• The African Development Bank is helping to grow 'Green Banks' across the continent
• It hopes they will provide innovative financing to stimulate resilience in green agenda
Image: HOPE MUKAMI
An announcement by the African Development Bank (AfDB) of two green banking facilities marks the first steps in a major effort to utilise locally generated financial solutions to propel sustainable development.
The facilities were set up in Benin and Ivory Coast through its Africa Green Bank Initiative.
La Caisse des Depots et Consignationa du Benin and the Ivorian National Bank will host the two facilities that will handle a total of $1.6 million.
"It is a powerful tool for reducing financing costs and mobilising private sector investments in climate action in Africa," said Kevin Kariuki, AfDB Green Growth VP, explaining the importance of the green banks.
The initiative followed an assessment by the AfDB and the Climate Investment Fund in six African countries: Benin, Ghana, Mozambique, Tunisia, Uganda and Zambia.
The assessment revealed that green banks have significant potential for attracting new sources of catalytic funds when supporting low-carbon, climate-resilient development through mobilising local private investment for green investments in Africa.
A green bank is described as "a financial institution, typically public or quasi-public, that uses innovative financing techniques and market development tools in partnership with the private sector to accelerate deployment of clean energy technologies."
AfDB Industrialisation VP Solomon Quaynor said, "This technical assistance will enhance local financial institutions' climate governance, green projects' origination and monitoring, which is, therefore, key to attracting private capital by entrenching long-term investor confidence."
Launched in November 2022 during COP27, this initiative stems from a joint report by the AfDB and the Climate Investment Fund.
Green banks are being hailed as critical institutions capable of creating a green financing ecosystem that could generate remarkable climate finance opportunities worth $3 trillion in Africa.
ADAPTATION COSTS
Africa's urgent need for climate financing is undeniable. A 2021 report by the Global Centre for Adaptation reveals that adaptation costs in Africa could soar to $50 billion per year by 2050, equivalent to 1.6 per cent of the current GDP, even under a two-degree Celsius scenario.
This gap is further exacerbated by the declining systematic financing channels from the global North, as developed nations fail to adequately compensate for the loss and damage caused. Current estimates show less than 2 per cent of global funding towards renewables is directed to the continent.
This then compels individual countries to take charge of financing these projects. However, with the global economic headwinds straining resource access, green banking facilities could provide these resources to advance sustainable development projects.
Afdb's Green Bank Initiative comes when public-led initiatives are also rising in the continent.
Rwanda is progressing towards establishing the Rwanda Catalytic Green Investment Bank, which will fund environmentally friendly investments. The concept was introduced in 2019 during COP 25, and feasibility studies have been completed, indicating that the bank could be operational soon.
However, the Rwanda Green Fund, an exclusive climate change and environment fund, has been operational for more than a decade, supporting different climate-resilient projects.
Kenya is working towards establishing a public green bank, joining other East African countries in this effort.
The February 2023 Draft National Green Fiscal Incentives Policy Framework includes proposals to establish the Kenya Green Investment Bank.
Meanwhile, the Development Bank of South Africa, a government-owned institution, has already demonstrated success in green banking by employing blended financing models.
By hosting critical green funds and government-run initiatives and consolidating investment funds from various sources, the bank has created a robust network exclusively dedicated to sustainable development.
Private banks are stepping up their efforts to address climate change by increasing their investments in the sector. Currently, their investments in this area are less than 15 per cent.
Apart from the standard models banking institutions enhance, some are punching above their weight through collaborations with international agencies.
The latest development has seen Bank One Limited, a private banking firm in Mauritius, recently collaborating with the IFC to accelerate climate-specific investments.
With a focus on mitigating climate-related financial risks, the bank will increase its climate-resilient funding footprint to its clients in Mauritius, Kenya, Uganda, Tanzania and Rwanda.