African Development Bank

Promotion of green finance

This page is part of the E3G Public Bank Climate Tracker Matrix, our tool to help you assess the Paris alignment of public banks, MDBs and DFIs.

 

 

Share
Paris alignmentReasoning
Paris alignedThe Bank is active in green finance and engages often with central banks, especially in knowledge sharing and capacity building.

Explanation

Green bond

AfDB has a Green Bond Program which aims to facilitate the achievement of the Bank’s corporate priority of green growth.  Between 2013 and 2017 AfDB has issued six Green Bonds raising a total of $1.5bn. This was a significant amount considering that the overall market for climate aligned bonds in Africa reached a total of $3bn in 2017. In recent years the pace of green growth has hastened, and the Bank’s total has risen to $2.5bn with an additional three green bonds.  Going forward, the Bank has committed to  mobilizing $25bn as climate finance to lead green finance on the continent. In terms of impacts, the AfDB’s green bonds supported 24 projects in 14 countries and are expected to lead to a GHG emission reduction of around 43 million tons of CO2. It would be useful if the AfDB could provide an update to this estimate. It has been argued that until recently, AfDB was the only enthusiastic supporter of green bonds on the continent but now governments have begun to identify green bonds as a source of funding, with Nigeria and Morocco issuing green bonds. In discussion with the Bank, staff have stated that the Bank has also supported the central banks of Kenya, Gabon and Nigeria with technical assistance on issuance of sovereign green bonds. 

Greening the system

Around 12% of AfDB’s approvals in 2015 were to the finance sector, mainly in the form of lines of credit. However, it is not clear what portion of these were for sustainable finance. There are some examples where AfDB has provided lines of credit for renewable energy and energy efficiency.  Green credit lines are a tool for promoting green finance through two main objectives – they facilitate green lending as well as building capacity in local financial institutions to expand the local green lending market after the credit line is closed. A simplified diagram showing a green credit line is shown below. AfDB has also provided funding in Kenya to support green mortgage products.

Figure: Simplified green credit line scheme

Source: I4CE (2017) Using credit lines to foster green lending.

UNEP has recommended that guidelines and incentives could be introduced by finance ministries to better align Africa’s financing with sustainable development. Under the Africa NDC Hub’s private sector support initiative, the Bank is working with Ghana’s Ministry of Finance to support private sector engagement in the country’s NDCs. Within this framework, the Bank aims to strengthen the application of Sustainable Banking Principles within Ghana’s banking sector.

On a broader level, the Bank works within the African Financial Alliance on Climate Change (AFAC) to green the financial industry by working with central banks, SMEs, ministers of finance, insurance companies, sovereign wealth and pension funds, stock exchanges, commercial banks and development banks to move the continent toward “low-carbon and resilient development”. The Alliance uses knowledge sharing, risk-mitigating financial instruments, risk disclosure and finance flows to promote this objective. The Bank also conducts training and knowledge sharing with the Organisation of the East African and Southern African Insurers to raise awareness and promote greening the financial system, as well as with individual entities to deliver specific outcomes.

The Bank has also established the Adaptation Benefits Mechanism (see climate risk metric) which accelerates investment in specific action on adaptation in line with SDGs, member country NDC and climate plans, and the Adaptation and Climate Finance goals of the Paris Agreement. This programme is currently in it’s pilot phase until 2023, with various potential pilots including solar powered irrigation pumps, sustainable practices to protect cacao plantations, job creation for vulnerable groups and coastal protection through afforestation of mangrove trees which are all designed to be either scalable or replicable.

 

Case Study: Facility for Energy Inclusion

Market failure addressed: lack of finance for small distributed energy, in a region where over 650 million people are without access to energy within member countries.

The Facility for Energy Inclusion started in 2017, and will focus on providing senior and mezzanine debt financing to small scale projects (on-grid, mini-grid and off-grid) of between 3MW and 30MW. Financing is going to be provided in hard and local currency. AfDB will invest between $2m to $30m to distributed energy companies and other entities focused on off-grid energy solutions; and it is expected to catalyse energy access for approximately 3 million people. The Facility will seek to alleviate the high transaction costs faced by small scale projects and increase the flow of capital to the energy sector. Providing financing in local currency helps SMEs to overcome currency risks and technical barriers to borrowing in hard currency. The fund would also streamline project approvals and shorten the gap between project conception and completion, which can take from one to three years. The focus is on removing the barriers to access capital for small to medium companies.

Last Update: November 2020

Subscribe to our newsletter

    Privacy and Cookie policy