three years, until March 2025.
The NMB Jasiri Bond is part of the lender’s 200bn/- Medium Term Note (MTN) Program that had mobilized a total of 148.2bn/- in the past three tranches.
NMB Bank’s Jasiri Bond was listed on the Dar es Salaam Stock Exchange (DSE) in April this year and is recognized as the first gender-based financial instrument to list on the bourse in Sub Saharan Africa (SSA), making Tanzania the pioneer of such financial instruments in the entire region.
NMB’s Jasiri Bond was issued at a time when the Capital Markets and Securities Authority (CMSA) was about to finalise regulations for issuance of all financial products that falls under the ‘sustainable instruments’ category.
Sustainable Instruments are a new product in the market, as the CMSA approved the regulations for such instruments on March 1, 2022.
Mark Napier, CEO of FSD Africa, market facilitator, pointed out during the listing of Jasiri Bond that access to capital by women has long impeded equitable and inclusive economic prosperity.
“We are proud to support NMB Bank on the first gender bond in Sub-Saharan Africa, a ground-breaking issuance that builds on our work supporting the first gender bond issuance in Morocco. Our support affirms our long-term commitment to ensuring gender equality and economic empowerment for women,” he added.
