This week is abuzz with chatter from the World Economic Forum, where participants are unpacking seven key themes. However, I’m on the lookout for any reference to climate finance as it’s on my predictions list for 2021.
Last year saw considerable interest in climate finance commitments; a trend that trickled into existence throughout 2018 and 2019.
Climate finance allocated by the AfDB saw an increase of roughly 3% committing $3.5 billion across Africa during that period – the main sectors being renewable energy and resilient agriculture.
It’s a trend that I predict will increase in volume when the pandemic’s impact is securely in hand.
For example, the International Finance Corporation (IFC) is set on working with financial institutions in four countries to mobilise private sector financing. The objective is to increase climate lending by banks in Egypt, Mexico, the Philippines and South Africa.
There is an ulterior motive at play, as the IFC is striving to reduce commitments to coal-fired power – it’s a sure-fire way to deliver on increasing climate mitigation efforts. Conversely, from my previous note and morning coffee video, you will know that I’m at odds with this direction in pursuing climate goals.
Have you read?:
Ed’s note: The new heyday for coal in the energy transition
Why target these four countries in this specific way?
According to the IFC, there is a $23 trillion opportunity for 21 countries to implement their Nationally Determined Contributions (NDCs) under the Paris Agreement in renewable energy, energy efficiency, green buildings, and transport.
Furthermore, the corporation estimates that the banking sector must increase the share of climate lending on its loan books from 7% to 30% over the next decade to catalyse the funding needed for these opportunities.
It’s a significantly substantial percentage adjustment needed. Are we setting the target too high?
Considering the alternatives, which significantly affect Africa’s economic prosperity, the bar cannot be high enough.
To highlight this, during January, the AfDB approved $15 million from the Sustainable Energy Fund for Africa (SEFA) and $10 million from the Clean Technology Fund (CTF). This funding will advance the African Renewable Energy Fund (AREF) II’s projects to boost low-carbon energy generation in sub-Saharan Africa.
Dr Kevin Kariuki, the bank’s vice-president for power, energy, climate, and green growth, warned that there is a real risk of under-investment in the African power sector, including in renewables. This is because of competing financing needs from the pandemic’s cost impacts of post-COVID-19 recovery efforts.
My ears virtually pricked on reading his warning. Yes! I agree there is a risk of under-investment and trust that the world of funding is taking note. The energy transition is underway, and in conjunction, a financing transition is key to its delivery.
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Until next week.