The climate transition in Africa is near impossible without active investment from the private sector and innovation; essentially, we need the start-up ecosystem to achieve climate change resilience and adaptation on the continent. A 2021 Africa Investment report highlighted that cleantech start-ups received 5% of the total funding of $4.9B in 2021, in comparison to Fintech’s 62%. African climate-focused start-ups also receive significantly less investment of 0.2% than their global counterparts receiving 94%[2]. Even though Africa is disproportionately impacted and amongst the most vulnerable to the effects of climate change; green start-ups have limited access to financing in the general investor market. One answer to this limitation is the introduction of green finance.
Green finance is a set of financial instruments, regulations and norms that aims to facilitate environmental objectives. The purpose of green financing, as defined by the UNEP is to increase financial flows from the public, private and non-profit sectors to environmentally sustainable development initiatives. However, access to green finance in Africa is significantly lower than in other emerging markets. In the first decade since the first green bond was issued in 2007, Africa had an issuance rate of 0.4% compared to 36,4% in Europe, 23% in Asia-Pacific, 1.3% in Latin America and 26.2% in North America. Despite the increased effects of climate change on the continent, such as widespread water stress, declining agricultural yields, exacerbating food insecurity, malnutrition, and poverty, Africa lags other emerging markets in the issuance of green financing instruments.
The green finance market in Africa is still rather new and developing in comparison to other emerging markets. Despite its slow expansion, it has enormous potential for private and public sector capital to finance renewable energy and low-carbon projects on the continent. African start-ups are innovating to solve the most pressing environmental challenges and accelerate the energy transition on the continent. As such, there is a pressing need for increased green financing to enable the continent to deliver on its development and climate goals.
The start-up ecosystem is fuelled by investment as it defines the success, legitimizes the idea, and boosts growth. In 2021, African start-ups raised $4.9 billion and produced five unicorn companies [1]. To achieve net-zero goals on the continent, desperate attention is required to drive green finance to African start-ups developing clean technologies. With a $100 billion target earmarked to finance climate adaptation and resilience in developing countries, there should be increased efforts from investors to drive financial flows toward clean technologies through ESG strategy and a strategic investment process. A greater effort is also required by start-ups to integrate sustainability measurement and reporting will highlight their work and increase their opportunity to align with their country’s commitment to the climate transition. and for start-ups to market themselves better and highlight their impact through sustainability measurement and reporting.
