AFRICA’S FINANCIAL SECTOR MUST TACKLE CLIMATE CHANGE
Africa’s financial decisionmakers have an essential role to play in finding solutions to the continent’s climate problems, say Malango Mughogho and Jacqueline Musiitwa.
If 2020 is seen as the year of the pandemic, 2021 will hopefully be seen as the year of successfully financing a resilient, inclusive global recovery from Covid-19, spurred by two important UN climate conferences: the UN Biodiversity Conference in Kunming in China in May and the UN Climate Change Conference (COP26) in Glasgow, UK, in November.
Finance is being placed front and centre in relation to these issues. When it comes to climate change in Africa, signs that financial sector regulators and policymakers are taking concrete steps towards climate-related policies and frameworks are a positive development.
The effects of climate change and the resultant environmental, social and governance (ESG) issues are a tough reality for African countries. The severity of weatherrelated events such as the 2016-17 drought in Kenya and Ethiopia or Cape Town’s water shortage crisis in 2018 have been made more likely because of climate change.
Most African countries are deemed vulnerable to future climate change impacts because temperature increases on the continent are projected to be higher than global mean temperature increases, and because 23 out of 48 sub-Saharan African countries are classified as low income by the World Bank, characteristics which exacerbate key development indicators such as disease and social inequality.
Yet the continent contributes less than 4% of global greenhouse gas emissions and therefore can do very little to address the climate change mitigation needed to reduce these impacts.
This points to the need for the multi-sectoral problem-solving that takes place through the UN climate conferences, but over the years, the link between climate resilience and financial sector policymakers in Africa – and indeed in the rest of the world – has been weak.
However, this year’s biodiversity conference provides an opportunity for financial policymakers and regulators to not only engage in the wider discourse on climate, but to also play a part in creating an enabling environment for the sector to innovate for climate solutions.
The renewed global enthusiasm surrounding the UN climate conferences can also motivate the private sector to create Africa-focused solutions that align with and deliver positive ESG impacts.
There are no panaceas for these complex issues, but looking at them through a finance lens is important. For example, at a global level, the Global Commission on Adaptation estimated that $1.8 trillion of investment in the areas of early warning systems, climate resilient infrastructure, improved dryland agriculture, global mangrove protection and resilient water resources could generate $7.1 trillion of avoided costs, and non-monetary social and environmental benefits.
This presents a significant opportunity for Africa’s businesses, some of which are already leading innovation in these areas, such as M-Kopa, a mobile-based asset financing platform that provides renewable energy access to those excluded from traditional banking.
While finance is only a necessary but insufficient condition in this context, it also tends to attract decision-makers across a wide range of stakeholder groups, including government departments, the private sector and civil society, which is essential because any climaterelated plan needs financing.