Climate Finance Innovation for Africa

Highlights

The total annual climate finance mobilized in Africa in 2020 was only USD 29.5 billion. The amount of climate finance in Africa falls dramatically short of what is needed to implement Nationally Determined Contribution (NDCs) in the region.
Meeting Africa’s climate finance needs will require significantly higher levels of investment, especially from the private sector. The private sector must play a more prominent role in closing the climate finance gap in Africa.
Barriers to financial market depth, governance, project-specific characteristics, and enabling skills and infrastructure are some of the challenges that have stifled private investment in African climate solutions to date.
Innovative climate finance structures can be deployed to improve capital efficiency and overcome the barriers to finance which have stifled investment to date.

Overcoming barriers to climate finance

Given their specific characteristics, financial instruments and mechanisms should be deployed depending on the unique geographic and sectoral context of an investment opportunity.

This paper provides detail on such innovative instruments that have been launched across the continent:

TerraFund for AFR 100 has deployed a standardized process to deploy early-stage catalytic finance and technical assistance to spur the growth of grassroots innovators operating in the challenging land restoration sub-sector.
The Sub-National Climate Finance Initiative uses a blended private equity instrument that targets a 20:1 private-to-public finance leverage ratio for its investments in mid-sized climate infrastructure projects.
Kenyan real estate developer Acorn has financed its green student housing portfolio by launching three separate capital markets instruments to attract a range of investors with different risk profiles.
Revego Africa Energy has aggregated a diversified portfolio of operating renewable energy assets into Africa’s first YieldCo, providing an avenue for risk-averse and hard-to-reach institutional investors to fund climate solutions.