Despite representing less than 10% of the world’s global emissions, African nations are bearing the brunt of climate impacts. Record-breaking droughts and floods are already wreaking havoc across the continent and these impacts are poised to intensify in coming years as climate change worsens – with the countries that contributed least to the issue facing the most severe consequences.

The daunting challenge of mobilising trillions of dollars in climate finance is coming at a time when capital is increasingly difficult to come by for the region. The average lending interest rate for 19 African countries in 2023 was 25% compared to just 9% in India and Vietnam. Equity financing – which could provide an alternative to costly lending – is also scarce due to the perceived lack of reward, high risk of investments and a tendency by some to see the whole continent as part of the same brush stroke.

For sovereigns, the outlook is equally bleak, with many governments still struggling to access cheap sources of financing globally. According to the International Monetary Fund, interest payments already exceed 20% of revenues for many African countries, and yields on recent Eurobond issuances are still much higher than those issued before the Covid-19 pandemic. In 2024, Eurobond yields in the region ranged from 7.6% to 10.7%, compared to a weighted average of 6.6% from 2015 to 2019.

Blended finance – a solution combining concessional public funds with commercial funds – can provide a possible lifeline for African countries and many innovative examples have already emerged. For instance, the Green Climate Fund, World Bank and the IKEA Foundation are developing various types of green funds with a first-loss structure to de-risk green investments for commercial investors. The World Bank Group's Scaling Solar initiative also offers a range of blended solutions, such as partial risk guarantees from the International Development Association and political risk insurance from the Multilateral Investment Guarantee Agency, to lower solar project financing costs in Africa.

Another example is the Africa Risk Capacity, which blends grant-funded early warning and contingency planning with subsidised insurance mechanisms to provide liquidity to governments after a natural disaster. The World Bank has also been developing blended credit-enhanced sovereign sustainability-linked debt issuances in Kenya and Côte d’Ivoire to leverage these countries’ strong climate commitments to lowering public debt costs.

Almost half of all blended finance climate transactions globally target sub-Saharan Africa. While this is promising, these transactions are concentrated in a handful of countries like Nigeria and Kenya, and primarily within the energy sector. Moving forward, a broader approach is necessary. Efforts should prioritise sectors crucial for climate action and development, including biodiversity conservation, climate change adaptation and the growth of small to medium-sized enterprises, which can all play a vital part in the green revolution.

Financial structures should be designed with local capacity and private sector priorities in mind, avoiding overly complex arrangements. ‘Boring’ should be the new mantra as we need scalable solutions that are replicable across the continent. Increased participation from local investors is also crucial for strengthening domestic financial systems and mitigating currency risks.

It is important to acknowledge that blended finance alone is insufficient. A supportive policy environment that encourages private sector engagement and fosters innovation is vital to meet the region’s immense climate funding gap. Additionality is needed when it comes to blended finance for climate, not the replacement of financing for traditional development challenges such as health and education. Lastly, African voices need to be heard loudly when setting the policy agenda, which will require effective collaboration among African leaders, international partners and the private sector.