AfDB introduces model for green financing

With the introduction of the African Green Bank Initiative, a paradigm for delivering green financing across the continent, the African Development Bank is bolstering the promotion of robust, environmentally friendly, and sustainable growth.

The program, which was introduced at the recently finished UN Climate Change Conference (COP27) in Egypt, will assist in the execution of the Nationally Determined Contributions of African nations (NDCs).

The African Green Finance Facility Fund will support the Green Bank Initiative, which is a component of the African Financial Alliance on Climate Change (AFAC) (AG3F). Governments and financial institutions will receive technical help from AG3F for developing and capitalizing green facilities. AG3F will also co-invest with those who are involved in green initiatives and provide de-risking instruments to boost private sector mobilization.

Kevin Kariuki, vice president of the African Development Bank for Energy, Power, Climate, and Green Growth, announced the idea and said that the African Green Bank model will increase the continent’s access to international climate finance.

“The Green Bank Initiative is a powerful tool for reducing financing costs and mobilising private sector investments in climate action in Africa,” Kariuki said.

Developing a pipeline of green projects and facilitating local financial institutions’ access to capital, according to him, was made possible by multilateral development banks and other international financial organizations.

The African Green Bank plan, which would have a $1.5 billion trust fund endowed with it, was designed as one of many strategies to increase global financial access from its current annual rate of 3% to 10% by 2030.

According to Kariuki, the idea was based on an evaluation of the potential for Green Banks in six African nations: Benin, Ghana, Mozambique, Tunisia, Uganda, and Zambia by the African Development Bank and the Climate Investment Funds.

“The assessment revealed that green banks have significant potential for attracting new sources of catalytic funds when supporting low-carbon, climate-resilient development through blending capital and mobilising local private investment for green investments in Africa,” he said.

In addition to strengthening local financial institutions’ capacity to develop a substantial pipeline of bankable green projects, according to Kariuki, the program will de-risk investments and solidify long-term investor trust in climate-resilient and low-carbon projects in Africa.

“It will do so through investing in sectors such as energy efficiency and renewable energy, climate-smart agriculture, resilient infrastructure, and nature-based solutions,” he said.

Financing their climate transition remains a big concern for African nations. Although the expected $2.8 trillion in investment needs arising from NDCs by 2030, monies spent on the continent still represent a small portion of global green finance flows, and the portion covered by the private sector remains small.

A panel discussion on the advantages of creating an ecosystem of green finance facilities in Africa was part of the launch event. Practitioners of climate finance, asset managers, African commercial banks, and Green Banks that already exist were on the panel.

The initiative’s coordinator, Audrey-Cynthia Yamadjako, claimed that green finance facilities, whether they have already existed or have been created, are “the solution to bring private finance at scale in climate action through the translation of the $2.8 trillion NDC implementation needs into well-structured and bankable projects.”

Amundi, a European asset management company, will support the effort by providing technical help, including management and investment team training for green facilities. In order to promote the capitalization of green facilities and thereby contribute to the growth of green investment across the continent, Amundi will also mobilize its investment vehicles for sustainable development in emerging markets and developing nations.