40 African Development Bank — Advancing Climate Change Action and Green Growth in Africa and expects that such private sector finance will contribute significantly to increasing the proportion of global climate finance coming to Africa. The Bank has a strong track record of mobilizing private sector finance for mitigation with resources from multilateral trust funds, especially by providing concessional funds to de-risk investments and crowd in private sector finance for renewable energy projects. Over the next decade, the Bank needs to continue to access concessional funds at scale, with which to manage and absorb risk whilst crowding in private sector investment in mitigation. However, the Bank recognizes, and is working to highlight the fact that, adaptation finance is very different from mitigation finance. In contrast to mitigation projects, many adaptation projects are relatively small scale in financial terms and context-specific. These projects could be implemented by local communities, cooperatives, and African micro, small, and mediumsized enterprises (MSMEs) that have access to the resources required — including land, labour, biodiversity and indigenous technical knowledge. Yet, these projects do not typically deliver positive financial returns. As a result, they are not attractive to private sector investors. The Bank is working with partners to invite developed country governments, donors, industries, and consumers to value adaptation and to pay for adaptation benefits at a rate that makes investment in adaptation projects attractive to the private sector and will support investment in adaptation at scale. As noted above, the Bank has partnered with GCA and launched the AAAP, which includes several financing mechanisms that are being designed to target sovereign entities as well as private sector entities, including financial intermediaries, and mobilize funds to crowd in private sector investment into adaptation projects. The mechanisms under consideration include green banks, green bonds, agricultural and disaster risk insurance mechanisms, as well as the adaptation benefits mechanism. Consideration is also being given to introducing the existing adaptation taxonomy for SME lending and reliance metrics in national banks and other private sector financial intermediaries. Bank’s support in the form of readiness activities, project preparation, business development, and technical assistance will also be critical in ensuring that African countries access a growing share of global climate finance. Further details on the Bank’s external climate finance mobilization will be provided in the Bank’s Third Climate Change and Green Growth Action Plan 2021–2025. Resource mobilization, spending, and targets The African Development Bank is a multilateral development bank, and its core functions relate to the mobilization, allocation, and disbursement of development finance. With the growing centrality of climate change and green growth in sustainable development, development finance includes climate finance. Thus, strategic actions on climate finance — as well as finance for green growth, such as biodiversity and forestry-linked finance — are at the heart of the Climate Change and Green Growth Strategy. Finance mobilization will need to be aligned to the goals of the Paris Agreement which calls for “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” Having succeeded in disbursing almost double its initial $6 billion target in climate change-related investments under CCAP-I, the African Development Bank pursued an even more ambitious target under its CCAP-II; it allocated 40% of all its finance for project approvals as climate finance. The Bank’s objective was on track to bearing fruition until the onset of COVID-19, with climate finance approvals reaching 35% of total approvals. The Bank also achieved its intended goal of allocating climate change adaptation an equal share of climate finance as climate mitigation, notable because of the relative size of typical climate change mitigation projects and the prevalent emphasis on climate mitigation amongst sources of climate finance. In the five years of 2021 through to 2025, the Bank is committed to aiming for even greater impact through more ambitious resource mobilization and spending commitments, with an aspiration to increase climate finance allocations even further in the second half of the decade through the following strategic actions: u i. To increase the share of internal climate finance within its total allocations, the Bank will: a. Pursue a five-year aggregate climate finance mobilization target of $25 billion between 2020 and 2025, while continuing to ensure that at least 40% of its annual finance can be identified and reported as climate finance using the MDBs’ climate finance tracking methodologies (which the African Development Bank was instrumental in developing). b. Maintain, at a minimum, the parity goal between adaptation and mitigation established in CCAP-II.
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