AfDB Urges Local Banks to Seek Climate Finance Opportunities

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Stakeholders at the two-day training workshop in a group photo group picture

The African Development Bank (AfBD) has urged stakeholders in the banking sector and other financial institutions to take advantage of the immense investment opportunities in the fight against Climate Change.

According to the AFDB, despite the indisputable barrage of negativities that are associated with this global phenomenon (climate change/global warming), it also provides a lot of opportunities, especially in the business sector. It is therefore unfortunate that Liberia and many African countries are yet to take advantage of the many investment opportunities available through climate financing.

Climate financing is an opportunity that triggers investments in business that helps to mitigate or reduce the impacts of climate change on the environment and people.

AfDB Manager for Liberia, Orison Amu, said addressing climate change requires the involvement of all key stakeholders, including private sector entities such as Small, Medium Enterprises (SMEs)— with banks as the fulcrum — which account for 90 percent of firms in Africa.

But despite their great potential to help mobilize climate finance and bankable project pipelines, the AfDB boss said at the opening of a two-day climate finance training in Margibi last week, financial institutions and SMEs are not yet active in climate business, though most African Nationally Determined Contributions (NDCs) indicate private sector participation.

The training was a joint effort of AfDB Liberia Office, through the Department of Climate Change and Green Growth, and EPA in collaboration with the International Trade Center (ITC).

NDCs are at the heart of the Paris Agreement and the achievement of these long-term goals. The Paris Agreement seeks to limit warming to 1.5 to 2 degrees C above pre-industrial levels and the NDCs embody efforts by each country to reduce national emissions and adapt to the impacts of climate change.

Mr. Amu also indicated that there are also several barriers that limit private sector participation in climate and green activities, including the adequate policy and regulatory environments in many countries for SMEs participation in Green business, limited understanding of climate-related opportunities by SMEs in African countries.

He noted that there are a lot of opportunities for banks from climate financing mechanisms — one of which is the Green Climate Fund, which offers the opportunities of giving guarantees, concessional loans, grants and other forms of funding.

“GCF is also focusing on interacting with banks. This is because, they think when these banks get the funding they can employ innovation and invest in profitable businesses such as renewable energy grids, safe drinking water, waste to energy or effective forest management as well as touristic activities,” he said.

“The Banks can use the funds they have access to loan out to people to also help spur smart innovations that will lead to vibrant economic activities, especially in the agricultural sector,” the AfDB CM said.

However, financing providers too often complain that there are too few SMEs whose financial management and governance meet the required standards for accessing climate and green finance in Africa. “This is why we thought about this training to help empower our local financial institutions to reach those set requirements,” he noted.

Despite these challenges, Mr. Amu disclosed that recent studies suggest that successful climate solutions in key sectors like distributed renewable energy generated; energy efficiency and climate-smart agriculture require a strong role for the local private sector, especially SMEs.

“It is, therefore, important not only to encourage efficient action at the scale of SMEs but also to help unlock a greater volume of financeable proposal to facilitate access to climate finance. African countries are currently undergoing the process of translating their NDCs into specific proposals and investment strategies,” he added.

“It is necessary to build the capacity of SMEs to be able to develop a strong pipeline of climate-resilient and low carbon proposals that can generate financial returns that will help accelerate climate action in Liberia,” he said.

The AfDB has placed climate change and Green Growth at the heart of its development agenda with the goal of transitioning the continent to Green Growth that is embedded in the bank’s ten-year strategic plan.

This goal, he said, is reflected in the bank’s High 5s, which seeks to light up and power Africa, Feed Africa, Industrialize Africa, Integrate Africa and Improve the livelihood of the African people.

He said while the continent has been slow to capitalize on development opportunities from the early industrial revolution, it is now in a strong position to capitalize on the many low carbon opportunities and technologies that are now available.

AfDB recognizes that meeting Liberia’s commitments to the Paris Agreement greening the PADP is a task that the country cannot accomplish alone, but through collaboration with external and domestic partners.

EPA Executive Director Nathaniel Blama and AfDB Manager for Liberia, Orison Amu

“Since AfDB aims to support business as a driver for climate compatible development, the bank has committed to provide support to the government, through EPA, build the capacity of private banks and financial institutions and raise their awareness on climate finance mechanisms particularly to access international funds,” he said.

EPA Executive Director, Nathaniel Blama said the training was a follow-up to the request by the government at AfDB’s annual meeting in Busan early this year that AfDB should provide technical support for integrating climate change into its (government) national development plan( Pro-poor Agenda for Development and Prosperity-PAPD).

It is no secret that the effects of climate change exacerbates fragility and entrenches poverty in Liberia and other states.

Mr. Blama described the initiative as an important step in enhancing dialogue among stakeholders involved in climate finance in Liberia. “We want our banks to take advantage of financing opportunities that climate change presents.”

“Despite the many challenges, there are windows of opportunities that are there. Our financial institutions need to be innovative enough to take advantage of these opportunities,” he said

“For example, a bank can build a big structure here and have all the money in the vaults but it takes a simple natural disaster that the bank had not considered in its risk management portfolio and that could bring the whole building down. That means that entire investment could disappear in the twinkling of an eye.”

So we want financial institutions to also be aware of environmental or climate-associated risks to help them revisit their business models that could be sensitive to the environment and help improve their operations.

The country’s major problem is access to capital. “This is what the AfDB and the EPA want to alleviate through this initiative.”

Meanwhile, the focus of the training was to create awareness or inform the financial sector about the opportunities climate change and environmental management offer. It also provides tailor-made support, strengthening the ability of sector experts to apply a climate-lens to their sector and assess the relevance of sector projects.

It also helps to build a platform where the AfDB, Africa’s premier financial institution, and local banks begin to interact and brainstorm on how to help strengthen the private sector through the offering of financial services in an effort to spur entrepreneurial activities, the organizers said.

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