African states are looking for a financing breakthrough at COP to unlock more affordable financing for the continent's green energy projects.
Seth Onyango, bird story agency
Egypt's Finance Minister Mohamed Maait, who is leading Africa's negotiations, wants a robust financing framework to be put in place to help ease debt pressure off emerging markets as they seek investments for sustainable development.
"This is about greener, cheaper, less risky, debt to accelerate climate action…we want to ensure that there will be a green bond market to encourage green financing, standardising some tools to ensure that green bonds will be covered at a specific rate," he said during a panel discussion.
Egypt Finance Minster Mohamed Maait giving his statement at COP27 in Sharm El Sheikh, Friday, November 9, 2022. The event has been heralded as "Africa's COP" . (Photo : Seth Onyango, bird story agency)
Negotiations at COP27 are tipped to help improve African states' access to capital markets and lower the cost of credit offered to climate-exposed African states.
To fast-track progress, Egypt's COP27 Presidency and the UN Economic Commission for Africa have unveiled an initiative dubbed "Reducing the Cost of Green and Sustainable Borrowing."
This renewed lobbying to drive down the cost of green credit on the content comes a year after the UN unveiled another financial mechanism to help save states more than US$11 billion in borrowing costs over five years at COP26 in Glasgow.
That mechanism allows global investors with portfolios containing African government bonds to approach a Liquidity and Sustainability Facility (LSF) for short-term credit using the bonds as collateral - making it easier for investors to turn those bonds into cash at short notice.
The LSF is already creating the first-ever liquidity window for African sovereign bonds, boosting 'tradeability' and attracting more investors, according to African Export-Import Bank (Afreximbank) President Benedict Oramah.
"We expect LSF to make it easier for African countries to issue more green bonds and to raise market funding to meet urgent mitigation and adaptation needs with less adverse impact on debt sustainability," Oramah said during discussions on innovative financing at the ongoing climate change talks in Sharm El Sheikh.
Maait said he hoped more innovative financial solutions like LSF would emerge at COP27 to make more funds available for green projects in Africa, Green bonds currently cost more than Eurobonds in Africa, he noted.
Commercial banks in Africa have been creating specialised lending facilities to bolster private investment in climate-related infrastructure projects and sustainable businesses.
According to the European Investment Bank (EID) 2021 report, nearly 70 per cent of African banks see green financing as an attractive lending opportunity.
However, there is a big gap between recognising the opportunity and offering attractive financial products.
"Nearly 55 per cent actively look at climate change when making strategic plans. And more than 40 per cent of African banks employ staff to focus on renewable energy. However, only around 10 per cent have tailored their products to serve green finance," the report reads in part.
While analysis by the United Kingdom's Overseas Development Institute and the EIB shows that the number and value of issuances in Africa's green bond market have increased almost yearly, the African market remains small relative to equivalent markets in other regions, according to the EID.
The African Development Bank (AfDB) and the Climate Investment Funds have released a scoping report suggesting a way forward, utilising "green banks" and national climate funds to accelerate green financing.
The AfDB is upbeat that Green Investment Banks and National Climate Change Funds (NCCFs) can increase the capacity of African countries to access and mobilise climate finance in support of implementing Nationally Determined Contributions (NDCs) and related national climate and development goals.
NDCs are at the heart of the Paris Agreement and typify each country's effort to reduce national emissions and adapt to the impacts of climate change.
According to the AfDB, Green Banks can support low-carbon, climate-resilient development by raising and blending capital to finance local climate infrastructure while driving an increase in private investment.
According to the Coalition for Green Capital, green banks can attract more private capital at affordable rates through credit enhancements.
"Financing structures, such as loan loss reserves or loan guarantees, help de-risk investments for private investors, enabling more capital to flow to clean energy projects," it said.
Expectations are high for "Africa's COP" to deliver solutions that make for a far more equitable approach to fighting climate change.
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