Weak local weather targets imply UK banks danger lacking out on ‘enormous opportunity’ of Africa’s renewable power growth | EUROtoday

Weak local weather targets from UK banks signifies that they’re liable to lacking out on the “enormous opportunity” of Africa’s renewable power revolution, monetary consultants have instructed The Independent.

Rapidly falling prices for photo voltaic, wind and battery applied sciences — propelled by large-scale, low-cost manufacturing in China — have accelerated the decarbonisation of electrical energy programs worldwide. This shift is now extending to Africa, a area that has traditionally struggled to draw funding due to perceived dangers.

In current years, personal sector funding in clear power in Africa soared, greater than doubling from $17bn (£13bn) in 2019 to $40bn (£29bn) in 2024, based on the International Energy Agency. Moreover, with greater than 600m folks persevering with to lack electrical energy on the continent, and with African international locations’ collectively holding 60 per cent of the world’s photo voltaic potential, the alternatives round clear power in Africa are thought of to be huge.

Given the UK’s massive monetary companies sector, which already has a big footprint in many various international locations internationally, there’s a huge alternative for British banks to spend money on clear power programs in rising economies all over the world, consultants agree.

“There’s an enormous opportunity for international financiers to enter emerging markets and offer their experience and expertise to develop renewable energy deals,” explains Elliot Thornton, analysis supervisor on the banking programme at ESG-focused nonprofit ShareAction.

“Africa will need hundreds of billions of dollars annually by 2030 if it is to meet energy access and development goals, presenting a significant financing opportunity for UK institutions,” agrees Alasdair Docherty, an analyst on the Institute for Energy Economics and Financial Analysis.

“A tendency to treat these financing needs primarily as a ‘climate obligation’ risks missing the reality that this is also a story about enabling core infrastructure in markets with huge growth potential.”

But moderately than maximising their publicity to the clear power revolution in creating markets, British banks seem like turning away from local weather alternatives.

HSBC, which is each the UK and Europe’s largest financial institution, has in current months weakened its local weather insurance policies, by eradicating its pledge to not tackle new purchasers with important investments in oil & fuel exploration, and by revising local weather change targets up from warming of 1.5°C – which is the temperature restrict thought of ‘safe’ by local weather scientists – to a variety that enables as much as 1.7°C.

HSBC continues to fund purchasers which might be increasing operations in oil and fuel, even when it has restricted its means to supply devoted financing for brand spanking new upstream oil and fuel fields. The financial institution additionally introduced in July final yr that it could withdraw from the Net Zero Banking Alliance, regardless of being one of many first world banks to set a web zero by 2050 goal.

ShareAction has additionally written to Standard Chartered, which is a UK financial institution that has a selected give attention to rising markets, calling for it to align decarbonisation targets throughout all of its operations to a 1.5°C warming goal, and in addition for it to set a selected funding goal for renewable power in rising markets and creating international locations.

Other banks, akin to BNP Paribas, have proven it’s attainable to set renewable power financing targets aligned with the Paris Agreement’s 1.5°C aim, and ShareAction argues that Standard Chartered ought to observe swimsuit in its work in creating international locations.

“You must suppose long-term for those who actually wish to develop sustainable finance, significantly in rising markets. It takes planning, funding, and coordination. HSBC is just not offering itself a steady platform by backtracking on its local weather commitments,” says Thornton. “If you’re kind of flip-flopping on targets that you set only a few years ago, you are giving a weak signal that you are going to make the most of sustainable finance opportunities in the years to come.”

On Standard Chartered, Thornton adds: “While the bank has done some great individual deals in renewable energy, the challenge with a big financial institution like this is you need clear incentives to give a strong signal of intent and really drive things forward across the whole bank.

“These incentives would ensure the bank is laying the groundwork in emerging markets to make the most of massive opportunities in sustainable finance in the years to come.”

When approached for comment on claims made in this article, Standard Chartered declined to comment.

A spokesperson for HSBC said: “Our ambition is to become a net zero bank by 2050, and we’re focused on financing that helps our customers deliver their decarbonisation plans, whilst recognising that transition won’t look the same across every industry, market and region.

“With our global reach across trade corridors and value chains, deep roots in Asia and the Middle East, and leading infrastructure and project finance capabilities, we are helping to mobilise capital at scale, and supporting today’s economy to decarbonise, powering innovation and growth, and helping to unlock significant opportunity in the new economy.”

A massive opportunity for UK business

For financial institutions that are well-established in the clean energy space in African countries, the opportunity to make money has been big. London-based investor the Private infrastructure Development Group (PIDG), for example, is solely focused on building infrastructure in emerging economies, and has over the past two decades mobilised some $47.2bn and served some 232 million people.

Having run into some controversy over continued support for fossil fuel projects in 2020, the group is now firmly focused on clean energy, with a big focus on supporting renewables in the world’s least developed countries.

“Emerging markets and developing economies, which represent 86 per cent of the global population and nearly all future incremental energy demand, are the ideal growth frontier for renewables investments,” says Tim Streeter, global head of investor relations at PIDG.

Recent years have seen opportunities for profit improve, Streeter adds, driven by “a convergence of private capital, collapsing technology costs, and policy maturity” – as well as African countries “dismantling barriers through regulatory reforms and improved procurement policies”.

Establishing a foothold in these markets by supporting the energy sector would also bring further business opportunities both for UK banks and other British businesses.

“When UK banks and investors finance energy projects, UK firms are typically involved in structuring deals, providing technical and commercial expertise, monitoring performance, and supporting early-stage development and operational set-up,” says Alasdair Docherty, from IEEFA. “Where UK and European finance hesitates, others will inevitably step in,” he adds.

“By supporting renewable deals in new markets, not only will UK investors open up further deals in the renewable energy space, but you will also open up more opportunities in the economy more broadly, which is now benefiting from having access to low cost, renewable energy,” adds ShareAction’s Elliot Thornton.

A misguided idea of ‘risk’

Investing in energy infrastructure, especially in emerging markets, does come with its challenges. Renewable energy investment contracts typically span many years, exposing financiers to risks such as currency fluctuations and inflation in unstable economies, as well as potential issues arising from political instability, corruption, or social unrest.

However, these risks have been accused of being overblown by ratings agencies wary of exposing capital to new markets – and particularly so when it comes to newer technologies like renewables. Donald Trump’s spurning of renewables in the US also shows that political risks related to the clean energy transition are by no means limited to developing countries.

“The UN Development Programme and others have highlighted how risk frameworks can systematically over-penalise renewable projects even where risks are partially mitigated through guarantees, co-financing or hard-currency contracts,” says IEEFA’s Docherty. “Closing the investment gap could require commercial banks update their risk frameworks, to better reflect how risks are now shared and managed in clean energy finance.”

PIDG’s Tim Streeter believes that there is a “significant gap” between “perceived and actual investment risk” in African renewable markets. “The reality, as can be seen across PIDG’s Africa debt portfolio alone, is that our losses in two decades of investing have been a small fraction of what would have been predicted by the implicit rating of the agencies,” he says.

While the funding dangers round renewables in Africa may be overblown, the dangers round future local weather shocks – that are made ever extra doubtless by continued funding in fossil fuels – are repeatedly cited by local weather scientists and economists as being underplayed.

A report printed this week warned that local weather fashions at present utilized by governments are banking on regular financial development being slowed by gradual rising common temperatures – moderately than a way forward for chaotic local weather tipping factors and unmanageable local weather disasters.

“We’re not dealing with manageable economic adjustments,” stated Dr Jesse Abrams, on the University of Exeter. “The climate scientists we surveyed were unambiguous: current economic models can’t capture what matters most – the cascading failures and compounding shocks that define climate risk in a warmer world – and could undermine the very foundations of economic growth.”

“For financial institutions and policymakers, it’s a fundamental misreading of the risks we face,” he continued. “We are thinking about something like a 2008 [crash]but one we can’t recover from as well. Once we have ecosystem breakdown or climate breakdown, we can’t bail out the Earth like we did the banks.”

This article was produced as a part of The Independent’s Rethinking Global Aid mission