At the Africa Climate Summit in Addis Ababa in September, leaders committed to raising US$50bn annually through the Africa Climate Innovation Compact and the African Climate Facility. The focus was on African-designed solutions, with governments, financiers and advisers expected to reshape how sustainable investment is sourced and deployed.
Sanjay Rughani, chief executive of Standard Chartered Bank in Uganda and chair of IFAC’s professional accountants in business advisory group, calls the target an achievable ‘stretch goal’, adding: ‘It will require a lot of thinking around smart solutions, combining public, private and philanthropic capital, and structured solutions such as those from international institutions.’
‘African countries are looking at innovative ways of raising money without increasing the debt burden’
The financing challenge
Governments across Africa are aware of the potential gains from the US$2 trillion global green energy transition, which Nigeria’s finance minister Wale Edun recently described as the ‘biggest opportunity of the moment’. Yet many governments face growing fiscal pressures, limiting their ability to borrow for major climate projects.
‘Following recent global shocks, many African countries have seen their debt-to-GDP ratios rise beyond the IMF threshold, raising debt-sustainability concerns,’ warns Patricia Ojangole FCCA, managing director of the Uganda Development Bank. ‘African countries are looking at innovative ways of raising and investing money without further increasing the debt burden.’
Rughani argues that sovereign borrowing cannot carry the climate agenda on its own. ‘Most countries are very constrained fiscally,’ he points out. ‘It’s hard for the sovereign to borrow. You can borrow on a blended approach, using insurance companies, such as the World Bank’s MIGA (Multilateral Investment Guarantee Agency) – they have to help us derisk it.’
Development banks will be central to this process. The concessional finance they provide is a critical source of investment, Ojangole argues. But the development banks also play an important role as a catalyst, including by helping to lower the risk profile of a project for other investors. They can fund feasibility studies, structure transactions and build the confidence needed for private lenders to join.
‘Africa must expand tools to mobilise concessional finance at scale’
Benson Mwesigwa, an associate director at KPMG East Africa with deep expertise in audit and consultancy services across Uganda, South Africa, Rwanda and Burundi, stresses that Africa must expand the tools it uses. He highlights options such as ‘resilience bonds, debt-for-resilience swaps, carbon markets aggregation and trading, and green and sustainability bond issuance’ to mobilise concessional finance at scale.
Lower cost of capital
A key barrier to green investment is Africa’s high borrowing costs. Rughani says: ‘African borrowing is based on sovereign ratings. UAE or Dubai can raise at 2%; for us it’s 6% or 7%.’ Lower-cost capital, he adds, requires structuring projects so that development institutions can provide first-loss insurance protection, shouldering the initial risks to make a project commercially viable.
Rughani’s regional experience shapes this perspective. In addition to leading Standard Chartered Bank in Uganda and before that in Tanzania, he chairs Carbon Tanzania, a conservation enterprise developing forest-based carbon-credit projects. This has reinforced his view that African countries can use their natural capital – forests, biodiversity and carbon sinks – to generate new climate finance revenue. ‘We can create the offsets ourselves,’ he says. ‘The question is how to optimise our own assets. We have so much to offer the world.’
Balancing priorities
Climate investment must also sit alongside competing national priorities. ‘Every country has its development plans and there are a lot of priorities,’ Rughani says. ‘Investing in climate projects will cannibalise other areas of investment, but the green space requires investment, or you will diminish your long-term potential.’
This makes it essential to deploy climate finance where it can deliver both environmental and developmental returns. Examples include improving energy security or supporting climate-smart agriculture.
Credible markets
To attract international investment, African financial markets must become more transparent, disciplined and aligned with global sustainability standards. Rughani believes local institutional investors such as pension funds will eventually need regulatory incentives to support green projects. ‘A percentage of pension or sovereign fund investment should go into green finance,’ he argues. ‘Maybe that needs regulatory reform.’
But investors also need assurance that projects will deliver genuine environmental benefits. Ojangole says: ‘Green financing is still new in most African countries and many institutions are still at the stage of developing policies and frameworks such as green finance strategies and taxonomies. Measurement and verification remain key gaps.’
‘The real opportunity for Africa is in sustainability assurance’
Mwesigwa reflects a similar view of African institutions entering the green finance space, and agrees that measurement, reporting and verification are lacking, ‘increasing the risk of greenwashing’. Building effective systems to tackle this issue – including greenhouse gas accounting and impact tracking – is essential for gaining investor confidence.
Assurance opportunity
Rughani argues that the accounting profession will be central to reducing the ‘trust gap’ in African climate projects. ‘The world is not yet prepared from an accounting profession perspective,’ he says. ‘We have many frameworks around which we report, but the real opportunity for Africa is in sustainability assurance. We don’t have the money for external validators, so accountants can really play a role here. The accountancy profession has the same global standards – that builds trust.’
That trust will be critical to mobilising private capital. ‘Accountants have a bigger role to play in building this trust,’ he says. ‘Even if you optimise these solutions, you must quantify the right information.’
He also points to the shift toward a broader finance leadership model – ‘chief value officers’ – who assess social, environmental and financial outcomes together. ‘Monitoring, evaluation and reporting will be critical. We have a big opportunity to build skills,’ he says.
Ojangole agrees that capacity building is essential. ‘The accountancy and finance profession needs to upskill and enhance its understanding of green finance taxonomies, project structures and expected impact,’ she says.
Success rests on building a pipeline of high-quality, investable projects
Green routes
Ultimately, the success of Africa’s climate finance ambition rests on its ability to build a pipeline of high-quality, investable projects. Ojangole says development banks ‘have the expertise to lead project structuring and generate a pipeline of bankable projects, which are then used to attract resources from partners such as the UN climate funds and multilateral banks. Resources are available – what is lacking is a quality pipeline.’
Mwesigwa believes progress will be visible when green bond markets deepen, blended finance structures become mainstream and reliable measurement, reporting and verification systems are in place. Stronger institutions, he says, are essential to ‘build confidence… attract green investors and catalyse’ new flows of capital.
Rughani remains optimistic – as long as innovation and accountability advance together. ‘We are trying to create a new model,’ he says. ‘Sustainability can be looked at from various angles – carbon sinks, renewable energy, climate-smart agriculture. Anything green also helps habitats and the future delivery of food.’
As Africa takes on the challenge of financing its green transition, success will depend on innovative financing structures, stronger institutions – and a growing role for accountants in building trust, measuring impact and derisking green capital.
