African banks urged to invest in carbon markets
The African Guarantee Fund (AGF) and the Clean Cooking Alliance, in partnership with the U.N. Capital Development Fund, have joined forces to empower Africa’s banking industry with the knowledge and insights necessary to navigate carbon markets effectively.
Collaborating with the Kenya Bankers Association (KBA), AGF, CCA and UNCDF hosted over 100 Senior Bankers for a "Banking on Carbon Markets" workshop that focused on financing clean cooking projects.
Carbon finance business models, the intricacies of financing clean cooking projects and their associated risk-return profiles, were some of the topics discussed.
Industry leaders and investors shared global evidence and practical experiences in underwriting risks related to lending to clean cooking carbon projects.
The workshop comes close on the heels of the Africa Climate Summit that brought together global key players in Nairobi.
António Guterres, the UN secretary general, told the conference: “Africa is home to 60 per cent of the world’s best solar resources — but only two per cent of global investments in renewable energy over the last two decades."
He added: Now is the time to bring together African countries with developed countries, financial institutions and technology companies to create a true African Renewable Energy Alliance.”
The spotlight on green and sustainable finance primarily centers on mitigating climate risk, but the untapped potential for banks to maximize opportunities through climate action is often underestimated.
In the face of mounting pressure from customers, shareholders, investors, and regulators, banks are compelled to align their corporate strategies and lending criteria with Environmental, Social, and Governance (ESG) standards.
Speaking at the workshop, Mr Patrick Lumumba, AGF Group Director of Capacity Development, emphasized that “Carbon projects have become instrumental in channeling funds across various sectors of the economy, expediting transitions towards a sustainable future. However, banks frequently lack comprehensive data to assess the risks and returns associated with carbon projects. They also lack information about effective market entry strategies, growth-oriented business models, risk management, and prudent portfolio construction practices.”
“Today’s workshop is a clear example of AGF’s capacity development efforts in action to enable the banking sector venture into carbon markets by way of increasing financing of clean cooking projects. Prioritizing this sector directly impacts on several SDGs such as gender equality, good health and wellbeing and indeed climate action.”
Mr. Feisal Hussain, CCA Senior Director of Innovative Finance, noted that “Banks are essential to realizing the full potential of the carbon markets by helping to fill the financing gap needed to initiate and scale up carbon projects. This is crucial to accelerating the clean energy transition and transforming the lives of people who currently do not have access to clean cooking fuels and technologies.”
“The new Partnership Platform for Clean Cooking Finance is key to this endeavor as it brings together several distinctive capabilities: CCA’s convening ability and technical expertise on clean cooking; AGF’s focus on Africa and de-risking investments, with a commitment to green finance; and UNCDF’s capital mandate for emerging markets,” he added.