Unlocking Africa’s Climate Action Potential: The Key Role of the Private Sector

Author: David Mueller, Regional Impact Officer for Sustainable Development Goals, UNDP and Daisy Mukarakate, Regional Climate Policy Advisor, UNDP

Climate change is the defining challenge of our time, and Africa is at the forefront. Despite contributing minimally to global greenhouse gas emissions, the continent often bears the brunt of climate impacts—damaging economies, lives, and communities. African nations have responded with robust Nationally Determined Contributions (NDCs), setting out their plans to reduce emissions and adapt to climate change. But a significant hurdle remains: financing these ambitious goals.

The scale of the investment required is staggering. To achieve their NDCs, African countries need an estimated US funding $2.8 trillion between 2020 and 2030. African governments spend $26.4 billion annually in domestic public funds, about 10% of the total cost. They may not be able to provide some of this money because of debt levels and other development priorities resulting from the current crises.

To date, private financing for Africa’s NDCs remains largely untapped. In 2022, the private sector contributed only 14% ($4.2 billion) of the continent’s total climate financing, significantly less than in other regions. Yet this financing gap holds huge and valuable opportunities, particularly for the private sector.

New market insights from UNDP’s SDG Investor Maps reveal a landscape full of potential. The upcoming UNDP Africa Investment Insights report, produced by the Africa Sustainable Finance Hub in partnership with Climate Promise, highlights 207 investment opportunities with significant financial and SDG potential across 11 sectors, 24 sub-sectors and 42 industries in 15 African countries. Of these, 130, or more than half, are climate-related. These opportunities, spanning food and beverage, infrastructure, renewable energy and other sectors, offer attractive financial return expectations while promising significant environmental and social benefits.

The numbers are compelling. Most of these opportunities have market sizes between $100 million and $100 million.$1 billion, with potential returns of 15-20 percent for both IRR and ROI. Importantly, many of these opportunities are classified as “contribute to solutions,” meaning they generate positive outcomes for stakeholders who would otherwise not receive adequate service.

Overall, cities offer the greatest potential for net-zero investment, as they account for about 70 percent of global emissions. But rural areas, often overlooked by investors, are also prime targets for climate investment, as most of the climate-related investment opportunities in the report are suitable for such locations. Investments in rural areas not only offer financial returns; they ensure that climate action reaches those most vulnerable to its impacts, embodying the principles of leaving no one behind and reaching the last mile.

Investment opportunities are not just theoretical. Real-world examples are already showing their potential as business solutions that support national NDCs. In Eswatini, an integrated waste collection and management services business model is helping to achieve adaptation and mitigation goals in the health sector. In Nigeria, SOSAI Renewable Energies, a UNDP Growth Stage Impact Venture (GSIV) finalist, is deploying efficient, reliable and affordable renewable energy in underserved communities in the northern region.

Unlocking this potential, however, requires a collaborative approach. The public sector plays a key role. Around 60 percent of identified climate investment opportunities require public support, through blended or concessional finance. To achieve this, governments need to create enabling environments that facilitate the flow of private capital towards climate solutions. This includes implementing supportive policies, offering financial risk mitigation mechanisms, and strategically using public finance to unlock private investment at scale. Innovative financial instruments, such as high-integrity carbon markets and green and blue bonds, can further catalyze financing for a just transition to net zero emissions.

Recognizing the opportunities, countries are rising to the challenge by using the Integrated National Financing Framework (INFF) to align financing with their sustainable development ambitions. UNDP is supporting 35 African countries in this process, and 15 of them are already implementing reforms to enable private sector investment and other interventions to meet their climate and development goals.

The way forward requires a joint effort from both the public and private sectors. By combining government commitments with private investment, we can transform Africa’s climate challenges into opportunities for sustainable growth. The upcoming UNDP Africa Investment Insights Report, due out on 17 July 2024, will provide valuable market intelligence to help guide this transformation.

As we approach key climate milestones, the opportunity is clear: Africa’s climate action is not only a moral imperative, but a smart investment. Now is the time for the private sector to play its part in shaping a low-carbon, resilient and sustainable future for the continent and the world.

For more information:

To access the UNDP Africa Investment Insights Report, Third Edition – Climate Opportunities when it is launched at the Africa Impact Summit on 17 July 2024, please visit: https://www.undp.org/africa/investment-insights.

For a comprehensive overview of SDG Investor Map market information, visit the SDG Investor platform: https://sdginvestorplatform.undp.org/market-intelligence.

These resources offer valuable insights into climate-related investment opportunities in Africa and provide detailed market intelligence that can assist in making sustainable investments.