Africa contributes the least to global greenhouse gas emissions each year, yet it is the continent that suffers most from the effects of climate change. The Intergovernmental Panel on Climate Change found that African countries’ gross domestic product per capita for 1991-2010 was on average 13.6% lower than if climate change was not present. To reach the nationally determined contributions by 2030, an estimated $2.8tn will be needed. International climate conferences have taken steps to provide funding to vulnerable countries.
Scaling up capital for sustainability in Africa is a priority for African countries. The Bank of Mauritius and the Central Bank of Kenya have taken the lead in this area, scoring maximum on OMFIF’s Absa Africa Financial Markets Index 2022. Both banks have requested financial institutions to integrate climate-related risks into their governance, strategy, risk management and disclosure frameworks. They have also requested banks to expand their toolkit for scenario analysis and stress-testing, based on the Network for Greening the Financial Sector’s guidelines.
Despite these positive steps, the implementation of guidelines remains a challenge. Capacity-building is a significant obstacle in integrating ESG factors into investment decision-making, due to the lack of expertise and resources and limited understanding of the full scope of risk. To raise finance for the transition, both banks have encouraged the issuance of green bonds.
Progress has been made, however collaboration from all stakeholders is necessary to adequately address climate risk and build sustainable capital markets. Renewable energy in Africa presents significant potential for the transition to a low-carbon future. To realise this potential, countries need to create an environment for developing and scaling up projects, investing in research and technology transfer, and integrating public-private partnerships.
Key Points:
• Africa contributes the least to global greenhouse gas emissions but suffers most from the effects of climate change
• $2.8tn is estimated to be needed to reach the nationally determined contributions by 2030
• The Bank of Mauritius and Central Bank of Kenya have taken the lead in scaling up capital for sustainability in Africa, requesting banks to integrate climate-related risks into their governance, strategy, risk management and disclosure frameworks
• Capacity-building is a challenge in implementing these guidelines
• Green bonds are being encouraged to raise finance for the transition
• Renewable energy in Africa presents significant potential for the transition to a low-carbon future
• Collaboration from all stakeholders is necessary to adequately address climate risk and build sustainable capital markets