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Banks asked to invest in understanding carbon financing risks, returns
Mr Paul Muthaura (Centre), the Africa Carbon Markets Initiative chief executive officer, speaks during the Banking on Carbon Markets workshop. Looking on are Mr Feisal Hussain (Left), the Clean Cooking Alliance senior director for innovative finance and Mr Franck Adjagba, the African Guarantee Fund Group director of business development. Photo / Courtesy
What you need to know:
- Carbon projects have become instrumental in channeling funds across various sectors of the economy
The African Guarantee Fund has said banks must invest in understanding risks and returns associated with carbon projects to support effective transitions.
Speaking during the Banking on Carbon Markets workshop, which focused on financing clean cooking projects, Mr Patrick Lumumba, the African Guarantee Fund Group director of capacity development, said carbon projects have become instrumental in channeling funds across various sectors of the economy, with a number of financial institutions expediting ways through which they can support the transitions.
However, he said, banks frequently lack comprehensive data to assess the risks and returns associated with carbon projects, while at the same time lack information about effective market entry strategies, growth-oriented business models, risk management, and prudent portfolio construction.
“Today’s workshop is a clear example of [our] capacity development efforts to enable the banking sector venture into carbon markets by way of increasing financing of clean cooking projects. Prioritising this sector directly impacts on several SDGs such as gender equality, good health and wellbeing and indeed climate action,” Mr Lumumba said.
The workshop organised together with Clean Cooking Alliance, in partnership with the UN Capital Development Fund, also sought to empower Africa’s banking industry with knowledge and insights necessary to navigate carbon markets effectively.
Carbon finance business models, the intricacies of financing clean cooking projects and associated risk-return profiles, were some of the topics discussed.
Industry leaders and investors shared global evidence and experiences in underwriting risks related to lending to clean cooking carbon projects.
Recently, António Guterres, the UN secretary general, said Africa is home to 60 percent of the world’s best solar resources, but holds only 2 per cent of global investments in renewable energy over the last two decades.
“Now is the time to bring together African countries with developed countries, financial institutions and technology companies to create a true African Renewable Energy Alliance,” he said.
The spotlight on green financing primarily centres on mitigating climate risk as well as untapped potential for banks to maximise opportunities.
In the face of mounting pressure banks have been compelled to align their corporate strategies and lending criteria with environmental, social, and governance (ESG) standards.
Mr Feisal Hussain, the Clean Cooking Alliance senior director of innovative finance, said banks are essential to realizing the full potential of the carbon markets thus they must help to fill the financing gap needed to initiate and scale up carbon projects.
"This is crucial to accelerating the clean energy transition and transforming the lives of people who currently do not have access to clean cooking fuels and technologies,” he said, adding: “The new partnership platform for Clean Cooking Finance is key to this endeavor as it brings together several distinctive capabilities."
