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Creativity is key to boosting climate finance for Africa
Climate adaptation measures have mainly relied on public sector investment because their longer investment time horizons don’t typically appeal to private investors.
As debate rages on the source of green investments and the moral responsibility of wealthier nations in creating extreme climate mess we all find ourselves in, what’s clear is that African nations cannot afford to keep calling for implementation of the same strategies that have so far failed to deliver change.
We must find new ways of generating climate finance for Africa beyond focusing on the most investor-friendly projects in the same handful of nations: South Africa, Egypt and Nigeria, which receive half of all private climate financing in Africa.
This will require finding innovative ways to incentivise financing for climate adaptation and resilience that, so far, have proven less attractive to lenders.
Climate financing to Africa has grown by nearly 50 percent, rising to $44 billion in 2021/22. But this is still only a quarter of what’s needed annually to meet the continent’s 2030 climate goals. Adaptation investment accounts for only 20 percent of that total.
How can we do better? Climate adaptation measures, such as protecting coastal areas against rising sea levels and helping farmers transition to drought-resistant crops and agroforestry, have mainly relied on public sector investment because their longer investment time horizons don’t typically appeal to private investors.
While the moral case for public and private investment in adaptation across the continent is clear, appealing to the collective conscience of the world’s wealthiest nations and corporations–those that have over the past century profited from wreaking havoc on the environment and setting climate change in motion–is not a solid strategy.
Instead, along with the moral case, we must make a business case for any meaningful action to be taken. Bloomberg estimates the global adaptation market could reach $2 trillion by next year. To secure a slice of that pie for Africa, here are three tangible steps that we can take:
Define, measure, and monitor: Climate finance has become a catch-all phrase that often overlooks the crucial differences in types of funding. Distinguishing adaptation financing from other forms and sources of climate investment can help African countries match their adaptation needs to the right funding mechanisms and funders.
De-risk adaptation investment: To diversify financing, adaptation projects need to be de-risked. By using public capital creatively to mitigate the risk to private investors, and enticing investing in new adaptation projects, it’s possible to compound the impact of the initial investment and build market confidence and momentum.
Find new sources of investment: In the 2023 Nairobi Declaration, African leaders called for polluters to help pay for climate adaptation through a global carbon tax covering fossil fuels, shipping, and aviation, as well as a global financial transaction tax.
Turning these ideas into reality requires Africa to speak with one voice not just at WEF, but at other global forums. Now is the time to demand sustainable, affordable and equitable adaptation financing to overcome a climate crisis that was not of our own making.
We stand to lose the most from the effects of climate change, therefore we must move with haste to find innovative adaptation financing mechanisms even as we wait for wealthy nations to wake up to the reality that climate change will affect us all, not just the poor.
Expanding investment of African capital could also be significant. In 2022, 75 percent of domestic climate finance came from private sources, amounting to roughly $3 billion. With an estimated $2.4 trillion of private domestic bank, insurance, and pension assets under management across the continent, African institutional investors have the potential to do more.
But they can only do so once robust financial and institutional frameworks are in place, putting the onus on governments to institute reforms, strengthen transparency, and showcase good governance in order to earn the confidence of domestic investors.
Unlocking domestic capital investment would then attract new pools of foreign investment.
The writer is Executive Director at the Pan African Climate Justice Alliance
