1 | Executive Summary
The goal of this project is to explore and understand the potential for “Green Investment Banks” and National Climate Change Funds (NCCFs) to increase the capacity of African countries to access and mobilize climate finance in support of implementing NDCs and related national climate and development goals. This initiative includes a high-level assessment of current market conditions, identification of potential climate investment-related market barriers and constraints, an indicative view of market opportunities in key climate sectors, and broad recommendations on the potential for how Green Banks and National Climate Change Funds can be applied to mobilize climate finance and scale-up private climate-related investment. The potential for attracting new sources of catalytic funds into African countries including, but not limited to resources from the Green Climate Fund is also addressed.
Green Banks and National Climate Change Funds can play an important role in mobilizing finance to support low-carbon, climate-resilient development by raising and blending capital to finance local climate infrastructure while also driving an increase in private investment. For countries to better access investment and fully engage the private sector, the climate finance system must reorient toward national financial capacity that is able to channel capital to projects and markets where it is needed most. When paired with effective grant programs through National Climate Change Funds (NCCF), and strong enabling environments and policies, locally-based Green Banks are powerful tools to address market needs, understand local risk and drive private investment. By creating and capitalizing such vehicles from a mix of domestic and international sources, countries can mobilize funds from diaspora, development finance institutions, national financial institutions, private investors, asset managers, sovereign wealth funds, and more.
In response to climate investment needs, there are many innovative climate-finance initiatives emerging across Africa that are focused on attracting private sector climate-resilient investments. These initiatives reduce risk and incentivize private sector investments in mitigation projects by promoting improved policies, enabling environments, and market-based interventions. However, bringing investment to scale through mobilizing international and national climate resources remains a significant challenge. Few countries have an effective climate-finance strategy in place to support implementation of NDCs in both mitigation and adaptation. Barriers to accessing increased investment flows include adequate policy and regulatory frameworks, knowledge of and access to the full range of climate funds and finance, limited green lending capacity at commercial banks, high risk perception, high cost of capital, high transactions costs, local financiers preferences for large-ticket projects or government treasuries, constraints on sovereign debt, lack of market-specific financial products that can address risk and unlock the flow of private investment, investment-grade strategies focused on expanding energy access to off-grid rural areas and more.