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30 June 2022

A pivotal moment for investment in Africa’s energy transition

Greg Fyfe, Head of Sustainable Finance, Standard Bank Group and Wendy Dobson, Head, Group Corporate Citizenship, Standard Bank Group

Africa has a significant, yet often overlooked, role in the global effort towards the transition to clean energy sources. The continent also requires urgent financial investment to make its net zero goals a reality.  

Despite being a minor contributor to global greenhouse gas emissions (3.8%), Africa is most vulnerable to the effects of climate change – the realities of which are well documented. At the same time, hundreds of millions of Africans have no access to electricity, which impedes their health, education, security and economic opportunities. So how does the continent address energy poverty, while also investing in clean and renewable energy infrastructure at scale across the continent? This is the challenge facing Africa.

The continent’s energy transition must recognise the legitimate needs of its citizens as the first step towards transitioning to a net zero economy. In considering its unmatched potential for renewable energy sources, Africa’s basis for transformation in the energy sector is formidable. The continent possesses unique strengths in hydro, solar, and wind, while it also has the potential to act as an important, global carbon sink.  

But as vast as these opportunities are, they have thus far been largely untapped, with local markets unable to source the requisite finance.

Greater flows of foreign investment are needed in both climate mitigation and climate adaptation funding, to stimulate sustainable energy infrastructure development on the continent. According to a consultation paper released at the World Economic Forum last month1, South Africa alone would need at least $250bn to diversify away from coal fired power to a more renewables-oriented economy.

Striking while the iron’s hot

In addition to climate targets set by Africa’s governments and firms, local markets are starting to shift towards creating the platforms needed to accelerate investment in the continent’s energy transition.

Front of mind for many stakeholders is COP27, taking place in Egypt later this year. Being held in Africa, COP27 will present a fresh opportunity to present Africa’s green investment opportunities and its role in the world’s clean energy transition. The conference will play an important role in highlighting how Africa requires trade and investment to meet its development challenges, grow its economy in a sustainable and inclusive way, while mitigating the effects of climate change.

Africa’s rich biodiversity landscape is central to the proposition. Africa’s natural landscapes must be seen as a natural resource or endowment, with its value increasing over time as the market for reliable nature-based carbon trading develops. The most successful of these projects will acknowledge the surrounding communities from the outset and ensure benefits are equitably shared.

The continent’s agriculture sector is another area primed for a significant transition. There is a wealth of opportunities for sustainable and climate resilient agriculture and agro-forestry; all of which represent attractive propositions for investors.

Geographically, the continent is witnessing the transformation of purely logistic and transport hubs into more fully-developed and sustainable cities. These locations present multiple opportunities for investors looking for new, emerging market exposure to infrastructure assets, most notably in transactions involving public private partnerships. The key challenge here is to ensure that the risks involved in financing these projects are appropriately mitigated and structured, so that these investments are more palatable for institutional capital.

Investing in a sustainable transition

As well as aligning with a purpose-led investing model – which most corporates and individuals strive towards – the approach towards financing Africa’s energy transition must consider the economic, social, and environmental impact on its people. It goes without saying that Africa’s transition needs to be just.

That is why at Standard Bank, we remain committed to spearheading Africa’s transition in the right way. Through our new climate policy, we plan on raising and providing between ZAR 250bn-300bn in sustainable finance by 2026. This will help provide the necessary infrastructure to support the transition for those communities still dependent on coal and other fossil fuels for their livelihoods.

To discover more about Standard Bank’s sustainable finance work, click here.

Making Climate Capital work: Unlocking $8.5bn for South Africa’s Just Energy Transition; Blended Finance Taskforce and the Centre for Sustainability Transitions at Stellenbosch University. Read More