London Stock Exchange welcomes first East African sustainability bond listing
In a bid to meet Africa's substantial climate finance needs, various strategies are being implemented to increase private sector engagement. The continent requires approximately $2.8 trillion to $1.8 trillion by 2030 for climate action and adaptation, but private sector finance remains limited due to high perceived risks, uncertain policy environments, and insufficient de-risking mechanisms.
One of the approaches to address this issue is de-risking investments. This can be achieved through policy reforms, blended finance (combining public and private funds), guarantees, insurance, and local currency financing. These measures aim to improve risk-return profiles and attract private investors.
Another strategy is the establishment of government-led country platforms. These platforms unite governments, international financial institutions, development partners, and the private sector to coordinate and scale finance aligned with national priorities. Examples include South Africa’s Just Energy Transition and Egypt’s Country Platform.
The scope of climate finance initiatives is also being expanded to integrate adaptation objectives. This approach addresses water security, sustainable agriculture, and community health, better aligning with Africa’s Nationally Determined Contributions (NDCs) and increasing investability.
Forums and matchmaking events, such as the Adaptation Investment Matchmaking Symposium in Zambia, are being created to connect national adaptation plans with funding sources and to present investment-ready projects. These initiatives foster regional coordination and help increase private sector investment.
Innovative mechanisms, like Debt-for-Climate swaps, are also being explored. These swaps allow countries to reduce debt obligations in exchange for climate investments, thereby addressing both fiscal constraints and climate adaptation needs.
Improving data transparency and reporting aligned with sustainability frameworks, such as the ISSB, SDGs, and ESG, is another key strategy. This move aims to increase market confidence and clarify viable business models for adaptation finance in the private sector.
Here is a summary of the challenges and the approaches to increase private sector climate finance:
| Challenge | Approach to Increase Private Sector Climate Finance | |----------------------------------|----------------------------------------------------------------------------------------------| | High perceived investment risk | De-risking strategies: blended finance, guarantees, insurance, local currency financing[1] | | Fragmented or uncertain policies | Government-led country platforms to harmonize finance and priorities[1] | | Limited adaptation-focus | Expand finance mandates to include adaptation and resilience metrics[2] | | Lack of investor engagement | Matchmaking symposia connecting projects with funders; improved data/reporting[3][5] | | Fiscal constraints on countries | Debt-for-Climate swaps to free fiscal space for climate investments[4] |
These strategies are crucial given Africa’s urgent climate vulnerabilities and the difficulty in mobilizing sufficient private capital for both mitigation and adaptation actions on the continent.
In practice, the Financial Market Operations (FMO) led a €130m syndicated loan for Turkey's QNB Leasing, while NMB Bank, a commercial bank in Tanzania, cross-listed its inaugural sustainability bond, the NMB Jamii Bond, on the London Stock Exchange. The bond raised a total of TZS 400bn (€142m) from both local and international investors.
Cibus Capital co-led a $40m robot mushroom investment, demonstrating private sector interest in innovative, green projects. International networks like GFANZ could support pipeline development and back transaction accelerators, further boosting private sector climate finance in Africa.
Recommendations have been made to address this, including targeting higher leverage ratios through blended financing structures and supporting capacity building within domestic finance institutions. Despite Africa being predicted to be $2.5trn short of the finance it needs to cope with climate change by 2030, despite contributing the least to greenhouse gas emissions, these strategies offer a promising path forward.
- To effectively address Africa's significant climate finance requirements, de-risking strategies are being employed, which include blended finance, guarantees, insurance, and local currency financing to enhance risk-return profiles and draw in private investors.
- Government-led country platforms are being established to bring together various stakeholders such as governments, international financial institutions, development partners, and the private sector, aiming to coordinate and scale finance in line with national priorities.
- The scope of climate finance initiatives is being broadened to incorporate adaptation objectives, focusing on areas like water security, sustainable agriculture, and community health, better aligning with Africa's NDCs and enhancing investability.
- Innovative mechanisms like Debt-for-Climate swaps are being considered, enabling countries to lessen their debt obligations in exchange for climate investments, thereby addressing both fiscal constraints and climate adaptation needs.
