Climate finance drawn from public, private and alternative sources of financing seeks to support mitigation and adaptation actions that will address climate change.
The United Nations Framework Convention on Climate Change (UNFCCC) Standing Committee on Finance states that climate finance aims at reducing emissions, and enhancing sinks of greenhouse gases and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts.
The 2019 Joint Report on Multilateral Development Banks’ Climate Finance has indicated that Climate financing by seven of the world’s largest multilateral development banks (MDBs) totalled $61.6 billion in 2019, of which $41.5 billion (67%) was in low- and middle-income economies. According to IRENA, the global energy transition could contribute $19 trillion in economic gains by 2050.
Climate financing by the world’s six largest multilateral development banks (MDBs) from 2017-2019 [Chart above]:
$35.2 billion in 2017
$43.1 billion in 2018
$61.6 billion in 2019
Stabilizing the global climate is one of the most urgent challenges in coming decades. Our warming world affects all people and ecosystems, particularly the poor who already suffer disproportionately from climate-change impacts. Investing in resilient infrastructure in developing countries could deliver $4.2 trillion over the lifetime of new infrastructure. An investment of $1, on average, yields $4 in benefits. Making infrastructure more resilient avoids costly repairs and minimizes the wide-ranging consequences of natural disasters for the livelihoods and well-being of people.
A shift to low-carbon, resilient economies could create over 65 million net new jobs globally out of 2030. The IFC estimates that the NDCs of 21 emerging market economies alone represent $23 trillion by 2030 in investment opportunities. Climate financing is essential to reduce greenhouse gas emissions in both developing and developed countries. It the financing required for an orderly transition to a low carbon, resilient global economy must be counted in the trillions, not billions.
According to the World Bank, significant investment in infrastructure is needed over the next 15 years around $90 trillion by 2030 but it does not need to cost much more to ensure that this new infrastructure is compatible with climate goals. In a number of developing countries, concessional finance such as that from the Climate Investment Funds has been shown to accelerate the point at which renewable become cost-competitive with fossil fuels in some cases fast-tracking these critical “tipping point” by up to four years.
Statistics have it that Africa offers the highest returns compared to most emerging market economies. For the last two decades, the continent has seen steady economic growth underpinned by commodity exports, growing market demand, and strengthened structural elements.
The adverse effects of climate change are threatening to undo decades of development efforts on the continent Africa. For instance, more than 470 million people live in sub-Saharan Africa’s cities, and this is expected to double over the next 25 years. By 2050, the region is expected to house 20 percent of the world’s urban residents. Climate change is a leading factor contributing to the trend toward urbanization, as extreme temperatures and unpredictable rainfall affect income from agriculture. Opportunities to direct investment toward adaptation and long-term climate resilience already exist in areas like water security and resilience for urban populations living in poverty.
As urbanization continues, so does the demand for resources and impact on the environment. Currently, cities consume over two-thirds of the world’s energy and account for more than 70 percent of global carbon emissions. The concentration of people, industry, and infrastructure leaves cities, especially vulnerable to climate change and also uniquely placed to combat it.
African countries have supported low carbon and climate resilient development measures through domestic financing by national budget reallocations, the establishment of national climate funds and partnerships with local private sector, civil society and local authorities.
A multitude of actors is involved in directing climate finance to the continent, both to support low-carbon development and to help countries adapt to the severe impacts that are already being felt. Nonetheless, Africa has not succeeded as much as other regions of the world in mobilizing the funding needed to implement climate-smart initiatives.
Direct government funding is scarce. And the billions of dollars committed to be marshaled by industrialized countries remain inadequate to the magnitude of the challenge of stabilizing a steep trajectory of greenhouse gases. Additional financial investment should be accompanied by rules, regulations, fiscal incentives and effective markets at international, national, and sub-national levels to shift current and projected “business-as-usual” investments, and mobilize resources at the scale required.
With two-thirds of Africa’s population not having access to electricity, investors have taken important steps to financing renewable energy projects in Africa. For instance, the Desert to Power Initiative, launched by the African Development Bank and supported by institutions such as the Green Climate Fund and the Africa50 Infrastructure Fund, seeks to provide 10 GW of solar energy to the countries of the Sahel region by 2025, providing access to green electricity to over 250 million people, from Senegal to Ethiopia. Meanwhile, in 2019 the Kathu Solar Park was inaugurated in South Africa. Providing up to 179,000 households with constant power, the 100 MW plant will prevent the emission of six million tonnes of carbon dioxide into the atmosphere over the next twenty years and was financed by a consortium that included PE firm Metier, development finance institutions FMO and DEG, as well as South African government-owned asset manager, the Public Investment Corporation.
Consequently, in 2007, an African-led movement of epic proportions to green the entire width of Africa, the Great Green Wall, was initiated. The building of the world’s largest ecosystem restoration project by the UN Environment Programme with the collaboration of 21 African nations will maintain a chain of forests and woodlands spreading across the entire continent extending from Senegal to Djibouti.
While grant financing continues to play a crucial role, especially for adaptation actions, in ensuring that climate actions secure multiple gender-responsive benefits for the most vulnerable countries and population groups. Accessibility of climate finance (directly and through accredited entities) from the Green Climate Fund (GCF), the Global Environment Facility (GEF), and the Adaptation Fund (AF) as well as through other bilateral or multilateral public sources) which African countries will have additional resources for climate finance-related projects on the continent is crucial.
In conclusion, public and private actors development financing institutions, governments, and private sector investors, including financiers and project developers should significantly shift and scale-up their investments in sustainable, low-carbon and climate-resilient development. These investments will create new markets, address long-term opportunities and risks arising from climate change, promote wider socioeconomic benefits, and minimize social and environmental harm.