how can Africa overcome this triple threat?

As it begins to raise its head from the pandemic and look towards normality, Africa is facing a huge challenge in the triple threat of inequality, climate change and post-pandemic economic recovery.

Banks need to make firm commitments to be at the forefront of driving sustainable change

But there is hope: sustainable finance can drive much-needed change.

Worldwide, the effects of climate change are apparent with severe droughts, plagues, floods and famine. In recent years, Africa has witnessed some of the most dramatic climate impacts including the 2019/2020 East African locust plague, the cyclones in Mozambique and the drought in South Africa.

Tackling the climate crisis on the continent is an incredibly complex challenge, which is exasperated against the backdrop of large infrastructure gaps and social inequality.

The African Development Bank estimates that financing for the continent’s infrastructure falls short by up to $108 billion per year. Large investments are required across the African continent to combat climate change and drive inclusive growth. This is where sustainable finance plays an important role.

The goal behind sustainable finance is to drive capital towards projects and businesses that promote environmental protection and inclusive growth. This can range from environmental projects that drive renewable energy and clean transportation to social projects that deliver affordable housing or much-needed social infrastructure.

In order to guarantee a more sustainable future, businesses – and more specifically banks – need to make firm commitments to be at the forefront of driving this change. Committing to programmes such as South Africa’s renewable energy programme and the United Nations’ Principles for Responsible Banking (PRB) framework is one way for firms to change the way deals are assessed by incorporating environmental and social aspects into their analysis.

Meaningful changes need to be made to the way that African companies, and firms globally, operate in order to facilitate sustainable solutions for clients and the future.

There is a cruel irony in that, Africa, as a continent, is the least responsible for climate change but is the continent on which the impacts will be felt the most. Effecting a just transition is crucial.

Many countries in Africa are fossil-fuel dependent and rely on the industry to provide jobs, tax income or stable electricity. This means that well intentioned decisions to limit emissions can have significant unintended consequences on the lives and livelihoods of people. A just transition means navigating these social aspects – for example safeguarding access to decent work, housing and basic services – while transitioning from fossil-fuel dependency to renewable energies.

This is a complex approach and requires a nuanced understanding of not only what is possible, but also practical and reasonable. Thus, the just transition will most probably play out vastly differently in Africa, compared to developed market counterparts. This is due in large part to Africa’s economic dependency on certain minerals, the cost of transitioning and the availability of alternate energy sources. While they might not be as big of a factor in more developed countries, social implications are incredibly important to consider in the African context.

There is not a one-size-fits-all approach for sustainable finance solutions, but instead they need to be applied on a case-by-case basis, taking both challenges and opportunities into consideration.

Banks need to partner with clients on their transition journeys to identify new opportunities or mitigate risk arising from environmental changes, and to engage on their transition strategies and investment needs.

Climate change affects everyone. But for a continent like Africa, it’s a threat multiplier that exasperates the challenges already faced by individuals, businesses and states.

But the climate crisis can also provide an opportunity for banks to step up and support the just transition through sustainable financing. In delivering sustainable finance, banks can prepare clients for the transition and positively impact the societies in which they operate.