BOAD’s practical green economics strategy - African Business

African Banker

Mon 10th June 2024

BOAD’s practical green economics strategy

Africa stands at a pivotal moment in its development trajectory, where the pursuit of economic growth must be balanced with environmental sustainability. As the continent faces the dual challenges of climate change and rapid urbanisation, green finance has emerged as a critical tool for promoting sustainable development. Leading this movement is the West African Development Bank – BOAD. In fact, most of its interventions over the 50 years of its existence have incorporated all the principles of sustainable development, including the health of the environment, which is now regarded as green economics. Building on this legacy, it has fashioned specific modern tools to mitigate the effect of adverse climate change while keeping the goals of sustainable development firmly in focus.

Green finance encompasses a variety of financial instruments and mechanisms designed to support environmentally friendly projects and initiatives. 

In West Africa, the impacts of climate change have already been keenly felt, and the adoption of green finance offers a pathway to build resilience, foster inclusive growth, and mitigate environmental risks.

Green finance includes, but is not limited to, climate finance. Indeed, it also refers to a wider range of other environmental objectives, such as pollution control, sanitation and biodiversity protection. As for climate finance, it concerns mitigation financial flows, which refer to investments in projects and programmes that help reduce or avoid GHG emissions, and adaptation financial flows, which refer to investments that help reduce the vulnerability of people and property to the effects of climate change.

Green finance is intended for any entity eligible for financing by BOAD, such as: member states of the West African Economic and Monetary Union (WAEMU); local authorities and public establishments in member states; organisations, companies and individuals contributing to the development or integration of the economies of member states; and any private or legal person, WAEMU or foreign, wishing to invest in the WAEMU zone in operations falling within BOAD’s areas of intervention.

Since its creation 50 years ago, the Bank has been investing in areas targeted by green financing, as we know it today. This includes the recovery of degraded land, the resilience and regeneration of ecosystems, sustainable agriculture and energy, the fight against coastal erosion, the management of water resources (hydro-agricultural developments), and more. 

Since the end of 2008, the Bank has initiated the development of strategic actions aimed at enhancing its financial and technical support to governments and private promoters for investments in the environment, climate and sustainable development. These efforts align with governments’ commitments to the Sustainable Development Goals (SDGs), the reduction of greenhouse gas emissions under the Kyoto Protocol and adaptation to climate change.

In its successive Strategic Plans, 2009-2013, 2015-2019 and 2021-2025, BOAD has set itself the objective of mobilising dedicated resources. In this vein, it has worked towards its accreditation with the financial mechanisms of the so-called Rio Generation Conventions (United Nations Framework Convention on Climate Change, Convention on Biodiversity, United Nations Convention to Combat Desertification), notably the Global Environment Facility (GEF) in May 2015, the Adaptation Fund (AF) in June 2011 (renewed in July 2016 and ongoing), and the Green Climate Fund (GCF) in October 2016 (renewed in July 2023).

To date, the Bank’s portfolio with these funds is valued at around CFA160bn (€240m) in the form of grants, interest-free loans and concessional loans for approximately ten approved projects. This includes CFA20bn with the AF, CFA10bn with the GEF and CFA130bn with the GCF, particularly in the fields of renewable energies (solar), climate-smart agriculture and sustainable waste management.

BOAD, as the financial arm of the WAEMU, one of whose goals is to achieve universal access to energy, has developed a variety of products and services to support the advancement of renewable energies. 

These offerings include short, medium and long-term financing, equity investments in companies and National Financial Institutions (NFIs), support for Small and Medium-sized Enterprises (SMEs) through credit lines to NFIs, bond guarantees, financing arrangements, financial consulting, project preparation assistance, and climate finance.

BOAD’S practical approach

The Bank’s green financing goals arebased on a range of practical strategic approaches. These include : 

Developing renewable energies and technologies: the use of clean – i.e. low-carbon – technologies can help reduce environmental impact. Innovations such as renewable energies, advanced energy efficiency technologies and waste management (recycling) can be utilised to reduce greenhouse gas emissions and minimise impacts on local communities and the environment. 

The Bank has made significant investments in this field by funding several solar energy projects in the region. Additionally, it has supported a regional project on sustainable waste management, which is co-financed by the Global Environment Facility (GEF).

Natural resource management: Africa is rich in natural resources, including forests, minerals, and biodiversity. By creating a department responsible for Environment and Climate Finance, BOAD aims at enhancing its involvement in promoting biodiversity conservation. In parallel, the bank is also working on mobilising finance through the new Global Biodiversity Framework Fund (GBFF) of the GEF. 

Climate adaptation: Climate change poses significant risks to African economies, especially in agriculture, water resources, and coastal areas. Green finance programmes support climate adaptation measures, such as drought-resistant agriculture, water conservation projects, and coastal protection infrastructure.

Financial instruments: Various financial instruments are utilised to facilitate green finance in Africa, including green bonds, climate funds, impact investing, and carbon finance mechanisms. These instruments provide capital for green projects while offering investors opportunities to generate positive environmental and social impacts alongside financial returns.

Capacity building and awareness: Developing local capacity and increasing awareness about the importance of green finance are crucial elements in advancing sustainable development in Africa. Training programmes, workshops, and public outreach campaigns help stakeholders understand the benefits of green investments and how they can contribute to a more sustainable future.

Promoting regional cooperation: Regional cooperation can help solve cross-border challenges related to green and climate finance in Africa. Countries in the region can collaborate on developing large-scale joint projects, sharing best practices and coordinating their efforts to maximise the economic and environmental benefits of investments. This is where the Bank comes in by financing projects of regional scope.

Supporting sustainable development

To promote the harmonious development of the WAEMU states, BOAD adopted in September 2020, a 2021-2025 Strategic Plan known as the Djoliba Plan, with a total planned commitment of CFA3,300bn (€5.02bn).

In response to the urgent need for stronger action in favour of the climate and nature, with sustainable and systemic impacts, BOAD aims, through Axis 3 of the Djoliba Plan, to allocate 25% of its commitments to low-carbon, climate-resilient projects between 2021 and 2025, with a positive impact on nature. By the end of December 2022, the Bank’s green financing operations represented more than 15% of its commitments.

Considering the increasing interest of investors in mobilising green asset financing on the international market, with the possibility of securing very favourable terms, BOAD issued a sustainable bond in 2021. This marked a first in sub-Saharan Africa, raising €750m at a rate of 2.75% over a 12-year period. It should be noted that the operation was oversubscribed by €4bn, demonstrating the market’s strong interest in financing green and sustainable projects. 

To date, 100% of the resources have been allocated to 50 projects in all eight WAEMU countries, including 11 projects in Côte d’Ivoire totalling CFA102.45bn (€160m), or 20.82%. The areas concerned by these allocations are essentially access to basic services and infrastructure, renewable energies, etc.

To address the challenges of preserving nature and combating climate change, various financing mechanisms are available and continually being developed. These include market mechanisms and specialised funds, which present a significant opportunity or niche for meeting the additional financing needs of African countries. 

This is supported by BOAD’s successes as described above, notably: (i) the mobilisation of green asset financing on the international market on very favourable terms; (ii) the mobilisation of resources from the Funds to which the Bank is accredited in the form of grants and zero-interest loans to governments in a context of scarcity of concessional resources on the market; and (iii) lines of credit negotiated with partners on preferential terms.

In order to enhance the impact of this financing and accelerate green investments, the Bank is considering introducing a regional subsidy mechanism that would, on the one hand, adapt the Bank’s resources to improve the financing of green projects and on the other, catalyse climate investments in WAEMU countries. In addition, a dedicated study fund is being set up to support the organisation and preparation of green projects.