London Stock Exchange Welcomes Initial Sustainability Bond from East Africa
Africa is facing a substantial funding gap in its efforts to combat climate change. According to a UN economist, the continent will be $2.5 trillion short of the finance it needs to cope with climate change by 2030, despite contributing the least to greenhouse gas emissions. This funding shortfall affects both mitigation and adaptation efforts, with only 18% of needs being funded for mitigation and 20% for adaptation.
The private sector plays a crucial role in bridging this gap, but it currently represents only 14% of all Africa's climate finance from 2019 to 2020. Several strategies are being proposed to increase private sector financing.
Information exchange platforms and financial alliances, such as the Glasgow Financial Alliance for Net Zero (GFANZ), can play critical roles in addressing this financing gap. These platforms can improve coordination, build investor confidence, and structure investable climate projects aligned with national priorities.
One example of such a platform is the NMB Jamii Bond, a sustainability bond issued by NMB Bank, a commercial bank in Tanzania. The bond, which aims to increase investment into Tanzanian climate finance and development projects, was cross-listed on the London Stock Exchange. The dual-tranche bond raised a total of TZS 400bn (€142m) from both local and international investors in its initial offering.
Another strategy is to support local solutions involving Small and Medium Enterprises (SMEs) in the renewable energy and circular economy sectors. African SMEs in these sectors show promising returns and impactful climate solutions, suggesting that unlocking finance for these smaller-scale projects could generate meaningful private sector investment.
Collaboration among various financial stakeholders, including Voluntary Carbon Markets (VCFs), Multilateral Development Banks (MDBs), and National Development Banks (NDBs), can also enhance the scale and effectiveness of climate finance. Such alliances leverage their complementary strengths to catalyze private sector involvement and accelerate progress toward sustainable development goals.
In addition, country platforms, led by strong government leadership and clear national strategies, can align public and private capital with a country's climate and development goals, lowering transaction costs and creating bankable investment pipelines. These platforms signal market readiness and attract private investors by integrating energy, jobs, and infrastructure needs within coherent development plans.
Recommendations have been made to address this funding shortfall, including targeting higher leverage ratios through blended financing structures, focusing on private insurance and partial guarantees, and supporting capacity building within domestic finance institutions and developing a pipeline of investible opportunities.
In conclusion, private sector financing in Africa is currently insufficient for climate needs, but information exchange platforms and alliances like GFANZ contribute by creating clear, government-backed investment frameworks, fostering market signals, enabling multi-institutional collaboration, and supporting local innovative enterprises to build climate resilience and meet net-zero targets.
- The funding gap in Africa's climate change efforts is substantial, and private sector finance currently represents only 14% of the total climate finance from 2019 to 2020.
- Strategies like information exchange platforms, such as the Glasgow Financial Alliance for Net Zero (GFANZ), are essential in increasing private sector financing for African climate projects.
- The NMB Jamii Bond, a sustainability bond issued by NMB Bank, demonstrates the potential of cross-listing on international stock exchanges to attract both local and international investors in African climate finance and development projects.
- Supporting local SMEs in the renewable energy and circular economy sectors could generate meaningful private sector investment, as these African SMEs show promising returns and impactful climate solutions.
- Collaboration among various financial stakeholders, including Voluntary Carbon Markets (VCFs), Multilateral Development Banks (MDBs), and National Development Banks (NDBs), can help enhance the scale and effectiveness of climate finance, accelerating progress towards sustainable development goals.
