Reinvention of African, Asian DFIs for climate funding call
The African Development Bank (AfDB), notes that Africa needs to spend $250 yearly to meet its climate finance needs not only to comply with a greener world nicety but as a strategy for to grow its economy. Climate spending and economic growth, according to reports, have converged in recent years, with the World Bank arguing that every dollar spent on climate adaptation has a multiplier effect of $4 in economic benefits.
Sadly, Africa only receives 12 per cent of the $250 billion yearly funding needed even as a paltry two percent of the amount is available for spending. To address the huge funding gap, developed countries committed to a collective goal of mobilising $100 billion per year by 2020 for climate action in developing countries, including Africa, at the 15th Conference of Parties (COP15) in Copenhagen in 2009. The goal was formalised at COP16 in Cancun and COP21 in Paris, it was reiterated and extended to 2025. Total funding mobilised by developed countries almost doubled in the past decade, hitting $89.6 billion in 2021. Yet, different clusters of advocacy groups are seeking a common voice ahead of COP 28, to be held in the United Arab Emirates (UAE) from November 30, to raise the bar.
But African and Asian development financial institutions (DFIs) are more inward-looking in their approach to the debate on mobilising funding for climate actions in developing countries. Through their associations – the Association of African Development Financing Institutions in Africa (AADFI) and the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) – the institutions are exploring how the developing countries could smartly create home-grown financing options to tackle the challenges.
About 300 delegates and about 30 speakers from across Africa and the Asia Pacific participated in the three-day AADFI-ADFIAP Joint International CEO Forum held in Abuja to discuss ‘DFIs’ Strategic Role Towards a Climate-smart Future’. It was hosted by the Bank of Industry (BoI) with support from AfDB, the African Financial Alliance on Climate Change (AFAC) and the Nigerian government.
Beyond how African institutions could seize the moment in climate funding, the summit dwelled extensively on innovative financing mechanisms and different options for mobilising resources towards financing climatic-friendly projects, practices in climate funding as well as sustainable development, how technical and capacity-building support by DFIs could help businesses to transition to a climate-smart future, constraints facing financing institutions in funding climate-friendly projects (including low capitalisation, poor credit delivery, weak risk management framework, weak governance structure and poor internal processes) and relevant lessons learnt from climate project funding.
Focusing on developing economies, participants also presented how DFIs could offer climate finance solutions, including climate insurance and risk-sharing mechanisms to encourage private sector investments in climate-resilient and low-carbon projects. They also reviewed challenges posed by skill gaps in DFIs and examined how a pool of development financial experts could be created to meet emerging climate funding challenges.
The conference also launched the AADFI Working Group on Climate Change, which will focus on creating a roadmap for climate change in Africa as well as supporting climate change solutions. Whereas the terms of reference of the group are still scanty, the action would ensure there is a dedicated team to tackle research issues and address associated issues from time to time. The group will also identify funding opportunities for green projects and collaborate with the African Financial Alliance on Climate Change (AFAC) to support member institutions in addressing climate change challenges.
The Minister of Trade and Investment, Dr Doris Uzoka-Anite, advocated for global actions to promote a climate-smart future, emphasising the role of DFIs in mobilising private investment to tackle climate challenges.
Uzoka-Anite, who was represented by the Director of Human Resources, Dr. Mimi Abu, charged participants that if DFIs failed to create solutions for climate change mitigation and adaptation where agriculture and inadequate infrastructure prevail, it would further worsen the challenge of climate change.
She said through innovation, DFIs can boost agriculture productivity and reduce hunger, while she advocated the expansion of actionable plans to incorporate climate-resilient products and measurable targets into African business models as part of solutions to address climate finance needs and derisk sustainable investments in the region.
The minister said the decision made by DFIs at the conference will change the economy, lead to prosperity and improve the livelihoods of the people.
Indeed, at the meeting, the Bank of Industry announced that it secured a credit line of €100 million from the French Development Agency (AFD)] for the expansion of green finance in Nigeria.
The bank has also worked with its partners to raise over $5 billion from several International Financial Institutions in the last five years for building a climate –smart Nigeria in line with President Bola Ahmed Tinubu’s vision.
The Managing Director and Chief Executive of the Bank of Industry (BOI), Dr. Olasupo Olusi, dropped the hint while addressing the Joint International Chief Executive Officers (CEO) forum of the Association of African Development Finance Institutions (AADF) and the Association of Development Financing Institutions in Asia and the Pacific (ADFAP) held in Abuja.
He said: “As Nigeria’s leading Development Finance Institution (DFI), one of the primary drivers of BOI’s developmental strategy is to accelerate the country’s development through supporting environmental-friendly and sustainable projects across the key sectors of the economy, we at BOI is committed to promoting this strategy to deliver on our mandate.”
Also, the ADFIAP Chairman, Mominul Islam, who was represented by the Senior Vice President, the Development Bank of the Philippines, Roland Tepora, highlighted the significance of knowledge sharing and collective wisdom in addressing climate challenges.
The Vice President for Power, Energy, Climate and Green Growth, AfDB, Dr Kevin Kariuki, who was represented by Anthony Nyong, stressed the urgent need for DFIs to address post-COVID-19 challenges, energy crises, inflation, climate change and the importance of mobilising finance for climate solutions.
There was a panel session on ‘Conversation on Strategic repositioning of DFIs for relevance’, which explored critical factors that determine the relevance of DFIs in achieving the Sustainable Development Goals (SDGs) and addressing the Climate Change Agenda.
The session, which was moderated by Jide Akintunde of Financial Nigeria International Limited, focused on the vital role of governance, internal processes, risk management, credit delivery, capitalisation and access to resources in shaping the effectiveness of DFIs.
The session emphasized the role of DFIs in fostering development impacts. It examined the debate on whether DFIs are adequately resourced to function effectively, underlining the significance of their contributions to societal development.
The panelists noted the importance of using the right regulatory framework and an accurate rating model to assess and strengthen DFIs. They also argued that DFIs could not be regulated using the same metrics as commercial banks. While comparing the rating model used by traditional rating agencies.
A senior banker at VEB. RF of Russia, Sergey Storchak, highlighted the profound impact of the COVID-19 pandemic on economic development, especially in the Asia-Pacific region. He noted that there were proposals to change DFIs’ missions, financial models, and resource mobilisation, including the wider use of capital and guarantees.
Using Tanzania as a case study, the Managing Director, Tanzania Agriculture Development Bank (TADB), Frank Nyabundege, shed light on corporate governance in DFIs and whether political influence affects the performance of boards and executive management. He discussed the role of central banks in regulating DFIs and the importance of limiting political interference. According to him, DFIs in Tanzania are strictly regulated by the central banks with board members appointed by the government thoroughly vetted, thus limiting political interference.
Also, Economist and Development Management Expert/AADFI PSGRS Consultant, Dr Michael Ma’hmoud, who spoke on the importance of sustainable capital, noted that historically, DFIs were supervised and regulated the same way as commercial banks, leading to the failure of several DFIs in francophone countries.
He also emphasised that sustainability is a critical factor in strengthening DFIs and mobilising resources to address developmental challenges.
Chief Economist, Development Bank of Southern Africa (DBSA), Zeph Nhleko, said DFIs play a crucial role in climate financing, but there is a need to adopt innovative models to attract more capital.
Nhleko emphasised the life and livelihood impact of climatic crises, such as COVID, war and natural disasters and the devastating consequences of not addressing climate change.
He noted that DFIs are uniquely positioned to mobilise finance through project finance.
The Group Executive, Corporate Affairs & Investor Relations, Trade and Development Bank (TDB), Mary Kamari, who spoke on Green Bonds and innovative Climate Instruments, stressed the use of equity and debt instruments to support climate financing.
She noted the challenge of using the proceeds from green bonds while advocating for hybrid instruments like green shares issued in partnership with like-minded investors, while also emphasising the importance of building capacity, knowledge, and systems for creating climate-friendly projects.
Technical Lead, Support to Development Finance Institutions, Investment Climate Reform (ICR) Facility, Yasmine Galloul, emphasised that achieving results doesn’t always require enormous funding.
She stressed the need for technical solutions tailored to the specific needs of each bank and dedicated time and effort to provide technical assistance.
She added that the challenge of balancing local and international expertise can be mitigated through sharing experiences across regions and fostering partnerships and collaboration.
Deputy Managing Director, Financial and International Affairs, Bank and Industry and Mine of Iran, Dr Seyed Ali Heidari, emphasised the importance of paying attention to environmentally friendly projects and conducting feasibility reports before embarking on them.
He encouraged a comprehensive approach involving all stakeholders and highlighted the need for DFIs to take risks and innovate in their products.
Heidari emphasised staying updated with modern knowledge and global regulations and instruments, while identifying sustainability as a foundational principle for DFIs, promoting continuous dialogue, engagement, and the review and monitoring of capacity-building projects.
AADFI Chairman, Thabo Thamane, while delivering his address, highlighted the severe consequences of climate change on least developed countries, particularly those in Africa, Asia-Pacific, and Latin America, could face.
Painting a gloomy picture of the issue at hand, the AADFI Chairman noted that the adverse effects of climate change threaten human health and safety, food and water security, and sustainable socio-economic development globally and ideas.
“It is no longer news that the world is facing the negative impact of climate change. Human health and safety, food and water security as well as sustainable socio-economic development are threatened globally,” he said.
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