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How firms can turn climate change into bankable deals

In 2022, the African continent will be in the headline when it comes to matters of climate change. In November this year, the world will be gathering in Sharm El-Sheikh, Egypt, to discuss and agree on how to curtail and, at the same time, adapt to climate change.

Africa will need to show the way despite the fact that it is not a major contributor to global warming but on the contrary, is more affected by the changing and the already changing climate.

Governments must lead into the shift to sustainable consumption and production as a way of reducing carbon emissions. The drive must include the private and public sectors, civil society, and academia if it is going to gain momentum.

This calls for policies and other mechanisms such as incentives and rules, and regulations that will enable the transition to happen. Examples include more renewable energy use as opposed to fossil fuels and more efficiency in production systems, especially those using natural resources.

On the other hand, moving from a linear to a circular economy is seen as a way to decouple economic growth from the use of resources and avoid unnecessary waste. This is a powerful tool to reduce emissions and combat climate change.

From a political angle, African countries will need to internalize the bills associated with decades of delaying action on climate change. It is estimated that the “business as usual” scenario will cost Africa approximately two percent of its GDP on an annual basis.

We can no longer delay the action towards climate change as this will cost us dearly in terms of the development agenda but also the fact that the delay will be associated with more difficult to transition to climate-friendly economies.

Africa’s hope lies in the coalitions of companies, governments and civil societies, and citizens who can accelerate progress on issues such as stopping deforestation, cutting methane, ending fossil fuel use, more sustainable use and production, and boosting the use of zero-emissions technologies such as transport solutions and renewable energies.

Transition to a better Africa, which is not climate-challenged will require financial flows. The private sector together with government enablers will be a key source of the required financing. Most companies are working to build platforms that will enable them to engage and deliver on climate commitments, but finance is not yet flowing as expected.

There is a need for the c-suites and boards of companies to engage in strategic conversations on what climate change means for their businesses. These discussions and actions should emanate from the opportunities as well as the risk perspectives if businesses are to make sense and create value.

In 2022, the private sector will not only be exposed to the climate finance problem but will also continue to struggle as a result of the economic disruption from the Covid-19 pandemic. Support from international financial institutions will be required to help in addressing issues of access to finance. Advanced economies are committing afresh to provide the $100 billion a year that was part of the Paris Agreement in 2015.

There are huge opportunities for the private sector to engage in matters of climate change on the continent. Unfortunately, most businesses view climate change as a matter to be addressed by governments. The private sector also lacks the capacity to translate climate change to being bankable businesses, which requires some special skills.

Private firms make investment decisions based on the project’s commercial viability. Prospective investments are thus expected to cover the full costs of the project, including the cost of capital, and to achieve a return commensurate to the risks associated with a particular project.

Due to the above, there is a need to address the supply and demand-side financing barriers by providing a range of financing instruments to make climate projects become low-risk, bankable, and attractive to investors. This is a role that can be played by the government as well as local and international financial institutions with the aim of attracting public and private investment in climate-related projects leading to transformative results.

The challenge goes to private sector companies – there is a great opportunity for business when it comes to addressing climate change. The opportunities lie in mitigation as well as adaptation of climate change where businesses will increase their revenues, cut costs as well as revamp their brands and the social licenses to operate by engaging in the climate agenda.

For this to happen, being deliberate, innovative, and proactive by the private sector companies’ boards and C-suites is a key ingredient. Businesses will need to acquire knowledge, expertise, and tools that will enable them to translate available opportunities into the bottom line and at the same time create the shared value.

This article was first published in the Business Daily