Private sector can play a critical role in climate action
Amid contemporary challenges, the convergence of climate financing and sustainable business practices have collectively heightened the pivotal role of private sector in environmental sustainability. The convergence has also highlighted the pressing need to address climate change and close Africa’s climate financing gap. Consequently, this has led to increased private sector involvement in climate change mitigation. Africa faces the most significant impacts of climate change despite contributing the smallest global share of greenhouse gas (GHG) emissions. According to official UN figures, Africa contributes about 3.8 per cent of total global emissions compared to China (23 per cent), the US (19 per cent), and the European Union (13 per cent). At the forefront of Africa’s immediate action on adaptation and mitigation is the private sector. Armed with innovation, investment capacity, and market, the private sector is an indispensable driver of economic growth through private enterprise development. During COP27, Joab Okanda, Christian Aid’s Pan African advisor emphasized Africa’s unique potential as home to “39 per cent share of global renewable energy resources, including 60 per cent of the world’s best solar resources.” To fully mobilise these resources and catalyse climate mitigation, private sector development will be key. The IMF’s report, “Mobilising Private Climate Financing in Emerging Market and Developing Economies” states that achieving net-zero emissions requires an estimated annual investment of $3.5 trillion from global private financial institutions between 2022 and 2050. The private sector must meet these financial commitments with actionable strategies aligned with sustainability objectives, including investing in renewable energy, sustainable practices, green job creation, and the promotion of sustainable supply chains. The 2023 'Africa Environmental Outlook' report by the United Nations Environment Programme highlights the financial imperative, revealing Africa's substantial climate financing gap, amounting to an annual requirement of $213.4 billion from the private sector, or 6.9 per cent of the continent’s total GDP. Increasing the capacity for private sector enterprises requires the sector to implement scalable solutions, particularly in clean technologies and innovation which ultimately reduces GHG emissions and amplifies supply chain sustainability. Environmental, Social and Governance (ESG) criteria are now critical factors influencing investment decisions. Green bonds and climate-related financial products are gaining traction. For instance, the United States and Europe are injecting significant capital into climate technology to meet net-zero emission targets by 2050. The US Inflation Reduction Act allocates over $370 billion for climate change mitigation, while the EU Green Deal envisions channeling more than €1 trillion in public and private funds into sustainable investments. The private sector’s role in climate mitigation investment in Emerging Market and Developing Economies (EMDEs) is set to increase, with 80 percent of investment needs projected to come from the private sector, as per the International Energy Agency (IRENA). As private sector investment assumes the lion’s share of climate mitigation, private sector development becomes increasingly pronounced - driving climate finance and sustainability.