Posted on October, 13, 2021 at 09:38 am
More severe droughts, plagues, floods, and famine are some of the anticipated impacts of climate change that we face globally. Over the past few years, we have witnessed some of the dramatic climate impacts in Africa already: the 2019/2020 East African locust plague, the cyclones in Mozambique, the drought in South Africa. Against a backdrop of large infrastructure gaps and social inequality, tackling the climate crisis on the continent is a complex challenge. Sustainable finance can play an important role in driving that much-needed change.
Large investments are required across the African continent to combat climate change and drive inclusive growth. The African Development Bank estimates that financing for the continent’s infrastructure falls short by up to USD $108 billion per year. This is where sustainable finance plays an important role.
Sustainable finance means driving capital towards projects and businesses that promote environmental protection and inclusive growth. This can range from environmental projects that drive renewable energy and clean transportation, to social projects that deliver affordable housing or much-needed social infrastructure.
Businesses, and more specifically, banks, need to make firm commitments to enable a sustainable future. Committing to programmes such as South Africa’s renewable energy programme and the United Nations Principles for Responsible Banking (PRB) framework is one way for firms to change the way deals are assessed by incorporating environmental and social aspects into their analysis.
Meaningful changes need to be made to the way that African companies, and firms globally, operate, in order to facilitate sustainable solutions for clients and the future.
However, while Africa as a continent is the least responsible for climate change, it’s the continent on which the impacts will be felt the most. Effecting a just transition is crucial.
Many countries in Africa are fossil-fuel dependent, relying on fossil-fuel industries to provide jobs, tax income or stable electricity. Decisions to limit emissions can have significant unintended consequences on the lives and livelihoods of people. A just transition means solving for the social aspects, for example ensuring access to decent work, housing, and basic services, while transitioning from fossil-fuel dependency to renewable energies.
This requires a nuanced understanding of what’s possible, what’s practical and what’s reasonable. The way that the just transition plays out in Africa will be vastly different from how it’s playing out in developed markets. This is due in large part to Africa’s economic dependency on certain minerals, the cost of transitioning and the availability of alternative energy sources. While they might not be as big of a factor in more developed countries, social implications are incredibly important to consider in the African context.
Sustainable finance solutions, then, need to be applied on a case-by-case basis, taking both challenges and opportunities into consideration. Banks need to partner with clients on their transition journeys to identify new opportunities or mitigate risk arising from environmental changes, and to engage in their transition strategies and investment needs.
The investment needed to drive inclusive growth, mitigate climate change, and adapt to the changing weather patterns in Africa is vast. In delivering sustainable finance, banks can prepare clients for the transition and positively impact the societies in which they operate.
At the end of the day, climate change affects everyone. It’s a threat multiplier that exasperates the challenges the continent already faces, for individuals, businesses, and states, but the climate crisis can also provide an opportunity for banks to step up and support the just transition through sustainable financing.
Source: 702