Green bonds could be a way to not only help raise the billions needed for Africa’s energy transition, but also contribute to the development of African capital markets, writes a banking and finance expert. Dhafer Saïdane from SKEMA Business School.
The countries most affected by disasters are those that have contributed the least to the problem. Africa contributes 3% of global CO2 emissions and yet Africa suffers from extreme heat, floods, cyclones, tsunamis, etc.
Africa faces a difficult but not impossible equation: it must encourage growth without fueling CO2 emissions.
The Anthropocene, the moment when humans began to impact geology and ecosystems, began in the 18th century for rich countries. Africa’s Anthropocene has not begun. This situation led Akinwumi Adesina, President of the African Development Bank (AfDB), to declare that “Africa is not at net zero, Africa is at ground zero”.
These violent changes have an impact on the growth trajectory of the African continent. A 30% drop in agricultural productivity appears to be a real threat. Every disaster in Africa leads to a 20% increase in food insecurity. In short, if we do nothing, we can expect a drop in GDP of 30% by 2050.
Billions of dollars of investment are needed to fight climate change in Africa. Some $1 to $1.3 trillion are needed each year to ensure the energy transition and the development of environmentally friendly neo-agriculture and neo-industry.
A solution but not a panacea: green bonds
The solution to the crisis lies in green bonds. This wholesale financing is based on fundraising for environmentally friendly projects, such as renewable energies or clean transport.
Most of Africa’s green bonds have been issued by the AfDB, which has raised more than $1.5 billion since 2013. Nigeria issued a $29.7 million bond to finance solar and energy projects. forestry in 2017. Morocco, Egypt, Kenya, Nigeria and South Africa are among the most dynamic. Nigeria’s Access Bank recently issued a $41 million green bond to protect against rising sea levels and support a solar energy project.
This approach to green bonds could be a “kill two birds with one stone” strategy. Indeed, green bonds and other green financial assets, while ensuring climate financing, can represent an opportunity for African capital markets which are progressing but probably not at the desired pace.
Today, green bonds represent only a small part of the global bond market, but they have real potential to help developing countries move towards greener, more equal economies.
Other financial solutions can come via pension funds. For example, Kenya’s pensions sector is quite developed, estimated at around $12 billion. Funds from the diaspora and the middle class also represent an important lever.
The solution for Africa is not only financial
In the medium and long term, an entire ecosystem must be put in place in Africa. This will depend on three key elements.
- Training and certification in sustainable economics and finance. This involves training real specialists in climate risks and the ecological and digital transition in specialized masters degrees within universities.
- The involvement of civil society, NGOs and think tanks. An African Sustainable Finance Observatory would be extremely useful in unifying and adapting current international regulations. In the same way, a National Council for Corporate Social Responsibility bringing together all the stakeholders from the different African countries would be extremely useful in supporting and designing a coherent national strategy in the face of European requirements.
- The search for impact measurement instruments for companies, banks and organizations to measure progress in sustainable development. These instruments deserve to be adapted to African companies so that the ESG (Environment – Social – Governance) transition takes into account S and G in an Africa which suffers the impacts on E without being responsible for them.