How Africa can capitalise on the expected surge in climate finance

Author: Punki Modise, Chief Strategy and Sustainability Officer at Absa Group

The COP28 climate conference may have disappointed in some respects, but it did pave the way for a surge in funding flows to Africa, which, if managed correctly, could catalyse the continent’s development and bolster its climate resilience.

The summit, which concluded in mid-December, delivered a mixed bag of outcomes.

On the one hand, the “global stocktake” confirmed that the world is far off course if it wants to meet the goals of the Paris Agreement. In particular, the window of opportunity to limit warming to 1.5 degrees Celsius is rapidly closing, and we are even well off track for the less ambitious 2 degrees Celsius target.

In this context, many nations – particularly low-lying island states – were deeply frustrated that the final agreement did not include a global commitment to phase out the use of fossil fuels.

On the other hand, however, real progress was made in some key areas.

First, an agreement was reached on the long-awaited loss and damage fund, which has now been capitalised with seed funding and will soon be operational.

The mandate of the fund is to assist developing countries – including those in Africa – as they recover from climate disasters, which are becoming more frequent and intense as the concentration of greenhouse gases in the atmosphere increases.

The rationale is that developing nations contributed least to the climate crisis but are bearing the brunt of it, and it is only fair for wealthier countries to cushion the impacts.

Next, governments, businesses, investors and philanthropies initially announced at least $57 billion in new climate finance commitments. The final tally was $85 billion.

This capital will go towards clean energy, climate change adaptation measures, and other critical projects, particularly in the Global South.

Most notably, world leaders agreed to truly hyperscale proven clean energy technologies in the years ahead, with a commitment to triple installed renewable energy capacity and double the rate of energy efficiency gains by 2030, as well as doubling nuclear capacity by 2050.

While the funding gap remains large, we believe the quantum of climate finance will start to ramp up in 2024 thanks to these clearer signals to the investment community, philanthropies, development finance institutions and banks.

At the conference, the World Bank raised its target for climate lending to 45% of its total financing by 2025, and other development finance institutions outlines steps to take similar action.

In short, a huge and necessary increase in climate finance commitments is on the cards.

There will, no doubt, be competition among emerging markets for the largest slice of the pie, and it is important that Africa positions itself correctly.

To compete, African nations will need to implement clear climate action plans with ambitious mitigation and adaptation strategies.

They should also work to develop their institutional capacity to enhance their ability to plan and manage major projects, while improving transparency and accountability wherever possible.

And they could introduce frameworks that promote public-private partnerships, which can help to scale up projects and crowd in additional funding.

Further, African nations could seek to leverage the global carbon market for fresh sources of capital – but they must ensure that appropriate guardrails are in place.

If left unchecked, carbon markets can threaten property rights. This is already happening in parts of Africa and must be addressed by policymakers.

Governments will need to develop high-integrity carbon markets frameworks so that they can tap into new funding streams while mitigating the associated risks.

Meanwhile, Africa will need to take charge of ensuring its energy transition is just. To do so, governments must introduce clear frameworks that take into account indirect impacts on communities reliant on the fossil fuel industry.

This will ensure that capital flows address energy transition needs while simultaneously safeguarding vulnerable communities.

Further, these frameworks should be clear that Africa’s transition will inevitably be slower than in developed markets as the continent seeks to balance the need to expand energy access and economic development while also playing its part in tackling climate change.

In all respects, we believe that Africa now has a significant opportunity at its disposal to shape the just transition conversation and attract capital that meets those objectives.

In this regard, the banking sector can work more closely with multilateral development banks – including those on the continent – to mobilise funding, kickstart catalytic projects and move the continent forwards.

“I’m finally persuaded that the world is beginning to see Africa as an opportunity and not as a problematic continent,” Kenyan President William Ruto said at COP28.

We agree and think that Africa can play a critical role in the shift to a nature-positive world, while also ensuring the continent provides affordable and inclusive access to energy, food and water for all its people.

The momentum from COP28 carries through to the World Economic Forum (WEF) annual general meetings in Davos, where sustainability was strongly in focus. The positive outcomes from the climate conference and the WEF meetings will pave the way for a long-term systemic approach to achieving the world’s sustainability goals, and Africa will be central to this.

The ball is now firmly in our court.