Global institutional investors are overlooking climate-related opportunities in Africa, according to a new report by independent non-profit research group the Climate Policy Initiative.
“The private sector needs to step up,” wrote the authors of the report. “It contributed only 14 per cent (US$4.2 billion) of total climate finance in Africa, much lower than in other regions like South Asia (37 per cent), East Asia and Pacific (39 per cent) and Latin America and the Caribbean (49 per cent).”
According to the CPI, African nations will require US$2.8 trillion in climate-related spending between 2026 and 2030 in order to reach national targets agreed to under the 2016 Paris Agreement. Currently, climate finance flows in Africa stand at about US$30 billion each year, with about US$1.6 billion coming from overseas investors — mainly institutional investors.
While all of the continent’s regions receive significantly less financing for climate-related projects than is required, the problem is most significant in South Africa. According to the CPI, fulfilling the country’s climate commitments will require annual investments of about $107 billion each year until 2030 — equivalent to about 35 per cent of its annual gross domestic product.
The lowest climate investment gaps are in North African countries, where it’s equivalent to about three per cent of national GDPs. The CPI found that, even in North African countries, the amount invested in transition-related projects is less than a fifth of the amount required to reach existing national commitments.
Investors often eschew investments in Africa’s green assets for three main reasons: actual risk, perceived risk and limited ticket sizes, said the report, noting institutional investors may be better equipped to overcome these hurdles than retail investors. “Development partners could target higher leverage ratios through blended financing structures, with a particular focus on an enhanced role for private insurance and partial guarantees. They could also support capacity building, both within domestic finance institutions and in developing a pipeline of investable opportunities.”
The CPI also suggested that institutional investors may benefit from investing in the continent’s renewable energy projects. “Africa will need around US$133 billion annually in clean energy investment to meet its energy and climate goals between 2026–2030. However, annual investment in renewable energy — arguably the most attractive sector for commercial investors — stands at a mere US$9.4 billion.”