Approaches to Activating Climate Finance

Access to financial resources is essential in addressing climate change. Considering that Africa receives a disproportionately small percentage of the funding needed for its climate projects, experts emphasize the urgent requirement for more creative and localized approaches to collect and distribute the funds necessary for the continent.

In his introductory comments, Ibrahima Cheikh-Diong, executive director of the Fund for Responding to Loss and Damage, pointed out that the rise in extreme weather occurrences, which predominantly affect the most vulnerable communities, necessitates immediate action to strengthen African countries’ ability to tackle the climate crisis. He highlighted the need for embedding climate considerations into public policies and private sector strategies, commending UDB for establishing a climate finance facility. “Today, it’s crucial for every institution to remain relevant in the climate finance landscape,” he asserted.

Cheikh-Diong insisted that funding must be available, accessible, and affordable to African nations, noting that cumbersome procedures can hinder some countries from fully utilizing climate funds. “Drawing on our experiences with climate financing, we are committed to ensuring that processes are efficient, flexible, and equitable – allowing individuals to access the funding they need,” he remarked.

He also highlighted the necessity of balancing climate and development objectives, which could open avenues for African countries to innovate, thus enhancing access to essential services and infrastructure while being conscious of climate requirements.

Green finance

Dr. Francis Mwesigye, chief economist at UDB, described how the bank set up a green finance unit in 2019, which has since transformed into a full-fledged department. “In 2022, we formulated a green finance policy, alongside a green finance and investment strategy, guidelines, monitoring indicators, and a green finance scorecard.” The bank’s methodology involves assessing proposed projects to clarify objectives and pinpoint areas for enhancement. “For industrial projects, we pursue energy-efficient technologies from alternative energy sources. In agriculture, we prioritize resilience and adaptation strategies,” he explained.

Mwesigye indicated that “the sectors we support include climate-smart agriculture, low-carbon industry, climate-resilient infrastructure, clean energy, ecotourism, and sustainable waste management.” To date, the bank has approved projects totaling UGX309 billion (approximately $85 million), with green manufacturing representing 82% of approvals in 2024. He further revealed that about 56% of its climate funding goes to mitigation projects, while adaptation efforts make up the rest. Mwesigye noted the bank’s goal of bolstering its capitalization and urged support in mobilizing additional resources 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, explained that capital typically gravitates toward the most appealing risk-return ratio. Therefore, public and philanthropic investments often play a crucial role in initiating substantial private sector funding.

Nganga mentioned that to draw in significant investments, nations should adopt regional strategies. “Not every country needs to develop its own generation assets; some may be better off concentrating on distribution while allocating their limited resources elsewhere.” He argued that small-scale, localized projects are likely to restrict available investment types. Finally, he highlighted the necessity for African countries to foster a favorable policy environment to attract investors. “Investors require assurance that their capital will not face political risks and that there is consistency in policies and regulations,” he stressed.

Marco Serena, chief sustainable impact officer at the Private Infrastructure Development Group, advocated for a shift in mindset to fundamentally incorporate climate considerations into investment and credit evaluations. Given the increasing incidence of extreme weather, infrastructure projects, for instance, must be chosen and designed with resilience in mind. He cited an example from Rwanda: “We supported the Kigali water project, serving half a million people; due to our choice to elevate the control room above the flood line, the facility remained operational during last year’s floods,” he noted. He also stressed the importance of recognizing the potential in renewable energy, electric mobility, and battery storage to seize opportunities created by climate challenges.

Juvenal Muhumuza, Commissioner for Development Assistance & Regional Cooperation at Uganda’s Ministry of Finance, Planning, and Economic Development, shared insights into Uganda’s efforts to integrate climate objectives into policymaking. Uganda has introduced tax incentives for businesses engaging in green technology and sustainable energy, is considering the issuance of green bonds, and is integrating climate issues into the national planning process to ensure green factors are considered.

Despite the perception of risk as a major challenge to accessing financing, Lanre Shasore, senior adviser for energy transition planning (Africa) at Sustainable Energy for All, outlined tactics to navigate these obstacles. She mentioned that her organization has collaborated with the Association of Pension Funds in Nigeria to establish a local currency base for financing clean energy initiatives. “Some of Nigeria’s largest pension funds have pledged 11 billion naira, which, combined with an energy access initiative from the World Bank, will create a $2 billion fund aimed at attracting further investments,” she disclosed. The organization intends to replicate this model in other African nations, including Kenya and Ghana.

Olympus Manthata, head of climate and environmental finance at the Development Bank of Southern Africa, noted that the bank made a commitment years ago to allocate 35% of its investments to climate-focused initiatives, with 30% designated for adaptation and 70% for mitigation efforts. Since this commitment, the DBSA has not only met but surpassed its goals as it continues to broaden its climate investments. He underscored the importance of securing finance from the Green Climate Fund, the Global Environment Facility, and other organizations, while also utilizing limited resources to attract private sector investment. Manthata advocated for greater collaboration among development finance institutions to exchange experiences related to established facilities, thereby simplifying the funding access process.

Uganda’s supportive environment

In her closing remarks, Patricia Ojangole, managing director of UDB, praised the Ugandan government for fostering a supportive environment that has enabled the bank to effectively pursue its initiatives. Building on this foundation, UDB has created a strong internal policy framework to guide its interactions with the government, partners, funders, and other stakeholders. “This serves as our foundation, as stakeholders often inquire about our climate agenda when discussing funding and climate-related issues. Therefore, we must demonstrate intent and knowledge through our actions,” she emphasized.

UDB’s climate finance facility focuses on mobilizing capital while ensuring the capability for effective allocation. A vital aspect of this strategy is showcasing the readiness of a pipeline of viable projects and the capacity to deploy funds efficiently and effectively. Ojangole clarified that the bank’s approach encompasses the complete project lifecycle, from pipeline development to evaluation, deployment, and reporting. “This holistic strategy allows us to communicate our efforts transparently, demonstrating that mobilization and deployment can occur simultaneously,” she concluded.