How to mobilise climate finance

Access to finance is a key part of the fight against climate change. With Africa attracting so little of the funds that it requires to fund its climate actions, experts agree on the need for more innovative, local instruments to raise and disburse the money that the continent needs. 

In his opening remarks Ibrahima Cheikh-Diong, executive director of the Fund for Responding to Loss and Damage, said the acceleration in extreme weather events, which have the greatest toll on the most vulnerable in society, requires urgent action to capacitate African countries to respond to the climate crisis. Cheikh-Diong said it is important to mainstream climate considerations into public policy and private strategies and commended UDB for devising a climate finance facility. “In today’s world, any institution has to be relevant when it comes to climate finance,” he stressed. 

Cheikh-Diong called for financing that is available, accessible and affordable for African countries, noting that cumbersome procedures can undermine the ability of some countries to take full advantage of climate facilities. “With all the lessons that we learned from climate finance, we are very keen to make sure that procedures are nimble, flexible, and fair – so people can have access to finance,” he said. 

There also has to be a balance, he argued, between climate and development, which presents an opportunity for African countries to pursue innovations that enable them to expand access to social amenities and infrastructure in a way that is sensitive to climate concerns. 

Green finance

Dr Francis Mwesigye, chief economist at UDB, said it first set up a green finance unit in 2019; this has since grown into a fully-fledged department. “The bank developed a green finance policy in 2022 along with a green finance and investment strategy; green finance guidelines; green finance monitoring indicators; and green finance scorecard.” The bank’s approach is to assess projects that are presented to it for clarity and to look for ways to enhance it within the project. “If it’s industry, we are looking at the energy-efficient technology that you can adopt from alternative sources of energy. If it’s in agriculture, resilience and adaptation mechanisms become key,” he explained.

Mwesigye said that “the sectors we support are climate smart agriculture, low-carbon industry, climate resilient infrastructure, clean energy, ecotourism, and sustainable waste management.” To date, the bank has approved projects worth UGX309bn (about $85m), with green manufacturing accounting for 82% of approvals in 2024. He added that about 56% of its climate funding has gone to mitigation projects, with adaptation accounting for the rest. Mwesigye said the bank is looking to enhance capitalisation and called for support to mobilise and deploy more capital towards green and climate projects. 

Where capital will go

Contributing to the panel discussion, Joseph Nganga, vice president for Africa at the Global Energy Alliance for People and Planet, observed that capital will go where there is the right risk-return ratio, meaning that public and philanthropic funds will often need to take the lead to prepare the grounds for large-scale private investments. 

In order to attract major investments, Nganga said countries would need to consider regional approaches. “Not every country needs to build its own generation assets, for example. Some countries are better suited to focus on distribution and do something else with their limited capital.” Small, country-focussed projects are only likely to limit the kinds of investment it is possible to attract, he argued. Lastly, African countries need to ensure that they have the right policy environment to attract investors. “You must give investors the confidence that if they put in money in your country, it is not going to be at risk from a political perspective; and that there’s predictability in the policies and regulations,” Nganga stressed. 

Marco Serena, chief sustainable impact officer at the Private Infrastructure Development Group, called for a mindset shift to see climate as an integral part of investment and credit considerations. With more extreme weather events occurring at increasing frequency, infrastructure projects, for example, have to be selected and designed to withstand these. He gave the example from Rwanda: “we invested in the Kigali water project that serves half a million people; and because we chose to elevate the control room above the flood line, when the floods came last year, the facility didn’t stop working,” he recalled. The other mindset shift needed, he said, is recognise the opportunities in renewable energy, electric mobility and battery storage that arise from the climate challenge. 

Juvenal Muhumuza, Commissioner Development Assistance & Regional Cooperation Department at Uganda’s  Ministry of Finance, Planning and Economic Development, reported that the country’s interventions to embed climate goals in policy making. It has extended tax breaks to companies engaged in green technology and sustainable energy; it is looking at issuing green bonds; and the government is mainstreaming climate considerations into national planning, “to ensure that it includes green elements”. 

While the perception of risk makes availability of finance a major hurdle, Lanre Shasore, senior adviser, energy transition planning (Africa) at Sustainable Energy for All, outlined some measures that can address the challenge. She said her organisation had collaborated with the Association of Pension Funds in Nigeria to create a local currency base to fund clean energy projects. “Some of the largest pension funds in Nigeria have now pledged or committed 11bn naira and we’re putting this together with an energy access facility that Nigeria has got from the World Bank to form the base of a $2bn fund that we’re going to use to catalyse additional financing to come in,” she revealed. The organisation intends to replicate the model in other African countries including Kenya and Ghana. 

Olympus Manthata, head of climate and environmental finance at the Development Bank of Southern Africa, said the bank decided a few years ago to allocate 35% of its investments to climate-related projects, with 30% of those funds dedicated to adaptation and 70% to mitigation. Since then, the DBSA has exceeded these targets, and its climate investments continue to grow. He said apart from accessing finance from Green Climate Fund, the Global Environment Facility and other organisations, the bank also leverages its limited resources to attract private sector funding. Manthata advocated for more cooperation between development finance institutions so “we can share lessons around facilities that we have developed, and expedite the ability to access the funding.”

Uganda’s supportive environment

In her closing remarks, Patricia Ojangole, managing director of UDB, commended the government of Uganda for the supportive environment within which the bank has been able to undertake its initiatives. Building on this, UDB has developed a robust internal policy structure to guide its engagements with government, partners, funders, and other stakeholders. “That is the starting point because when you have to engage with stakeholders on funding and issues related to climate change, they invariably ask what your climate agenda is. So, you have to be able to demonstrate that you are intentional and you know what you are doing.” 

UDB’s climate finance facility focuses on mobilising capital while ensuring the capability to deploy it effectively. A key component of this strategy is demonstrating the existence and readiness of a pipeline of viable projects as well as the ability to deploy funds efficiently and effectively. The bank’s approach, Ojangole said, spans the entire project lifecycle, from pipeline development to project evaluation, deployment, and reporting. “I think that’s why we are able to show that this is what we are doing and demonstrate that mobilisation and deployment go hand in hand.”