AfDB’s new model to deploy green financing across Africa

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The African Development Bank’s (AfDB) has launched the African Green Bank Initiative, a model for deploying green financing across the continent.

The initiative was presented at the just-concluded UN Climate Change Conference (COP27) in Egypt. It will support the implementation of African countries’ Nationally Determined Contributions (NDCs).

Part of the African Financial Alliance on Climate Change (AFAC), the Green Bank Initiative will be supported by the African Green Finance Facility Fund (AG3F). AG3F will provide technical assistance to governments and financial institutions to create and capitalise on green facilities, co-invest alongside those in green projects and provide de-risking instruments to increase private sector mobilisation.

Launching the initiative, AfDB Vice President for Energy, Power, Climate and Green Growth, Kevin Kariuki, said the African Green Bank model would help increase the continent’s access to global 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.

He said multilateral development banks and international financial institutions had a crucial role in enabling local financial institutions to develop a green pipeline of projects and ease their access to resources.

The need for green financing in Africa

The African Green Bank initiative will be endowed with a trust fund of $1.5 billion. It was created as a way to facilitate access to global finance from the current 3% to 10% annually by 2030.

Kariuki said the initiative was based on an assessment by the AfDB and the Climate Investment Funds on the potential of green banks in six African countries, namely 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 blending capital and mobilising local private investment for green investments in Africa,” he said.

Kariuki said the initiative would bolster the capacity of local financial institutions to build a robust pipeline of bankable green projects, while de-risking investments and entrenching long-term investor confidence toward 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.

African countries still face significant challenges in financing their climate transition. NDCs investment is estimated at $2.8 trillion by 2030. But, funds invested on the continent still represent a limited share of global green finance flows and the share covered by the private sector remains limited.

The launch of the African Green Bank Initiative

The launch event featured a panel discussion on the opportunities to set up an ecosystem of green finance facilities in Africa. Panellists included climate finance practitioners, asset managers, African commercial banks and existing green banks.

Audrey-Cynthia Yamadjako, co-ordinator of the initiative, said green finance facilities, newly created or hosted in existing financial institutions, were “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.”

European asset management firm Amundi will back the initiative through technical assistance activities, including training green facilities’ management and investment teams. Amundi will also mobilise its investment vehicles dedicated to sustainable development in emerging markets and developing economies to support green facilities’ capitalisation and thus participate in the development of green investment across the continent.

Source: ESI-Africa