Financing Sustainable Projects in Africa

We have put together highlights as part of our conversation on the ALN Academy talks on Financing Sustainable Projects in Africa.

Sonal Sejpal: Can you tell us about the objectives and the scope of your department, sustainable finance, particularly as regards the African continent?

Oliver Philips: To fully understand the concept, it is first important to understand what the term ‘sustainable finance’ means and the scope and objectives incorporated within. According to the European Union (EU), sustainable finance refers to the process of taking environmental, social, and governance (ESG) considerations into account when making investment decisions in the financial sector, leading to more long-term investments in sustainable economic activities and projects. For Standard Chartered Bank, this involves ensuring that the lending book is aligned to achieving net zero to reduce emissions and promote a green economy by maintaining a complete top-down view of all aspects of any business to help manage regulatory and compliance risks while also helping clients adhere to ethical and environmental standards.

Sustainable finance and ESG cuts across various banking aspects such as trade finance and derivatives, market issuance, project financing and credit facilities for clients, and other market trends. Standard Chartered provides an advisory function to its clients that occur at the onset to strategize plans to narrow their criteria for ESG. In Africa, there is a particular focus on having a ‘just-transition.’ The continent has made significant strides in coming up with strategies aimed at fulfilling the Paris Agreement. However, if this is not done in a responsible and just manner if the climate challenge or climate catastrophe is not dealt with effectively, there is a risk of leaving many people behind and ending up in a world with far more problems.

Sonal Sejpal: What is Standard Chartered Bank doing to promote green energy and energy efficiency on the African continent?

Oliver Philips: By the end of 2024, Standard Chartered aims to provide $35 billion towards renewable energy and clean technologies. This will cover financing and help companies to raise funding through M&A through capital markets. They announced a newer target in November last year to provide $300 billion worth of green and transition finance by 2030.

Trade financing being at the core, the bank implores diverse measures such as import financing solutions for clients so that clients can comfortably and affordably, practice green energy by importing the equipment and machinery that they need to do so in Africa. This extends both on the corporate and retail sides as well.

Sonal Sejpal: What is the role of financiers in the development of renewable energy?

Oliver Philips: Lenders must collaborate closely with developers and retailers. This entails partnering and understanding what developers are seeking at an early stage so that they may sufficiently sustainably expand their projects while also making them bankable in a non-burdensome manner. A great example of this would be the Middle East, where project developers are developing on a massive scale due to lower tariffs and improved technology, both of which are environmentally friendly.

Sonal Sejpal: What do you think is the significance of financial development in bridging Africa’s present financial gap?

Oliver Philips: When Standard Chartered first issued a sustainability bond, they conducted a sustainable finance impact study that covered all of their international sustainable financing efforts. This analysis compared an equal renewables project in an Indian town to one in France and found that the number of emissions reduced in India was seven times more. This, and many other examples, emphasize the need of bridging the financial gap for renewable energy projects in developing countries.

Only 10% of the SDGs are funded in Africa, compared to 90% in Europe, underlining the vast imbalance that must be bridged. There is an opportunity for investors to route these funds where they are most needed, such as in Africa, where responsible financing is critical to the continent’s overall growth.

Sonal Sejpal: Could you outline the key possibilities available to financial institutions as they consider funding initiatives in Africa?

Oliver Philips: Financial growth is required to bridge the financial gap Africa is currently experiencing.  When it comes to funding renewable projects, there is no shortage of solutions; it is important to cover the full spectrum of available options and channels. Standard Chartered is working with banks such as Access bank in Nigeria to help them raise a green private placement that under their green finance framework, they can channel those funds to renewable energy. These bonds are then used to provide those loans to those companies to be able to sort of fund the underlying green projects themselves. Structuring green derivatives that support those renewable energy projects also creates a more compelling offer to these businesses as opposed to just reducing the currency risks.

Sonal Sejpal: Why do you think Africa should prioritize sustainable growth?

Oliver Philips: Recognizing sustainability as a catalyst for growth is critical not just for tackling current difficulties, but also for planning for the next decades in a sustainable manner. Sustainable growth must be feasible, which means it cannot develop too quickly without the proper processes in place. However, with global developments such as carbon pricing and carbon border adjustments on the horizon in several regional markets, ESG sustainability remains crucial. For example, if one exports to Europe without sticking to proper ESG requirements, they risk being penalized.

Standard Chartered is involved in various forms of social infrastructure financing. From roads connecting rural communities in Ghana to a recent deal with UK export credit agency the UK in Senegal to import first response equipment for firefighters and a partnership with Eco-bank supporting women-owned SMEs across the continent. 

Despite the pitfalls and the challenges in achieving this, there is great potential for the monetisation of natural resources for the continent.

Sonal Sejpal: What is the most effective way for Africa to monetize its natural resources?

Oliver Philips: Any move to commercialize natural resources must begin with their protection, as there are vital African natural aspects that are often disregarded. Natural forest basins such as the Amazon receive a lot of attention, but the Congo Basin is often overlooked, despite being a massive carbon sink. Monetising carbon and natural capital more widely have the potential to be extremely beneficial for African governments, corporations, and banks, since it provides a fresh source of debt repayment, particularly at a time when the global economy is in upheaval. Markets in Africa are developing new revenue sources to pay their debt and attract new investors, which increasingly include ESG initiatives. Despite the pitfalls and the challenges in achieving this, there is great potential for the monetisation of natural resources for the continent.

Stay tuned for more content on rule of law, governance, and sustainability in Africa.

This discussion took place as part of the ALN Academy Talks, an academic talk show to promote conversations on rule of law, governance and sustainability across Africa.

Interviewee: Oliver Phillips, Associate Director, Sustainable Finance Standard Chartered Bank 

Interviewer: Sonal Sejpal, Partner and Head of Banking and Finance, Anjarwalla & Khanna | ALN ALN

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