MSIZI KHOZA: COP27 a make-or-break moment for Africa?

As delegates make final preparations for the 27th instalment of COP in the Egyptian resort town of Sharm El-Sheikh this weekend, they are being confronted with a mountain of scary statistics. Doubtless, these all point to an accelerating climate emergency.

Among them is a recent report by the UN Environment Programme that assesses the targets of 194 countries accounting for 90% of all greenhouse gases. It makes for sobering reading, and concludes that at the moment “there is no credible pathway to 1.5°C in place”.

Criticism from UN secretary-general Antonio Guterres is even more searing. He writes: “Global and national climate commitments are falling pitifully short. We are headed for a global catastrophe. The emissions gap is a byproduct of a commitments gap, a promises gap, and an action gap.”

It is surprising then, that amid such a burning platform for more action, the financial resources required to support developing countries in adapting to climate change and mitigating the effects are not forthcoming. According to climate finance action and advocacy group Convergence, between 2019 and 2022 there were only $14bn of climate blended finance deals — structures that use public money to derisk investments for poor countries. This was less than half the volume seen in the previous three years.

As the COP27 meeting draws nearer, developing countries are — rightly — feeling increasingly angry about the lack of support and follow-through on previous commitments. As an example, a not insignificant number of Pakistani legislators put forward a motion that in effect demanded “climate justice” in the form of reparations and grants for devastating floods that affected 33-million people recently.

Against this backdrop many parts of the world are awash with liquidity seeking sustainable assets. Large international financial groups such as BlackRock, TPG and Brookfield have raised tens of billions of dollars to support green projects. Even as anti-ESG sentiment grows in parts of the developed world, this trend is unlikely to be reversed.

Why then are developing nations struggling to secure funding? One reason relates to perceived currency, political and governance risks. Another is that in developing-country contexts green projects are often too small and have elevated levels of credit risk. Another relates to a lack of capital with the appropriate risk appetite, tenor and development mandate.

Rightly, developing nations are applying more pressure on wealthier nations to make good on their $100bn annual support commitments made in 2015. Equally, there must be more pressure on multilateral development banks to become more creative and unlock further commercial capital by providing first-loss or subordinated debt positions or equity-like instruments. Development banks are uniquely suited to roll up and package smaller projects together and securitise these into investible structures.

There are pockets of progress that are harbingers of hope. The Rockefeller Foundation is conducting blended finance test projects, and there are a few European blended finance entities that have recently been established. But time is of the essence — a lot more needs to be done, and it must be done faster than usual.

A recent study by McKinsey & Co found that as a result of its high exposure and elevated vulnerability to climate hazards such as floods and droughts, a third of the people who are most at risk in the world live in Africa.

At the same time, given Africa’s development challenge — high and growing urbanisation rates, the requirement for cheap and reliable energy, as well as stubbornly high levels of unemployment — policymakers can ill afford to make a mistake and precipitate a disorderly transition.

In the evolving debate about loss and damage as well as building a more sustainable and resilient future, African voices should be front and centre of the debate.

In the final analysis, Africa’s case is as simple as it is powerful: without a significant increase in funding the frustrations will only intensify, and so too will climate-induced losses and damage. Such losses hurt poor and rich alike. 

• Khoza is head of ESG at Absa Corporate & Investment Banking.