Ugandan Banks Advised to Consider Carbon Financing

Carbon Financing: Banks Advised to Assess Risks and Returns
Carbon Financing: Banks Advised to Assess Risks and Returns
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Carbon projects have become vital for directing money into different parts of the economy. The African Guarantee Fund has stated that banks should invest in understanding the risks and returns linked with carbon projects to help transitions effectively.

During the Banking on Carbon Markets workshop, which focused on financing clean cooking projects, Mr. Patrick Lumumba, the African Guarantee Fund Group director of capacity development, highlighted that carbon projects have become essential for channeling funds into various sectors of the economy. Several financial institutions are looking for ways to support these transitions.

However, he pointed out that banks often lack comprehensive data to evaluate the risks and returns associated with carbon projects. At the same time, they are also missing information about effective market entry strategies, growth-oriented business models, risk management, and sensible portfolio construction.

“Today’s workshop is a clear example of our capacity development efforts to enable the banking sector to enter carbon markets and increase financing for clean cooking projects. Prioritizing this sector directly affects several Sustainable Development Goals (SDGs) such as gender equality, good health and wellbeing, and climate action,” Mr. Lumumba stated.

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The workshop, organized in collaboration with the Clean Cooking Alliance and the UN Capital Development Fund, aimed to equip Africa’s banking industry with the knowledge and insights needed to navigate carbon markets effectively. Topics discussed included carbon finance business models, the complexities of financing clean cooking projects, and associated risk-return profiles.

Industry leaders and investors shared global evidence and experiences related to underwriting risks associated with lending to clean cooking carbon projects.

Recently, António Guterres, the UN secretary-general, emphasized that Africa possesses 60 percent of the world’s best solar resources but has only received 2 percent of global investments in renewable energy in the past two decades.

“Now is the time to bring together African countries with developed countries, financial institutions, and technology companies to create a true African Renewable Energy Alliance,” he suggested.

The focus on green financing primarily revolves around mitigating climate risk and the untapped potential for banks to maximize opportunities. Under mounting pressure, banks have been compelled to align their corporate strategies and lending criteria with environmental, social, and governance (ESG) standards.

Mr. Feisal Hussain, the Clean Cooking Alliance senior director of innovative finance, emphasized that banks play an essential role in realizing the full potential of carbon markets. They must help bridge the financing gap required to initiate and scale up carbon projects.

“This is crucial to accelerating the clean energy transition and transforming the lives of people who currently lack access to clean cooking fuels and technologies,” he stressed. He added, “The new partnership platform for Clean Cooking Finance is key to this endeavor as it brings together several distinctive capabilities.”

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