Africa stands at a pivotal juncture, harmonising its aspirations for economic expansion with the imperative of a clean energy shift as part of transitioning to low carbon economies.
This balance is particularly critical as the continent gears up for another round of the climate discussions at COP29. The insights from COP26 spotlight the indispensable role of country-level blended finance initiatives in achieving these dual objectives.
Blended finance emerges as a vital tool in Just Energy Transition (JET), fostering sustainable development that is equitable and robust. This approach not only attracts substantial private investment but also mitigates risks and enhances the appeal of sustainable investments.
In the framework of the Paris Agreement, the alignment of financial flows with sustainable development is paramount. Innovations such as green bonds, sustainability-linked loans, and the integration of ESG (Environmental, Social, and Governance) criteria are revolutionising the financial landscape. These advancements facilitate Africa’s access to capital, pivotal for a just transition.
As the world edges closer to COP29, the importance of catalysing sustainable finance intensifies, with a growing demand for transparency and tangible results from green investments.
The need for a robust financial model is pronounced in Africa, where transitioning from fossil fuels to renewable energy sources requires investment.
Blended finance is key to providing low-income communities with access to affordable energy, modernising off-grid solutions, and enhancing rural electrification. It also plays a crucial role in integrating renewable energy through better storage solutions.
Kenya exemplifies leadership in renewable energy deployment, with its commitment to achieving 100 percent renewable energy by 2030—already surpassing 90 percent.
This ambition was highlighted by the President at the Forum on China-Africa Cooperation (FOCAC) summit in Beijing, emphasising renewable energy as a national priority. Transition requires a sustainable financing model that benefits the nation.
The focus also extends to enhancing finance for SMEs and fostering “green innovation.” SMEs are vital to Kenya’s economy, and through blended finance, there is huge potential to scale sustainable businesses, especially in sectors such as climate-smart agriculture and renewable energy.
The national strategy increasingly favours blended finance, spurred by foreign direct investment and innovative financing packages. These packages combine concessional funds with commercial loans to reduce project costs and attract more investors.
Implementing such strategies requires a delicate balance of concessional capital, policy reform, and private finance. It demands robust and transparent public-private partnerships and a keen understanding of regional nuances to tailor the approach effectively.
As COP29 approaches, discourse around blended finance and its role in facilitating sustainable finance will be crucial. The experiences of nations like South Africa provide valuable lessons for other emerging markets.
The writer is the head of Banking & Coverage, Corporate & Investment Banking at Standard Chartered.
