‘We will create an ecosystem of green investment vehicles in Africa’

,

The African Development Bank’s Green Bank initiative aims to equip thousands of institutions and governments with the technical capacity and capital needed to set up green finance facilities to attract global climate investment into transformative green projects. The initiative’s coordinator spoke to us about its work at this year’s AFSIC – Investing in Africa event in London.

October 25th, 2023, Conversation with Audrey-Cynthia Yamadjako

African Business: What is the African Development Bank’s Green Banks Initiative?

Audrey-Cynthia Yamadjako: We launched this initiative at the last COP UN climate conference. Its objective is to create an ecosystem of green investment vehicles on the continent.

Where does this initiative come from? What is the need we are covering? The African continent is the region with the most adverse effects of climate change. We know that we need $2.8 trillion by 2030 for the continent’s countries to implement their Nationally Determined Contributions (NDCs) – those are the efforts by each country to reduce national emissions and adapt to the impacts of climate change, set out under the 2015 Paris Agreement. It’s a huge need.

But we can also see this as an investment opportunity. First, we need green projects on the ground and we need more resources to cover those needs. Currently 87% of the climate finance on the continent comes from the public sector and the rest comes from the private sector. In other regions in the world it is the reverse. We have a critical need to drive the private sector into this action. More importantly, in Africa we also need to find a way to lower the cost of capital to invest in green projects.

Another point about the African continent is that we lack the concessional resources needed to promote green investments at the local level. Most of the time these are located in the main global green investment vehicles such as the Climate Investment Funds and the Green Climate Fund. We need to have local actors who can provide the climate and environmental funding to local developers, and have the flexibility to cover their needs, and also to help them better structure their projects, so they can mainstream adaptation and mitigation in their projects.

Those local green investment vehicles can be public or private. They can be located and hosted by existing commercial banks – or they can be created from scratch by governments that want to have a national green bank. We will be happy to talk at the next COP about the pilot phase. We have started with West Africa where we are starting the creation of the first two green investment vehicles in Benin and in Côte d’Ivoire. It’s a pilot phase. The objective is to cover all the African continent at a regional level, at a national level, but also at local level.

Related articles

The initiative was set up at COP last year – how important has the COP process been to bringing capital into initiatives like yours?

I think COP is really important. The African Development Bank is an observer at COP and bringing forward those kinds of initiatives also helps to bring more partners to the table. For example, this initiative is supported by the Green Bank Network, and also by Amundi, which is one of the largest asset managers in Europe. It’s interesting to see that an asset manager such as Amundi is interested, and finds this kind of solution really critical and important for the future, and is willing to invest in those kinds of solutions.

Why? Because they really see that this is an important model, an innovative way to bring private capital to this green action. And those kinds of models are really needed to bring more green products to the international capital market and also the domestic market.

A key part of what you’re doing is to help educate institutions about the green finance model. How is that message being received?

Actually what we are bringing to the table is more than capacity-building: it is going beyond that. It’s also a very practical solution, really easy and ready to be deployed. This year is really about implementation. And we see great interest from African commercial banks in understanding what this green opportunity is.

Right now they see most of the green investments as risky. But we at AfDB have already had almost 20 years of green investment experience. And we can see that by better structuring a project, by providing the project preparation support which is needed, sometimes you don’t even need concessional finance – you don’t need finance to be below market rates. Sometimes we can reduce the concessionality level that is needed, because we help prepare better. With this experience of investment, we also see that what is needed and the best model is blended financing.

Through providing technical assistance, we help those institutions to create their green investment vehicles in-house. We build our capacity so they will sustain this green investment habit by continuing sourcing a green pipeline of projects, by being able to structure the financing and to work as lead arranger on those transactions to bring all the capital.

What kind of timeframe do you think we’re looking at for success?

The commitment is really important because for these kinds of initiatives we need a lot of support. We need $100m at least by 2025, just to start with the first 10 green banks on the continent – and also to provide the first tranche of the capitalisation of those facilities.

In terms of the timeframe, we all know that the cost of inaction is higher than the cost of action. That’s why we are urged to really accelerate this year. We launched the initiative last year and we were urged to start with the first pilot.

So we are supported by the Climate Investment Funds in this and Canada Climate Action for the first two pilots in Benin and Cote d’Ivoire and we are all gathering additional support from other partners to continue and launch the second phase, which will be in North Africa.

We need to bring in more partnerships to this initiative so that we can duplicate the model as soon as possible, so that every country, and region can have a green investor, a green bank or a green facility, helping to match the needs of a project developer who wants to invest in green mobility or renewable energy. We need to have these up and running as soon as possible, with the appropriate kind of capital needed by the project developers.

And are there any particular examples you can point to in the world currently where a Green Bank has been set up and is really delivering?

There is the New Zealand Green Bank – which is more focused on renewable energy. It was very interesting to see how it spends more time in preparing those projects. Again, sometimes you don’t even need the concessionality – those projects need good preparation.

You see that this model is also really gaining important momentum in South America. The US, the UK – those are more major markets for green banks and in the US you see that those green banks are a lot more focused on domestic supply for solar panels or renewable energy.

But here the focus will not only be on sectors like the renewable energy sector. The sectors will be aligned with each country’s NDCs. They will cover renewable energy, smart agriculture, resilient infrastructure, forestry and clean transport – so it’s really broad because the climate needs to be embedded in every project and every sector.

Source: https://african.business/2023/10/finance-services/we-will-create-an-ecosystem-of-green-investment-vehicles-in-africa