African Alliance Wants Voice in Global ESG Standards 

Alliance plans to increase engagement with the continent’s financial sector, which it says has a critical role in Africa’s response to the climate crisis.

The African Financial Alliance on Climate Change (AFAC) has said it wishes to dispel views that the the continent’s financial sector is disinterested in tackling climate change, with it calling for greater involvement in sustainability standards discussions.

AFAC is a pan-African alliance aiming to bring together the continent’s key financial institutions to mobilise private capital flows towards low-carbon and climate resilient development.  

Speaking on a webinar on capital markets and climate action in Africa, David Ashiagbor, Chief Financial Sector Strategy Officer at the African Development Bank, which hosts AFAC, said there had been issues where international standards had been set, but they were almost impossible to apply in the African context.  

“This became a barrier to access finance [in Africa] and we don’t want that to happen in the ESG and sustainability space,” he said.  

Ashiagbor said AFAC wanted to ensure that there was an African voice in the international discussions about ESG and sustainability standards. He said the alliance was also keen to increase its engagement with the African financial sector around climate change.  

“We believe that the African financial sector including capital markets, have a critical role to play in Africa’s response to this global challenge.” 

In an inaugural report, AFAC warned that Africa will continue to experience residual loss and damage under all climate change scenarios, posing grave threats to livelihoods and survivability. It said Africa needed to “urgently take the lead” in fast-tracking its climate resilience to minimise these losses.  

The investment opportunity in Africa to build climate resilience represents US$3 trillion by 2030, found AFAC, with the continent offering the highest returns compared to most emerging market economies. It added that the investment opportunity across energy and agriculture sector is significant with its land containing around 30% of global mineral reserves and 60% of the world’s uncultivated arable land.  

AFAC said that only about 0.1% of global investors assets would be enough to bridge the annual US$108 billion infrastructure gap in the continent. But investors face significant challenges in assessing opportunities and mitigating risks, such as lack of clarity and transparency on risk-reward profiles and asset pricing, the small size of projects, and a lack of aggregate financing vehicles and high development and transaction costs.  

Lack of green bond issuance  

Also, speaking on the webinar Olumide Lala, Co-Founder of consultancy Climate Transition, said it was “worrisome” that despite all the opportunities, Africa wasn’t raising sufficient funds for climate finance.  

He noted that there had only been two sovereign green bond issuances in Africa – Nigeria and the Seychelles – saying the dial needed to be moved for progress.  

Limited ESG data required for good quality reporting, and fragmented regulation and standardisation on ESG across Africa pose challenges to investment, he said.  

Jude Chiemeka, Divisional Head, Capital Markets at Nigerian Stock Exchange, said the issuance of its first sovereign green bond in 2017 led to a lot of capacity building in the domestic environment.  

“We are seeing Lagos states working on their first tranche of green bond issuance, and other corporates as well working to issue.” 

But she said the whole process of green bond issuance, such as frameworks, aligning with green bond principles and identifying big projects to finance, continued to be a challenge in the local environment on the supply side.  

“On the buy side, all the [green] bonds that are being issued have been massively oversubscribed,” she said.  

The Nigerian Stock Exchange has a cross-border listing partnership on sustainability projects with the Luxembourg Stock Exchange, said Chiemeka, and its working to establish an “impact board” with the country’s Securities and Exchange Commission to focus on green bonds and give them more visibility.  

Other new developments in Africa, include Zambia creating a framework and the introduction of tax incentives for issuing green bonds, while Kenya has launched the Kenya Pension Fund Consortium, where pension trustees are collaborating on jointly investing in green infrastructure.

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