The Development Bank of Southern Africa (DBSA) and the Green Climate Fund (GCF) have signed an agreement that will kick off a programme to accelerate investments into climate projects and break market barriers in Southern Africa.
The companies say the agreement seals the GCF’s $56-million investment into DBSA’s climate finance facility (CFF).
The CFF is a first-of-its-kind climate finance facility in Africa using a pioneering green bank model.
DBSA and GCF’s programme will target South Africa, Namibia, Lesotho and eSwatini, but could be replicated in other developing countries to rapidly scale up private sector climate investments.
The CFF will break existing market barriers to climate financing by providing credit enhancements, such as subordinated debt tranches and tenor extensions, which de-risk and increase the bankability of climate projects.
DBSA CE Patrick Dlamini says climate change is a growing threat that affects Africa’s economies, natural resources, livelihoods and social stability. He believes the bank’s agreement with GCF will contribute to the broader low-carbon and resilient development trajectory in Southern Africa.
“The CFF will enable DBSA to increase its finance support to climate-friendly projects in the region and crowd in private capital investors.”
The Southern African region is susceptible to adverse effects of climate change, such as extreme droughts and rainfall fluctuations. Moving national economies away from fossil fuels, which still dominate the energy mix in the region, will come at a high price, says the DBSA.
It is estimated that in South Africa alone, more than $349-billion will be needed to reach the goals established in the country’s Nationally Determined Contributions by 2050.
“Significant investment beyond public resources are needed to tackle the challenge and mobilising private sector investments is crucial.
“Nevertheless, a series of market barriers in the region are hindering private investments in climate action. They include a lack of affordable long-term financing, perceived financial and technology risks and high upfront capital costs, among other things,” explains Dlamini.
The CFF is a great example of GCF’s support for financial innovation, which helps promote transformative climate action in the private sector, says GCF executive director Yannick Glemarec.
“The banking sector in South Africa alone has total assets exceeding $380-billion. CFF has the potential to accelerate green banking and shift significant private capital into climate investments.”