By Bonface Orucho/Bird Story Agency

African banks are increasingly integrating green finance instruments into their operations, a strategic step toward building green banks and addressing the continent’s climate finance shortfall.

A recent report published by the World-Wide Fund for Nature found that most banks in Africa are increasingly embracing regulatory and industry guidelines and hiring more ESG professionals to embed sustainable finance practices and drive a green development and transition.

The assessment reviewed 25 banks across eight countries: Cameroon, Gabon, Kenya, Namibia, South Africa, Tanzania, the Democratic Republic of Congo, and Zambia. It found that only 11% of these banks scored above 50% in green finance readiness. South Africa (50.1%) and Kenya (43.7%) lead the continent, supported by active regulatory frameworks.

The report also highlights systemic weaknesses across Africa’s banking sector. While 72% of banks reference sustainability in their strategies, only 52% demonstrate this through leadership commitment to responsible lending. Just 32% have adopted standardized environmental and social (E&S) due diligence frameworks, and a mere 8% have policies tailored to high-risk sectors like mining, agriculture, or energy.

Transparency remains a challenge, with less than 24% of banks disclosing how E&S responsibilities are assigned internally and only 20% subjecting their ESG disclosures to external assurance.

Still, development finance institutions are showing what is possible. Tanzania’s Cooperative Rural Development Bank (CRDB) and Namibia’s Development Bank (DBN) are leading by example, integrating sustainable practices into long-term project financing, a model that commercial banks are being encouraged to follow.

Notably, though still in the early stages according to the report, these institutions are playing a pivotal role. Unlike developed markets that are promoting standalone green banks, Africa is charting its path through hybrid models of integrating green finance into existing banks. This approach leverages established trust, networks, and infrastructure to accelerate the green transition in a contextually relevant and scalable way.

The ‘2025 State of Green Banks’ report confirms that integrating green instruments into existing banks is enabling African countries to “sidestep the high upfront costs and regulatory hurdles typically associated with launching dedicated green banks.”: “Africa is not lagging; it’s adapting green banking to its realities,” the report, released in April by the Climate Policy Initiative, notes.

Based on a 2024 survey of 32 green finance institutions, the report highlights a global uptick in green finance, with 50% of institutions describing their involvement as substantial and 33% operating exclusively in the space.

In emerging markets like Africa, public revenue is the dominant source of capital, cited by 88% of institutions, marking a shift away from private capital. Currently, all instruments are debt-based, with an increasing use of credit enhancements and guarantees to de-risk investments and encourage private sector participation.

Key focus sectors include commercial and residential solar (78–89%), energy efficiency (78%), and low-emission transport (78%, up from 44% in 2020). However, sectors like sustainable agriculture, forestry, and water infrastructure remain underfunded.

The continent currently hosts just three dedicated green banks: the Rwanda Green Fund (FONERWA), South Africa’s Development Bank of Southern Africa (DBSA), and a nascent initiative at the West African Development Bank (BOAD).

For instance, DBSA’s portfolio includes Kenya’s Menengai geothermal project and South Africa’s Water Reuse Programme to enhance water security.

BOAD supports climate-resilient agricultural projects in Niger and rural solar electrification in Senegal and Mali.

FONERWA made headlines last year with a RWF 300 million (more than US$220 thousand) grant to IZI, a Rwandan e-mobility provider, to deploy five electric buses in Kigali. In April, IZI announced the launch of Impala E30—an electric Toyota Coaster powered by CATL’s high-efficiency, fast-charging BC5 battery system (the market’s latest).

Africa attracts just US$30 billion annually in climate finance, which is only 12% of the US$277 billion required each year to meet 2030 climate targets, according to the Climate Policy Initiative. That leaves a staggering US$247 billion annual shortfall.

Moreover, only 39% of tracked funds support adaptation, despite the continent’s acute vulnerability to climate shocks.

As donor fatigue sets in, in-country green finance systems are becoming critical tools for resilience and self-reliance. The 2025 African Banker Awards’ shortlist for “Sustainable Bank of the Year” reflects this transformation, featuring institutions like Commercial International Bank Egypt (CIB), CRDB Bank Plc, Kenya Commercial Bank (KCB Group Plc), Nedbank, and Trade and Development Bank Group (TDB).

KCB screened US$4.7 billion, 15.5% of its loan book, for environmental risk and issued US$163 million in green loans in 2023. It also secured a US$95 million facility from Proparco for climate projects.

CRDB Bank in Tanzania issued a US$68.3 million green bond in October 2023, 429% oversubscribed. Accredited by the Green Climate Fund (GCF), CRDB can access up to US$100 million in concessional finance. A separate US$50 million facility from Proparco, co-financed with US$75 million, will support climate- and gender-focused lending.

In South Africa, Nedbank has led the way, issuing over US$136 million in renewable energy bonds in late 2023, alongside R14.5 billion (over US$800 million) in sustainability-linked bonds over two years. Its financing supports 1,355 MW of clean energy and more than 5,700 affordable housing loans.

CIB in Egypt developed a US$130 million sustainable finance portfolio under the country’s first corporate green bond while also integrating ESG governance at the board level.

TDB Group, also GCF-accredited, has mobilized over US$250 million in concessional finance and launched a US$150 million facility to support climate-smart transport and health infrastructure across member states.

The African Development Bank (AfDB) projects that for Africa to close the climate financing gap by 2030, the private sector must mobilize US$213.4 billion annually to complement the already limited public resources.

The article was originally published by Bird Story Agency: https://bird.africanofilter.org/stories/africa-s-banking-sector-is-forging-a-fresh-path-in-the-access-to-climate-finance?locale=en