Over the past few years, Green Banks have financed low-carbon projects worth billions of dollars, using blended financing, leveraging multiple private dollars per public dollar of financing.
To date, the Green Bank Network, launched at COP21 in 2015, has leveraged $24 billion in public capital to finance more than $70 billion of projects mostly in the renewable energy sector.
But what are Green Banks and what potential do they hold for Africa? A new study published by the African Development Bank in partnership with the Climate Investment Funds and the Coalition for Green Capital, provides some answers.
The report is titled "Potential for Green Banks & National Climate Change Funds in Africa" and gives an overview of the market potential in Benin, Ghana, Mozambique, Tunisia, Uganda, and Zambia.
Green Banks or Funds are "country-driven, nationally-based catalytic finance facilities designed to mobilize private investment." The report adds: "When paired with effective grant programs through National Climate Change Funds, and strong enabling environments and policies, locally-based Green Banks are powerful tools to address market needs, understand local risk and drive private investment."
Two sectors stand out as consistent priorities across the study's countries, namely renewable energy and climate-smart agriculture. Green cities infrastructure is another potential priority sector, particularly in Tunisia.
The report identified some important steps to setting up Green Finance Facility, among them identifying a lead champion to host the green investment window, conducting an in-depth market analysis to identify sectors of priority and quantify projects pipeline.
Experts discussed the implications of the research during a session hosted by the African Development Bank at COP26 in Glasgow. Kevin Kariuki, Vice President for Power, Energy, Climate & Green Growth at the Bank Group, agreed that the private sector had a vital role to play in increasing climate financing.
"A recent assessment led by the African Development Bank shows that the implementation of the Paris Agreement in Africa comes with significant investment opportunities of about $3 trillion by 2030, out of which 75% is expected to be financed through the private sector," Kariuki said.
Panelists emphasized that, to help Africa takes advantage of green investment opportunities, we need to find innovative instruments. While some countries may develop fully functional green financial facilities, others may have a national climate change fund that gives grants to develop green project and build green investment technical capacity.
Africa's access to climate finance is dismally low as the continent only received $20 billion last year, which represents only 3% of global climate finance. Most African countries cannot directly access these funds as many of their national institutions have limited fiduciary and financial management capacity; thus, much of the continent relies on entities such as MDBs, UN agencies accredited with the global funds such as Climate Investment Funds, the Global Environment Facility and the Green Climate Fund.
Attendees heard how African countries still cite the lack of finance as critical, keeping them from developing their green pipeline of projects. While they may have the legal and policy frameworks in place, as is the case in Zambia, they still need to have the necessary green institutions in place.
Francis Mpampi, National Coordinator for the Green Climate Fund's National Designated Authority, said: "To increase local funding in Zambia, we can mobilize local currencies by tapping into pension funds and insurance companies and finance the local infrastructures. This domestic resource mobilization is critical and National Banks can play this role as well as providing technical and investment support, and finance gender inclusive projects in adaptation and mitigation".
The private sector is indeed most reluctant to invest in resilience and adaptation projects. Anthony Nyong, Africa Director of the Global Center on Adaptation, said: "A very detailed modeling assessment that shows the positive rates of returns on resilience investment, that's what the private sector needs to have. By working with the national green banks, it will be easy for us to have access to the private sector. Let them see the benefits of investing in resilience and I'm very certain that we can make headway!"
