In Kenya, the impacts of a changing climate cut through every layer of its economy. From its expansive agricultural lands and its crucial water bodies to the diverse ecosystem driving its tourism industry, the toll is undeniable. With a population of 54 million standing on the front lines of global warming, the economic impact is both real and relentless, as climate-induced calamities could strip away more than 5% of Kenya’s gross domestic product annually by 2050.
The need for adaptation strategies is urgent. And yet, funding remains a significant barrier. In response, Kenya and other African pioneers are exploring alternative financing mechanisms such as green bonds and debt-for-nature swaps. Despite these efforts, systemic challenges hinder progress, underscoring the complex interplay between sustainability, finance and international cooperation in addressing climate change.
Indeed, the climate dilemma in Africa is amplified by contradiction: the continent is responsible for just 4% of global carbon emissions, yet it experiences a significantly higher degree of climate change’s negative effects. Data compiled by the International Energy Agency in 2010 illustrated the global carbon-footprint imbalance with a striking image: at the time, a single American refrigerator consumed three times more energy than the average African used in a year. Africa’s struggle is compounded by its limited ability to access climate finance. As President Macky Sall of Senegal has put it, Africa faces a “double penalty,” not only susceptible to the impacts of climate change but also confronting hurdles in accessing financing desperately needed for adaptation and mitigation.
The African Development Bank estimates that Africa incurs annual losses of between $7 and $15 billion (all dollar figures are U.S.) because of climate change, a figure expected to escalate to $50 billion by 2030. But the continent garners a mere 3% of global climate finance. Africa made up less than 1% of the $2.2 trillion in community green bonds in 2022, according to the African Development Bank Group. Europe alone issued more than $100 billion in green bonds that year. This investment gap significantly curtails African nations’ capacity to tackle their unique climate challenges.
The situation is exacerbated by high levels of debt from international loans and bonds, placing 21 African countries in or at high risk of debt distress. The intersection of climate vulnerability and unsustainable debt stalls economic development and exacerbates poverty. The burden of debt servicing constrains these nations’ ability to attract investments for crucial climate adaptation and mitigation measures, such as transitioning to cleaner energy sources, adopting sustainable agriculture practices and enhancing infrastructure resilience.
Debt-for-nature swaps, alongside the broader concept of debt-for-climate swaps, are transformative strategies that can address these challenges. By converting a portion of a country’s debt into funds dedicated to environmental conservation, these mechanisms promise financial relief and a pathway to sustainable development for African nations.
This has the potential to alleviate a country’s debt burden and ensures that crucial funds are directed toward combatting deforestation, protecting endangered species and supporting community-based conservation initiatives that provide sustainable livelihoods. The success of these projects hinges on transparent and equitable management, ensuring that the benefits reach the local communities most affected by climate change and biodiversity loss.
In this context, debt-for-nature swaps surface as potent tools to bridge the climate finance gap. Kenya, with its rich natural resources and acute climate vulnerabilities, serves as a prime example of how such mechanisms can be leveraged for sustainable development.
The complex reality of climate finance in Kenya
The Lake Turkana Wind Power project, the largest wind farm on the African continent, is proof of the kind of enthusiasm that Kenya’s renewable-energy sector is generating among investors. While this is crucial for reducing carbon emissions, other vital sectors such as agriculture, forestry, transportation and water management are scrambling to find similar backing to cope with the changing climate.
In other East African countries such as Tanzania, Uganda and Rwanda, the potential in debt-for-nature swaps could be a game changer. However, the scale remains modest compared to other continents. The reality is that not enough climate financing is reaching local African communities.
Abdul-Karim Mohamed, an African start-up investor, recently questioned whether climate finance in Africa is “hope, hype or hypocrisy,” noting that less than 10% of committed climate financing from international funds trickles down to the grassroots level. This inefficiency is compounded by a perceived bias from Western funders, who have a strong preference for their own knowledge and methods over those of local partners. Mohamed concluded that if this bias continued “within climate finance initiatives, it will be more challenging to find and support local solutions to local climate change problems.”
In Kenya, the juxtaposition of rich natural resources, poor governance and the challenges of climate change adaptation presents a complex scenario. The country’s lush mangroves and mineral wealth, essential for sustainable development, are often mismanaged, leading to social and environmental repercussions. This mismanagement has seeped into government-backed carbon credit programs, which have resulted in community evictions and protests.
In the report Blood Carbon: How a Carbon Offset Scheme Makes Millions from Indigenous Land in Northern Kenya, non-profit Survival International casts a critical eye on the Northern Kenya Grassland Carbon Project managed by the Northern Rangelands Trust. This project was first touted as a premier carbon-credit initiative, attracting substantial investment from Meta and Netflix. But the scheme’s ambition to generate $300 to $500 million potentially displaces traditional grazing practices in favour of commercial ranching models, undermining the land rights and cultural heritage of the Indigenous populations involved. Kenya’s experience highlights the critical need for effective and equitable management of natural resources for climate finance, broadening the scope to include comprehensive adaptation strategies across all vulnerable sectors.
Africa incurs between US$7 and $15 billion in damages from climate change every year but garners just 3% of global climate finance.
The Triple B Framework, conceptualized by Gillian Marcelle of Resilience Capital Ventures in 2021, represents an alternative approach to financing. It addresses common pitfalls such as underutilization and misallocation by refining funding mechanisms, uncovering areas often overlooked by conventional financial systems due to perceived risks or insufficient returns, and harnessing the power of blended finance. This method brings together diverse types of funding, including monetary investments as well as vital non-financial resources, such as expert knowledge, technical support and access to networks, to amplify its impact significantly.
A notable instance of the Triple B Framework’s implementation is the Seychelles’ “blue bond,” which targets ocean conservation and the sustainable use of marine resources – an area that often lacks sufficient investment. Launched in 2018 as the first initiative of its kind, the blue bond garnered $15 million to safeguard marine ecosystems, improve fisheries management and bolster economic development through projects related to the ocean.
Organizations such as The Nature Conservancy (TNC) and the World Wildlife Fund have been instrumental in structuring debt-for-nature swaps across the globe, including in Africa. The debt-for-nature swap facilitated by TNC in 2015 allowed the Seychelles to restructure part of its national debt, with the savings generated from the debt restructuring redirected toward funding conservation projects. The success of this debt-for-nature swap paved the way for the blue bond.
East African nations, with their wealth of terrestrial and marine biodiversity, could certainly benefit from adopting financing strategies similar to those recently demonstrated in Kenya, especially in the realm of green bonds. For instance, Acorn Holdings made history in Kenya by issuing the country’s first green bond, listed for trading on the Nairobi Securities Exchange in 2019. The bond, valued at 4.3 billion shillings ($42.5 million), was issued by the Nairobi-based property developer to finance the construction of eco-friendly student accommodations.
This forward-thinking move by Acorn Holdings serves as a practical example of how innovative financing mechanisms can support sustainable development initiatives. It offers a replicable model for other East African nations.
A call to amplify impact and investment
The journey of Kenya in navigating the complexities of climate finance underscores a broader narrative of resilience and innovation. However, the scale of investment and the reach of these modern financing mechanisms need more amplification. The global community, including international financial institutions, creditor nations and conservation organizations, must rally to support and scale up debt-for-nature swaps in Africa.
Expanding the scope and scale of debt-for-nature swaps in East Africa could serve as a beacon for other African countries, demonstrating that sustainable development and conservation can be achieved even amidst financial challenges.
Shilpa Tiwari is CEO of No Women No Spice, an organic spice company, and Isenzo Group, a sustainability strategy firm.
This story is part of our Spring 2024 issue.
