Climate Finance: Innovative Financial Structure in Africa

22nd May 2023, 6:49 pm

Climate Finance: Innovative Financial Structure in Africa

In Africa, the amount of climate finance is dramatically falling short compared to the needs of the continent to implement Nationally Determined Contribution (NDCs). The estimation reflects that USD 250 billion is required to be mobilized annually from 2020-2030, and this shall be provided by international public and private investors. While the exact annual climate finance mobilized reported in 2020 didn’t exceed USD 29.5 billion.

Accordingly, a significantly higher level of investment to meet the needs of Africa’s climate finance, particularly from the private sector. However, the private sector played a marginal role in the climate finance provision in Africa, accounting for 14% of total flows. This is mainly due to high risks associated with investing in Africa. Knowing the scarcity of public finance, the private sector shall be encouraged to play a prominent role in closing the climate finance gap in the continent.

Harnessing opportunities of climate investment in Africa will necessitate innovation in financing structures and public capital deployment to ‘crowd-in’ private investment. Mobilizing investment in climate solutions at the required scale will require leaping beyond the traditional financing mechanisms. Innovative climate finance can be deployed to enhance capital efficiency and overcome the barriers to finance that have stifled investment to date. Traditional financial instruments such as grants and concessional debt which are commonly used in Africa will need to be restructured to include broader complex financial solutions.

Increasing deployment of innovative finance will require the following:

1 . Identify barriers constraining finance by sector and geography.

2. Match instruments with barriers. Public and private investors should tailor their financial strategies and instruments depending on the acute nature of the barriers.

3. Match instruments with project lifecycles. Climate finance investments are usually long-term endeavors, with differing considerations across project lifecycles.

4. Enhance engagement and co-financing with local stakeholders. International private and public investors should work in hand in hand with local financial and political stakeholders.

5. Support innovation by establishing encouraging policy and regulatory frameworks.

 

c

Up-scaling Debt for Climate and Nature

One resounding message from COP27 in Sharm el-Sheikh is that our global community must urgently move from “talking the talk” to “walking the walk” regarding climate finance. Globally, we are facing a triple crise of rising debt, climate change and rapid biodiversity loss. Debt for climate or nature swaps are a response to this in which a portion of a country’s external debt is relieved in exchange for domestic investments for the mitigation, adaptation, or resilience to climate cha

c

Climate Finance: Innovative Financial Structure in Africa

In Africa, the amount of climate finance is dramatically falling short compared to the needs of the continent to implement Nationally Determined Contribution (NDCs). The estimation reflects that USD 250 billion is required to be mobilized annually from 2020-2030, and this shall be provided by international public and private investors. While the exact annual climate finance mobilized reported in 2020 didn’t exceed USD 29.5 billion. Accordingly, a significantly higher level of investment

c

Designing Sustainable Finance Taxonomies

Sustainable finance taxonomies can only be interoperable if their common design features are comparable. Alignment is a process that can be broken down to common features – and start on a small scale. The features of all taxonomies do not have to be identical. The agreement on overarching principles – e.g., taxonomies should be science based, dynamic and technology neutral – are the basis for all other elements to be interoperable. Interoperability is then achieved by agreeing on the sp

c

Closing the Climate Action Gaps

Closing the gap on climate action starts with robust actions that policymakers and business leaders should take to help achieving a climate-resilient economy. However, Market volatility and geopolitical uncertainty threaten business leaders to prioritize climate commitments. Three main gaps shall be always on the table to be closed: Closing the ‘ambition gap’ which requires more ambitious targets on the national level. This can be achieved by strengthening the Nationally Determin