Mobilizing Strategies for Climate Finance

Access to financial resources is crucial in the battle against climate change. Given that Africa receives a disproportionately small share of the funding necessary for its climate initiatives, experts highlight the urgent need for more innovative, localized mechanisms to raise and allocate the financial resources essential for the continent.

During his opening statements, Ibrahima Cheikh-Diong, executive director of the Fund for Responding to Loss and Damage, emphasized that the surge in extreme weather incidents, which disproportionately affect the most vulnerable populations, necessitates immediate action to empower African nations in addressing the climate crisis. He noted the importance of integrating climate considerations into both public policymaking and private sector strategies, praising UDB for establishing a climate finance facility. “In today’s world, every institution must remain relevant in the realm of climate finance,” he emphasized.

Cheikh-Diong urged that financing should be available, accessible, and affordable for African nations, pointing out that cumbersome procedures can hinder the ability of some countries to fully utilize climate funds. “Drawing from our experiences with climate finance, we are committed to ensuring that the processes are agile, flexible, and equitable – allowing individuals to secure the funding they need,” he remarked.

He also articulated the necessity of finding a balance between climate and development, which could open avenues for African countries to innovate, thus enhancing access to social services and infrastructure while being attuned to climate considerations.

Green finance

Dr. Francis Mwesigye, chief economist at UDB, shared that the bank established a green finance unit back in 2019, which has evolved into a full-fledged department. “In 2022, the bank crafted a green finance policy, accompanied by a green finance and investment strategy, green finance guidelines, monitoring indicators, and a green finance scorecard.” The bank’s method involves assessing presented projects for clarity, identifying enhancement opportunities. “In industrial projects, we seek energy-efficient technologies from alternative energy sources. In agriculture, we focus on resilience and adaptation strategies,” he clarified.

Mwesigye mentioned that “the sectors we support encompass climate-smart agriculture, low-carbon industry, climate-resilient infrastructure, clean energy, ecotourism, and sustainable waste management.” To date, the bank has sanctioned projects totaling UGX309 billion (approximately $85 million), with green manufacturing making up 82% of approvals in 2024. He further revealed that around 56% of its climate funding is directed towards mitigation projects, with adaptation efforts accounting for the remaining portion. Mwesigye indicated that the bank seeks to bolster its capitalization and has called for assistance in mobilizing more capital for green and climate initiatives.

Where capital will go

During the panel discussion, Joseph Nganga, vice president for Africa at the Global Energy Alliance for People and Planet, noted that capital tends to flow towards the most favorable risk-return ratio. Consequently, public and philanthropic investments often need to pave the way for large-scale private sector funding.

Nganga articulated that to lure substantial investments, countries should adopt regional strategies. “Not all nations need to create their own generation assets, for instance. Some might better serve by focusing on distribution while utilizing their limited resources elsewhere.” He argued that small-scale, localized projects are likely to restrict the types of investments possible. Finally, he emphasized that African nations must create a conducive policy environment to attract investors. “Investors must be assured that their capital in your country will not face political risks and that there’s consistency in policies and regulations,” Nganga stressed.

Marco Serena, chief sustainable impact officer at the Private Infrastructure Development Group, advocated for a shift in mindset to incorporate climate considerations fundamentally into investment and credit assessments. With extreme weather becoming more frequent, infrastructure projects, for instance, must be selected and designed with resilience in mind. He recalled an example from Rwanda: “We invested in the Kigali water project that serves half a million people; thanks to our decision to elevate the control room above the flood line, the facility remained operational during last year’s floods,” he noted. He also pointed out that recognizing the potential within renewable energy, electric mobility, and battery storage is crucial to leveraging the opportunities presented by climate challenges.

Juvenal Muhumuza, Commissioner for Development Assistance & Regional Cooperation at Uganda’s Ministry of Finance, Planning and Economic Development, shared insights into the country’s efforts to embed climate objectives within policymaking. Uganda has implemented tax incentives for businesses engaged in green technology and sustainable energy, is considering the issuance of green bonds, and is incorporating climate issues into its national planning process to ensure that green elements are integrated.

Despite the perception of risk being a significant barrier to financing availability, Lanre Shasore, senior adviser for energy transition planning (Africa) at Sustainable Energy for All, outlined strategies to mitigate these challenges. She mentioned that her organization has collaborated with the Association of Pension Funds in Nigeria to develop a local currency base to finance clean energy initiatives. “Some of Nigeria’s largest pension funds have pledged 11 billion naira, which will be combined with an energy access initiative from the World Bank to create a $2 billion fund aimed at catalyzing additional investments,” she disclosed. The organization plans to replicate this model in other African nations, such as Kenya and Ghana.

Olympus Manthata, head of climate and environmental finance at the Development Bank of Southern Africa, stated that the bank committed several years ago to allocate 35% of its investments to climate-related projects, with 30% of those funds earmarked for adaptation and 70% for mitigation strategies. Since making this commitment, the DBSA has not only met but exceeded its targets as it continues to expand its climate investments. He emphasized the importance of accessing finance from the Green Climate Fund, the Global Environment Facility, and other organizations, in addition to leveraging limited resources to attract private sector funding. Manthata advocated for enhanced collaboration among development finance institutions to share experiences related to facilities developed, thus streamlining the pathway to funding access.

Uganda’s supportive environment

In her closing comments, Patricia Ojangole, managing director of UDB, praised the Ugandan government for fostering a supportive environment that has enabled the bank to pursue its initiatives effectively. Building on this foundation, UDB has established a solid internal policy framework to navigate its interactions with the government, partners, funders, and other stakeholders. “This serves as our starting point, as stakeholders often inquire about our climate agenda when discussing funding and climate change matters. Therefore, we must demonstrate intent and knowledge in our actions,” she said.

UDB’s climate finance facility is centered on mobilizing capital while ensuring the capacity for effective deployment. A crucial aspect of this strategy is showcasing the readiness of a pipeline of viable projects and the capability to deploy funds efficiently and effectively. Ojangole articulated that the bank’s approach encompasses the entire project lifecycle, from pipeline development to evaluation, deployment, and reporting. “This comprehensive strategy enables us to clearly communicate our actions, showing that mobilization and deployment can happen concurrently,” she concluded.