Africa, one of the most climate-vulnerable regions of the world, currently captures just three per cent of sustainable investment flows, showing the challenge for low-income developing countries to capitalise on the green finance boom.
Without the foundational skills, data, regulatory frameworks and policies to support green finance, developing nations will struggle to offer adequate scale, quality and returns for private investors. At the same time, the greening of the global financial system must account for the unique challenges and opportunities in regions outside of Europe and North America or risk entrenching existing barriers to funding.
Green Continent Campaign
If COP26 primed the pump, COP27 will be about getting finance out the pipes. Glasgow delivered the headline that $130tn of private capital is now covered by net zero targets. However, this figure was quickly criticised as misleading, reflecting a shift in focus from finance in theory to finance in action. This trend will continue through to COP27 as analysis of greenwashing ramps up and developing countries push for financial commitments to translate into the real economy.
With African nations leading the agenda in Cairo, we are also likely to see a focus on longstanding items of interest that the Africa Group of Negotiators feel are underserved—specifically, finance for adaptation and resilience, as well as reparations for loss and damage. Given the continent’s rich natural capital and the importance of this to African economies, the topic of nature in the context of emissions absorption will be another major feature.
At the same time the economic challenges facing African nations have been exacerbated by the Covid-19 pandemic. Those who argue the recovery offers an opportunity to pursue a more sustainable development path which delivers on climate and other SDGs as well as economic growth may face a challenge persuading governments struggling with the legacy of the pandemic in terms of increased debt and the looming prospect of high global inflation and rising interest rates.
- Create a platform for engaging key stakeholders with the means to make green finance work for Africa
- Persuade key stakeholders to discuss the practicalities of turning global green finance commitments into tangible outcomes for Africa’s real economy
- Provide a channel for African voices and perspectives to gain greater traction in the global debate on green finance
Strategic positioning for FSD Africa
FSD Africa brings experience and a track-record to the conversation around Africa’s response to climate change. However, while there is a shortage of credible voices who can talk to the challenges the continent faces in the lead up to COP27, there are a number of factors that could restrict FSD Africa’s communications in certain contexts. These include its links to the UK government, its role as an enabler over financier or issuer, and the preference among some media for top spokespeople to be of African heritage. Take as an example the issuance of a green bond: often journalists will want to speak directly with the issuer or a bank regarding the transaction given their closeness to the deal.
While bearing these factors in mind, our approach is to position FSD Africa as a leader in the green finance space. We would draw on its work building financial markets to talk credibly about what is needed to increase green finance flows and what new specific developments, say a sovereign green bond, mean for the wider market. This thought leadership needs to extend beyond traditional channels, building on FSD Africa’s natural strengths as a facilitator of green finance collaboration and an advocate for change among investors, policymakers, and the global community.
- The recovery from Covid-19 presents Africa with the opportunity to build back better with sustainability, resilience and inclusiveness at its core
- We believe that in doing so Africa can leapfrog the environmentally damaging development models of the past and instead build the foundations for a resilient low-carbon economy which harnesses the potential of its people and its rich natural capital.
- But first we have to address the gap in green funding; half of Africa’s GDP is exposed to climate change yet it receives just 3% of climate finance. This has to change
- The money is there: last year saw huge pledges of green capital from global asset managers. But for the 6.5 billion people living in developing countries, this year must be about getting it out of the pipes and to projects on the ground.
- Domestic financial institutions also need to play their part.
FSD Africa’s role is threefold:
- Enabler – helping to create a policy and regulatory environment that encourages the development of green financial instruments and also builds investor confidence; using research and data to make the investment case particularly for climate resilience and natural capital and to tackle the perception among international investors that Africa is high-risk
- Pathfinder – providing early stage finance to innovative green projects to demonstrate the market opportunity, creating conduits that give international investors access to opportunities at scale
- Bridge – using our dual heritage as an Africa-based institution with UK backing to bridge the gap between the developed world and Africa, open channels for international investment and ensure an African voice is heard in the international forums setting standards
Our work in green finance
And we are working with partners to develop innovative approaches to managing the impact of climate change, for instance, the increased risk of flooding in urban areas.
Critical to the way we work is how we use our global presence across public and private sectors to advocate for the business practices and government policies needed to accelerate action towards and realise the promise of the Paris Agreement.