As we approach COP29, the evidence of climate change’s devasting impact on lives, livelihoods and infrastructure across the globe calls for a greater emphasis on action.
COP28 brought together global leaders, policymakers, and stakeholders to address the pressing challenges of climate change. While discussions at COP28 focused on commitments and strategies to mitigate climate change, it is essential that COP29 explores the role of emerging mechanisms and technologies in shaping the future of climate finance, particularly in Africa.
Africa, while accounting for less than 4% of global greenhouse gas emissions, serves as a dramatic example of climate change’s disproportionate impact. The continent faces a $2.8 trillion climate funding deficit between 2020 and 2030, limiting its capacity to undertake critical reduction and adaptation policies. Droughts and floods are already wreaking havoc on agricultural productivity, displacing communities, and putting food security for millions of people at risk. The continent needs up to $250 billion annually until 2030 to effectively respond to the challenges posed by climate change. Beyond advocating for priorities rooted in evolving science-based findings and mandatory contributions from developed nations, African countries are increasingly focusing on harnessing emerging innovations to address these challenges.
During COP28, Africa achieved significant milestones, including the approval of the Loss and Damage Fund. Climate change negotiators agreed to allocate over $700 million to this fund, aimed at supporting climate mitigation and recovery efforts. Notable contributions include $100 million each from the United Arab Emirates and Germany, €40 million from the United Kingdom, $10 million from Japan, and $17.5 million from the United States. A key focus was the New Collective Goal of Climate Finance, a post-2025 initiative, which aims to raise the minimum annual climate finance from the current $100 billion.
This shift towards embracing innovation presents a significant opportunity for Africa, enhancing the continent’s resilience to climate-related risks while fostering sustainable development. Emerging mechanisms and technologies such as, blockchains, and artificial intelligence offer immense potential to transform Africa’s climate market. By leveraging these innovations, African nations can unlock new sources of funding for climate change initiatives while simultaneously promoting economic growth, job creation, and environmental sustainability across the continent.
This article discusses these innovative technologies and explores how they can revolutionize climate finance and drive sustainable development across Africa. We also examine key trends shaping the future of climate finance in Africa and the transformative potential of these developments.
Harnessing Blockchain for Climate Finance
According to the World Economic Forum, blockchain is an effective tool for climate mitigation and adaptation because it democratizes ownership, improves transparency and integrity, and allows for real-time insight into emissions reduction and sequestration initiatives. When developing and implementing technological solutions, the impact on individuals, communities, and natural ecosystems currently suffering from climate inaction must be considered.Â
One of the most significant benefits of blockchain in climate financing is its capacity to simplify operations and lower transaction costs. Traditional financial systems often rely on several intermediaries and extensive administrative procedures, resulting in delays and inefficiencies in fund delivery. Blockchain eliminates the need for intermediaries by enabling direct peer-to-peer transactions, which accelerates the process and reduces associated costs. Furthermore, blockchain allows for the tokenization of environmental assets like carbon credits and renewable energy certificates. Digitizing these assets and expressing them as tokens on a blockchain network makes them more divisible and transferable, creating new opportunities for investment and funding in climate-related initiatives.Â
A notable example of harnessing blockchain for climate finance is the “Economy of Love” (EoL) initiative launched in Egypt, during COP27. This program utilizes blockchain technology to connect investors with small-scale Egyptian farmers through the issuance of agricultural carbon credits. These carbon credits serve as an additional income source, estimated at roughly €200 per acre per year. Given the typical farm size of 6 acres, farmers can earn an extra €1200 annually, almost half their usual income. This financial boost offers much-needed relief and incentivizes farmers to adopt sustainable practices such as planting trees, improving soil fertility, and using renewable energy, all contributing to reduced carbon footprints. For investors, purchasing these carbon credits allows them to offset their travel emissions while directly funding climate-friendly farming methods. Blockchain’s role is crucial, as it enables tokenizing these credits, ensuring transparency, traceability, and efficiency by eliminating intermediaries and reducing transaction costs. The EoL initiative demonstrates how blockchain can effectively drive climate finance by fostering sustainability and economic growth through direct, secure transactions between farmers and investors.Â
Another innovative application is GainForest, a smart contract designed to combat deforestation in the Amazon. GainForest uses blockchain to allow virtual caretakers to stake assets on the health of forest patches in the Amazon rainforest. These staked assets support local caretakers in maintaining and restoring the forests. By entering into a contract, the funds staked are used as the locals see fit, promoting local autonomy and empowerment. GainForest leverages technological breakthroughs to empower local people and promote scientific discoveries. This technology facilitates knowledge exchange by allowing locals to submit data such as images of plants and stories. Additionally, GainForest Green Globe, a dynamic visualization tool, combines satellite data, field algorithms, and local input to show how donor contributions impact forest preservation. GainForest has also initiated projects in Uganda and Kenya. Â
Leveraging Artificial Intelligence (AI) for Climate Risk Assessment
Artificial intelligence (AI) is revolutionizing climate risk assessment and management. AI is growing into an important instrument for climate change adaptation and mitigation efforts. AI applications for climate action have many possibilities and include climate modeling. These technologies can analyze vast amounts of data to identify climate-related risks, predict extreme weather events, and develop adaptive strategies. In Africa, AI-powered tools can be used to assess the vulnerability of communities to climate change, optimize resource allocation for disaster response, and design resilient infrastructure projects. Â
Incorporating artificial intelligence into climate assessment procedures for climate finance is a critical step toward effectively combating climate change. These developments improve our understanding of past and present climate trends and allow us to make more accurate forecasts about future changes. Scientists and climate finance experts may use AI to increase the accuracy of projections, allowing for more effective responses to extreme conditions and greater protection for those most endangered.Â
A prominent example of AI’s incorporation into climate risk assessment in Africa is the collaboration between IBM and the African Risk Capacity (ARC), a specialized organization affiliated with the African Union. ARC is dedicated to helping African countries better prepare for and mitigate extreme weather and natural catastrophes. Despite contributing only 2% to 3% of global greenhouse gas emissions, Africa is disproportionately affected by extreme heat, flooding, droughts, and sea-level rise, leading to deaths, property destruction, and population displacement. To address these challenges, IBM Research’s new rapid discovery climate solution leverages AI and hybrid cloud technologies to better assess and predict resistance to climate threats. This innovative solution allows scientists, developers, and business analysts to use IBM’s proprietary models to quickly measure and investigate climate risk. Additionally, users can onboard their preferred models or build new ones, enhancing the flexibility and applicability of the system.Â
The urgency and impact of these efforts are illustrated by events like Tropical Cyclone Eloise, which made landfall in central Mozambique on January 23, 2021, causing devastating floods in Mozambique, Zimbabwe, and South Africa. Improved risk assessments from AI solutions inform early warning systems and trigger pre-arranged financial support mechanisms from ARC for affected countries. This data-driven approach ensures resources are directed to areas facing the most immediate climate threats, facilitating more efficient allocation of climate finance. The collaboration between IBM and ARC demonstrates how AI can transform climate finance by providing precise and timely information, helping allocate funds where they are needed most. By integrating AI into climate risk assessment, Africa can better navigate the financial complexities of climate adaptation and resilience, ensuring a more secure future for its people and ecosystems.
Empowering Financial Inclusion with Fintech Solutions
When we think of Financial Technology (FinTech), we think of services that utilize algorithms, data gateways, and artificial intelligence to help customers and business partners handle different business transitions. “Climate fintech” is a new subset of fintech that uses technological innovation to solve both sustainability and financial concerns. Therefore, Climate Fintech solutions are playing a crucial role in expanding access to climate finance for underserved communities, especially in Africa. Mobile money platforms, digital payment systems, and peer-to-peer lending networks are enabling smallholder farmers, micro-entrepreneurs, and rural households to access affordable financing for climate-resilient projects. Â
M-KOPA is a pioneering pay-as-you-go (PAYG) solar energy company based in Kenya that uses mobile technology to provide affordable solar power to off-grid households. By integrating mobile payments with solar technology, M-KOPA not only advances financial inclusion but also supports climate finance initiatives. M-KOPA’s pay-as-you-go not only promotes financial inclusion by integrating unbanked individuals into the financial ecosystem, but it also addresses climate finance by delivering affordable solar energy, which decreases dependency on fossil fuels and fosters climate resilience.Â
M-KOPA has found success in the Kenyan market after launching its solar-powered solutions for local households. At the start of its operations, the firm connected homes with solar systems that included panels, batteries, LED lights, and charging stations for mobile devices. The selling point of the service was its ability to profitably replace paraffin lamps with clean lighting and power sources for off-grid homes. Â
M-KOPA, which has improved over the years, offers more services, including TV access, through its pay-as-you-go model. This model allows users to make affordable instalments using mobile money (M-PESA). Customers can pay as little as KES 100 (under $1) per day to keep their lights on.Â
M-KOPA reports that it has sold over 3 million of these goods through its sales technique, which includes an agent network of over 10,000. This implies it has sold a million additional assets in more than a year. M-KOPA is an East African success story, having offered over $1 billion in financing to underbanked clients. It extended into Nigeria in 2021, with a recent presence in Ghana. According to the company, new client acquisition increased at an 85% compound annual growth rate between 2020 and 2022.Â
By leveraging climate fintech, like M-KOPA, African countries can bridge the gap between traditional banking systems and the informal economy, unlocking new sources of funding for sustainable development initiatives.Â
Promoting Green Bonds and Impact Investment
Green bonds and impact investment funds are emerging as powerful instruments for mobilizing capital for climate-friendly projects worldwide. These financial instruments enable investors to support renewable energy, energy efficiency, and climate adaptation initiatives while generating financial returns. Â
The market for green bonds is expanding as countries around the world increase their efforts to reduce carbon emissions. According to the United Nations’ Intergovernmental Panel on Climate Change, limiting the temperature increase to 1.5°C, the goal of the Paris Agreement, will necessitate over $3 – 6 trillion in annual investment until 2050, and governments and corporations are increasingly turning to green bonds to help raise those funds.Â
Strong demand for green bonds is also propelling expansion, with large investors ranging from asset managers to insurers and pension funds eager to acquire them. Given the urgency of addressing climate disasters, the fossil fuel sector received significantly more funding than green initiatives in the years after the Paris Agreement. According to Bloomberg Green, this changed in 2021, signaling that the effort to rescue the world may be hitting a tipping point. According to the World Economic Forum’s study, Fostering Effective Energy Transition 2023, the green bond market is growing quickly, with $1 trillion in issuances in 2024.Â
African governments and financial institutions are increasingly issuing green bonds to finance sustainable infrastructure projects, renewable energy installations, and conservation initiatives, attracting investment from both domestic and international investors.Â
After adopting the Paris Agreement in March 2017, Nigeria launched its Green Bond Market Development Programme, aiming to mobilize key players to create innovative financial solutions for the country’s climate mitigation and adaptation objectives. Following the Nigerian Exchange Group’s (NGX) recommendation to the Federal Ministry of Environment, the Green Bond Advisory Group was established to facilitate Nigeria’s first sovereign green bond issuance. This successful issuance and listing paved the way for subsequent corporate green bonds, including Access Bank of Nigeria Plc’s $36 million (N15 billion) 5-year Fixed Rate Senior Unsecured Green Bond, North South Power Company’s $21 million (N8.5 billion) 15-year Guaranteed Fixed Rate Senior Green Infrastructure Bond, and the Series II $36 million (N15 billion) 7-year sovereign green bond in 2019, which was oversubscribed by US$44 million (N17.93 billion). Due to NGX’s leadership, the Nigerian green bond market grew from zero to $120 million (N49.19 billion) within three years, recording four issuances and listings.Â
These green bonds have gone into funding climate action projects, like Prioritizing solar power and afforestation. Solar power was the largest beneficiary of the pilot bond, receiving 81% of the proceeds. The balance of the funds financed afforestation, which restores carbon cover and enhances rural livelihoods by planting trees that farmers and communities can use.Â
Nigeria’s performance with sovereign green bonds has also encouraged other African countries to participate in these kinds of investments.Â
Conclusion
As Africa continues to confront the challenges of climate change, leveraging emerging technologies and innovative financial instruments will be critical for driving sustainable development and resilience. Beyond COP28, policymakers, businesses, and investors must collaborate to harness the power of these solutions to accelerate climate action and build a greener, more prosperous future for Africa and the world. These solutions offer new avenues for channeling investment towards low-carbon, climate-resilient projects that deliver measurable environmental and social benefits. By embracing these transformative technologies and financial innovations, Africa can unlock new opportunities for economic growth, job creation, and environmental sustainability, paving the way for a brighter tomorrow for generations to come.
