Climate finance is undoubtably one of Africa’s most challenging and pressing areas of development. African countries require substantial financing to meet their climate needs. Between 2020 to 2030, based on African government’s Nationally Determined Contributions (NDCs), implementing Africa’s climate response will require USD 250 billion in public and private finance every year. Unfortunately, there is a stark gap between the financing needed and the financial resources that have been mobilized thus far. In 2019/2020, the private sector accounted for only 14% of total climate financing flow on the continent
Considering the vast climate financing needs and limited public financing available, African countries need to explore different innovative “options” for accessing climate finance from the private sector. This report uses an Options Paper framework to assess nine innovative private-sector climate financing options against five bespoke assessment criteria to secure additional financing.
The financing options are (1) Issuing Bonds (2) Carbon Markets (3) Debt for Climate Swaps (4) Remittances (5) Syndicated Financing (6) Reform of Credit Rating Agency Ecosystem (7) Private Climate Finance through Bespoke Climate Funds (8) Private Climate Finance through International and Bilateral Development Finance Institutions (IFIs) and (9) Legislation to Curb Predatory Private Actors. These nine options are assessed against five bespoke criteria that reflect African governments’ financing needs and priorities as set out in Agenda 2063 and countries’ individual NDCs. These criteria are (1) the Capacity of the funding option (2) the Rate of mobilization and disbursement (3) Consistency (4) Conditionalities (5) Diversity of destination.
The report scored the nine options against the five criteria with three options – Carbon markets, Private finance through bespoke climate funds, and Private finance through African Financial Institutions (AFIs) having the highest score. Nevertheless, no instrument can truly deliver on its own considering the scale of finance needed and the unique priorities and needs of each African country.
As the global climate finance landscape evolves and Africa continues to face the impacts of climate change while striving to meet its development goals, it is essential that African countries adopt a strategic, multi-pronged approach to climate finance, focusing primarily on three key areas. The first recommendation is shaping the global carbon market—including in emerging economies such as China—to better serve the continent’s needs. With COP30 approaching, African countries should collectively push for a reduction in the supply of low-quality Certified Emission Reductions (CERs), advocate for tighter emissions trading regulations, and integrate regional carbon markets with global systems to increase the value of African carbon credits. Second is strengthening and increasing the capital of African financial institutions (AFIs) including addressing biased credit ratings and supporting the establishment of the African Credit Rating Agency (AfCRA). Third is advocating for new and innovative climate funds to secure more stable and reliable resources for climate action. As mentioned in a previous Development Reimagined report on Reparations and Loss and Damage, building on the 2% levy used for the Adaptation Fund, African governments should advocate for automatic contributions from sources like carbon market revenues, financial transaction taxes, or multilateral funds such as the GCF.
Furthermore, now, more than ever, securing climate finance for mitigation and adaptation is a top priority for African governments. The recent decisions by the United States to withdraw its climate finance commitments, including the rescinding of outstanding pledges to the Green Climate Fund, the rollback of its Climate Finance Plan, and its withdrawal from the Paris Agreement, have further complicated this priority.
The timeline of U.S. pledges to the Green Climate Fund (GCF) versus the actual delivery highlights the scale of this retreat and its impact. Of the USD 6 billion cumulatively pledged by the Obama and Biden administrations, USD 2 billion has been mobilized to date. Under the new administration, the remaining USD 4 billion has been rescinded.
In this context, African nations must take decisive steps in securing climate finance through innovative mechanisms and a greater mobilization of private sector resources.
To read the full report, please click here for English and here for French.
