Exclusive: AfDB enrolls Kenya, 4 national banks in COP27 green banking fund

By Anne-Marie Bissada

Posted on Monday, 7 November 2022 23:29, updated on Tuesday, 8 November 2022 11:35
Africa Pavillion co-shared by AfDB at COP27 in Sharm el-Sheikh, Egypt. (photo: @AfDB_Group)

Locally based financing systems - or green banks - can provide a homegrown solution to Africa's climate funding obstacles, says the African Development Bank (AfDB), beginning with a pilot project that includes the Kenyan government and four national banks.

The just-started COP27 UN climate change confererence is being billed as the conference for Africa given Egypt is hosting. One major issue on the table is funding: Who will foot the bill for climate adaptation and mitigation projects? Waiting for the West to come through with much-needed funding has proven disappointing, and leaves Africa in a vulnerable position.

“We [Africa] have the solutions” Audrey Yamadjako, senior principal climate officer at the AfDB and coordinator of this initiative, tells The Africa Report on the sidelines of COP27 in Sharm al-Sheikh.

Ahead of the UN Conference on Climate Change, there had been early meetings of African stakeholders and leaders to drum up more concrete promises of funding specifically for climate adaptation and mitigation projects.

But rather than wait for non-African investment, the AfDB is proposing a green banking system that rides on already existing structures using national African banks. The pilot is expected to launch in January.

Green banks are locally-based financing mechanisms that are dedicated to funding sustainable projects with the aim of soliciting private investment

The AfDB is set to officially announce towards the end of COP27 the participants in its African Green Banks Initiative. But The Africa Report has learned that the Kenyan government has signed up for the initiative along with CDC Benin, Ecobank Sénegal, Banque Nationale d’Investissement Côte d’Ivoire and CIB Egypt.

Show me the money

Going into COP27, funding has been the main issue for developing countries, especially those in Africa.

Despite a decision at COP15 in 2009 for the world’s richest countries to fund developing countries hit by climate change $100bn every year from 2020 to 2025, a point that was revisited at last year’s COP26, only a fraction of that has been received.

For Africa, that funding is needed to pay for adaptation projects, such as upgrading infrastructure to ensure it withstands rising ocean levels, planting more trees to minimise the effects of soil erosion that lead to drought, or ensuring a functioning electricity grid through solar energy.

But in the current financial crisis brought on by Covid-19 compounded by Russia’s invasion of Ukraine, governments are even more reluctant to fund projects that they won’t benefit from directly. As one environmental minister told The Africa Report: “it’s a matter of survival”, not longterm investment choices.

So rather than wait for the West to come to Africa’s aid, Africans want to fix the problem themselves through green banking.

Not a new system but…

As Yamadjako explains, the green banking system is not entirely new. The idea has been around since 2018.

“It’s a model which has been developed first in UK and [the] US. [In the] US we have have a lot of green banks, especially on the domestic market. They are supporting domestic investment in renewable energy, solar panels. But [the] US is also building some polic[ies] and some taxation to bring more resources to those green banks. We also see some green banks developing in Asia and in South America. We have one in Africa, in South Africa,” she says.

The idea is simple.

  • Local 

Participating banks and government must be local. They are the ones most familiar with the needs on the ground for specific sectors, or in terms of the country’s strategy in relation to its Environment and Climate Action.

Participants are then given an “envelope” earmarked for green projects that require funding. They can also add to the amount through additional funding received from green bonds, taxes, and loans or grants from Development Finance Institutions (DFIs), such as national and multilateral development banks (NDBs and MDBs).

  • Derisking

It is up to the respective banks and government to determine the criteria that needs to be met to receive the funding. There’s no threshold of financing for a particular project, but that “will depend on the bank’s capacity as well as the source of financing” says Yamadjako. But the project must be “green”.

While private institutions outside Africa have been reluctant to invest in African projects due to perceived risks, this green banking system is seen as a way to “de-risk”, making it more attractive for private investors.

  • Funding

The multi-donor climate trust fund (AG3F: Africa Green Finance Facility Fund), or “envelope” needed to support these banks will come via partners attracted by the AfDB such as the “Climate Investment Funds (CIF) and Climate Action”.

In due time, as more and more projects take off, they can be scaled up, ideally through “private hands.”

Yamadjako adds: “It’s just a trust fund [that] will support the creation of all those green banks on the continent. And we want to have those local green banks everywhere so they will bring climate finance locally.”

“That’s why it’s really powerful, because this is [the] solution we were looking for.”

Chicken and egg …

For now, the AfDB will provide technical assistance during the initial phase, as it works to get funding through partners.

That assistance includes guiding banks on how to evaluate green projects, how to derisk them, or  how to structure and/or support new technology. The AfDB sees itself as providing support to these banks and governments as they transition to a green system, because “tomorow all things will have to be green,” says Yamadjako.

Doing so will then take the green banking to the next phase, when funding should be available.

The goal between now and the end of 2023 is to gather $100m, with an ultimate goal of $1.5bn by 2025.

African solution

Although Africa only contributes less than 4% to global greenhouse gas emissions, it is being asked by other parts of the world, notably the West, to spend around 2% to 3% of its GDP to combat the problem.

“This is climate injustice,” Sameh Shoukry, President of COP27 and the Egyptian Foreign Minister Sameh Shoukry, said in September.

But if this green banking model provides a solution for African funding for African projects, then many of these countries can “leapfrog the whole sustainable and industrialisation pathway,” says Yamadjako. “We really believe this is the solution for climate funding.”

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