There is a familiar ritual around climate finance: a financing gap is declared, pledges are announced, and the focus falls on how much money is being committed. But there is another question that receives far less attention: what form does that financing take?
The answer matters as much as the amount of money pledged, particularly when we assess the climate finance landscape across Africa.
The most recent data from the Climate Policy Initiative shows that climate finance flowing to Sub-Saharan Africa reached $55 billion in 2024, more than double the 2019 level. This is positive progress, but the earlier CPI Landscape of Climate Finance in Africa found that 51% of climate finance to Africa was provided as debt, split evenly between concessional and market-rate borrowing.
That debt share is more than double the equivalent figures for East Asia and the Pacific, where debt accounts for 18% of climate finance, and Latin America and the Caribbean, where it accounts for 20%.
For context Global energy transition funding hits $2.4tn but gaps persist
Public money at private prices
There is another detail worth noting. Of the debt-based climate finance to Africa that is priced at market rates, 82% comes from public actors, mainly multilateral and bilateral development finance institutions, according to the CPI.
This creates a contradiction: development institutions are supposed to support sustainable economic growth, create jobs and improve social outcomes by providing financing for businesses and projects that may not be profitable enough to attract commercial capital. Yet some of these same institutions are lending at commercial rates to economies already struggling to carry the added costs.
These facts are set against Africa’s need for just under $2 trillion by 2030, of which only 23% is currently being met. Even the finance that does arrive falls short of what is needed on both fronts: just 18% of Africa’s annual mitigation needs and 20% of its adaptation needs are being covered.
Even so, the response to this shortfall has continued to rely on debt-based lending rather than changing the instruments through which climate finance is delivered.
The distribution of the financing makes it worse
According to the CPI, only ten countries receive 50% of Africa’s climate finance, while another 30 countries share 10% between them. Furthermore, the ten most climate-vulnerable countries on the continent receive only 10%.
For private finance, the concentration is even starker: ten countries receive 76% of private climate finance, further narrowing access to capital across the continent.
Meanwhile, multilateral climate funds under the UNFCCC, which are meant to deliver concessional support where markets and private capital are unlikely to go, account for only 2% of Africa’s climate finance.
What this does to national climate plans
New analysis published by ActionAid shows how debt servicing can constrain climate spending. Across 54 of the world’s most climate-vulnerable countries, many of them African, governments will spend $304.8bn servicing debt in 2026, compared with $12.3bn on climate action. That is a ratio of nearly 25 to one.
Most of this debt was not borrowed specifically for climate action. But servicing it still reduces the fiscal space available for climate spending, with debt repayment absorbing 65% of their combined national revenue.
WATCH Overcoming Africa’s credit risk
This also has direct and tangible implications for national climate plans, or NDCs, and whether they are funded. Of the climate-vulnerable countries assessed by ActionAid, only a quarter of their combined unconditional NDC costs have actually been budgeted for.
- Tanzania has allocated 0.9% of what its unconditional NDC requires;
- Malawi has allocated 10.3%; and
- Zambia has allocated 0.32% of its total budget to climate activities.
These figures further highlight the constraints governments face in using public finance to fund their NDCs.
What should change
To begin with, climate finance should be reported in a way that reflects what it is actually worth to the recipient. A loan that has to be repaid with interest is counted today as if it were the same as a grant of the same size, which can overstate how much real support is reaching the continent.
Reporting finance in grant-equivalent terms, and therefore counting the concessional portion of a loan rather than its full value, would provide a clearer picture. The OECD’s Development Assistance Committee already measures official development assistance in this way.
Concessionality should also be considered in light of the debt position of the recipient country, so that countries at moderate or high risk of debt distress receive grants rather than taking on heavier loan burdens.
Have you read? Financing the future: Do you need green or transition finance?
There is also a strong case for more local-currency lending, so borrowers are not carrying exchange-rate risk on top of everything else. This should go alongside greater consideration of Africa’s largely untapped domestic capital. International sources supply 87% of Africa’s tracked climate finance, while roughly $2.4 trillion sits in African bank, insurance and pension assets.
Recent domestic issuances show what is possible when the enabling architecture is put in place. Tanga UWASA in Tanzania issued East Africa’s first sub-national water infrastructure green bond in February 2024, worth TZS53.12bn, or just over $20m. The bond was oversubscribed by 103%, with 65% of investors local, highlighting strong domestic interest.
In Zambia, Copperbelt Energy Corporation Renewables raised $150 million across two tranches of its $200m green bond programme to finance solar capacity. Both tranches were oversubscribed and priced without a sovereign guarantee.
Follow our WhatsApp channel for insights on how the power, energy and water sectors are evolving
Widening the kinds of financing Africa can access
These are small issuances in the context of Africa’s total financing needs, but they demonstrate that domestic institutional capital can be mobilised where the right regulatory frameworks and financial instruments are in place.
There is significant domestic capital to unlock. While domestic issuances will still carry market pricing, they would remove currency risk, keep debt service within the domestic economy and build a base of local institutional demand that could reduce long-term reliance on foreign lenders.
This should not be viewed as a replacement for grants and concessional public finance. Rather, it can widen the toolbox African countries use to finance the transition on their own terms.
None of this is a substitute for increasing the scale of climate finance. But more money delivered through mismatched instruments will not solve Africa’s climate financing problem. It risks making it harder to finance the transition over the long term. ESI
About the author
Penelope Gregoriou, Policy Officer: Climate and Development Finance at Kenya-based, pan-African think tank African Futures Policy Hub
