International financial institution the International Finance Corporation (IFC) has provided financial services group Absa with a loan of up to $150-million to support the bank’s strategy to expand its climate finance business and help South Africa meet its greenhouse-gas (GHG) reduction targets.
In South Africa, financial institutions are critical sources of climate finance, with commercial banks providing about 67% of the financing for renewable energy projects.
The certified green loan will increase funding for biomass and other renewable energy projects in South Africa and support the country’s power sector and economic recovery from Covid-19, the IFC said in a statement on May 6.
The loan is the first certified loan in Africa that complies with the green loan principles, which means that lending by Absa for green projects will be disclosed, improving transparency.
In addition to the loan, IFC will provide technical advice and knowledge sharing to help Absa develop a green, social and sustainable bonds and loans framework.
“Financial institutions and the private sector have an important role to play in helping South Africa to rebuild greener and more sustainably from the impact of Covid-19,” said IFC South Africa country manager Adamou Labara.
“By increasing funding for renewable energy and climate smart projects we can help South Africa strengthen its climate change resilience and increase climate change adaptation,” he said.
South Africa has set goals of reducing its GHG emissions by 42% by 2025 and its reliance on coal by 2050. Today, about 90% of the country’s electricity is generated by coal-fired plants.
IFC estimates that there is a $588-billion investment opportunity in climate mitigation across selected sectors in South Africa between now and 2030.
“Africa’s green transition requires considerable mobilisation of funds. The agreement with IFC bolsters our funding available for green projects and strengthens Absa’s position in financing renewable projects in South Africa,” said Absa interim Group CE Jason Quinn.
Absa has structured and arranged financing for about 46% of South Africa’s Renewable Independent Power Producer Procurement Programme projects concluded to date, he added.