An announcement by the African Development Bank (AfDB) of two green banking facilities – in Benin and Ivory Coast – through its Africa Green Bank Initiative marks the first steps in a major effort to utilise locally-generated financial solutions to propel sustainable development.
La Caisse des Depots et Consignationa du Benin, and the Ivorian National Bank will host the two facilities that will handle a total of US$1.6 million.
“It is a powerful tool for reducing financing costs and mobilising private sector investments in climate action in Africa,” said Kevin Kariuki, the AfDB Vice President for Energy, Power, Climate, and Green Growth, explaining the importance of the green banks.
The initiative followed an assessment by the African Development Bank and the Climate Investment Fund in six African countries; 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 mobilising local private investment for green investments in Africa.
A green bank is described as “a financial institution, typically public or quasi-public, that uses innovative financing techniques and market development tools in partnership with the private sector to accelerate deployment of clean energy technologies.”
Solomon Quaynor, the AFDB’s Vice President for Private Sector, Infrastructure and Industrialization, said; “this technical assistance will enhance local financial institutions’ climate governance, green projects’ origination and monitoring which is therefore key to attract private capital by entrenching long-term investor confidence.”
Launched in November 2022 during the COP27, this initiative stems from a joint report by the AfDB and the Climate Investment Fund.
Green banks are being hailed as critical institutions capable of creating a green financing ecosystem that could generate remarkable climate finance opportunities worth US$3 trillion in Africa.
Africa’s urgent need for climate financing is undeniable. A 2021 report by the Global Center for Adaptation reveals that adaptation costs in Africa could soar to $50 billion per year by 2050, equivalent to 1.6 per cent of the current GDP, even under a two-degree Celsius scenario.
This gap is further exacerbated by the declining systematic financing channels from the global North, as developed nations fail to adequately compensate for the loss and damage caused. Current estimates show less than 2% of global funding towards renewables is directed to the continent.
This then compels individual countries to take charge of financing these projects. However, with the global economic headwinds straining resource access, green banking facilities could provide these resources to advance sustainable development projects.
Afdb’s Green Bank Initiative comes when public-led initiatives are also rising in the continent.
Rwanda is progressing towards establishing the Rwanda Catalytic Green Investment Bank, which will fund environmentally friendly investments. The concept was introduced in 2019 during COP 25, and feasibility studies have been completed, indicating that the bank could be operational soon.
However, the Rwanda Green Fund, an exclusive climate change and environment fund, has been operational for over a decade, supporting different climate-resilient projects.
Kenya is working towards establishing a public green bank, joining other East African countries in this effort.
The February 2023 Draft National Green Fiscal Incentives Policy Framework includes proposals to establish the Kenya Green Investment Bank.
Meanwhile, the Development Bank of South Africa, a government-owned institution, has already demonstrated success in green banking by employing blended financing models.
By hosting critical green funds and government-run initiatives and consolidating investment funds from various sources, the bank has created a robust network exclusively dedicated to sustainable development.
Private banks are stepping up their efforts to address climate change by increasing their investments in the sector. Currently, their investments in this area are less than 15%.
Apart from the standard models banking institutions enhance, some are punching above their weight through collaborations with international agencies.
The latest development has seen Bank One Limited, a private banking firm in Mauritius, recently collaborating with the IFC to accelerate climate-specific investments.
With a focus on mitigating climate-related financial risks, the bank will increase its climate-resilient funding footprint to its clients in Mauritius, Kenya, Uganda, Tanzania and Rwanda.
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The African Development Bank (AfDB) has initiated two green banking facilities in Benin and Ivory Coast, marking a significant step in leveraging local financial solutions for sustainable development through its Africa Green Bank Initiative. The facilities will handle US$1.6 million and aim to reduce financing costs and attract private sector investment for climate action in Africa.
This initiative follows an assessment by the AfDB and the Climate Investment Fund in six African countries, which highlighted the potential of green banks to support low-carbon, climate-resilient development by mobilizing local private investments. Green banks, typically public or quasi-public institutions, use innovative financing techniques to accelerate clean energy deployment in partnership with the private sector.
Launched at COP27 in November 2022, the initiative could generate up to US$3 trillion in climate finance opportunities for Africa. This is crucial as adaptation costs in Africa are projected to reach $50 billion annually by 2050. The declining support from developed nations and the urgency for climate financing compel African countries to seek alternative funding sources like green banks.
Other African nations are also making strides in green banking. Rwanda is set to launch the Rwanda Catalytic Green Investment Bank, and Kenya is proposing the Kenya Green Investment Bank in its draft policy framework. The Development Bank of South Africa has already successfully implemented green banking through blended financing models.
Private banks are increasingly investing in climate change initiatives, with Bank One Limited in Mauritius collaborating with the IFC to expand climate-resilient funding in various African countries. These efforts reflect a growing trend across the continent to develop a robust network dedicated to sustainable development and climate resilience.
