Green Finance Mechanisms in Developing Countries: Emerging Practice

This policy brief explores green growth financing mechanisms to support Africa's economic recovery following the COVID-19 pandemic. It argues that the 'twin COVID–climate crisis' provides an opportunity to 'build back better' by integrating sustainable investment into stimulus packages, leveraging private capital through green bonds, and reforming fiscal and financial regulations to increase climate resilience.

• African governments are encouraged to adopt diverse green growth financing mechanisms to address domestic developmental challenges and the post-COVID-19 recovery. These include accelerating renewable energy and infrastructure investments, establishing environmental funds, implementing green fiscal reforms, and developing green market segments.
• Green bonds are identified as one of the most economical and accessible tools for raising the large amounts of capital required for African infrastructure to meet environmental targets. The document notes that these bonds are often oversubscribed and can offer tax exemptions, making them valuable for countries with limited fiscal space or those relying on the IMF.
• Public finance is essential to catalyze the transition to a Green Economy by reducing investment risks and creating stimuli that leverage private capital, which has shown increasing interest in Sustainable Development Goals (SDGs). Specific strategies include using public capital for credit enhancements via development finance institutions (DFIs) and providing long-term grant or concessionary funding to de-risk investments.
• Renewable energy is proposed as a backbone for national economic restarts because its generation costs are now competitive with fossil fuels. In South Africa specifically, a renewable energy system could potentially reduce energy costs by 25%, create 200,000 energy sector jobs, and save 196 billion litres of water annually.
• Central banks can 'green' financial systems by implementing macroprudential regulations and credit policies. Suggested tools include climate-related stress testing, higher risk weights for carbon-intensive sectors (such as mining, energy, and transport), differentiated reserve requirements for green assets, and the use of green quantitative easing to purchase green bonds.
• Green fiscal reform, including carbon taxes and the removal of harmful fossil fuel subsidies, can generate revenue for economic recovery. An example is provided by Egypt, which halved the fiscal cost of subsidies to bring electricity tariffs closer to cost recovery using a World Bank program.
• Africa faces significant financial gaps for climate adaptation, with the African Development Bank estimating requirements between $20–$30 billion per year until 2030. This is compounded by the economic cost of COVID-19, estimated at $500 billion in 2020, and annual debt interest repayments of $400 billion.

APA

South African Institute of International Affairs (2020). Green Finance Mechanisms in Developing Countries: Emerging Practice. https://saiia.org.za/research/green-finance-mechanisms-in-developing-countries-emerging-practice/

Chicago

South African Institute of International Affairs. Green Finance Mechanisms in Developing Countries: Emerging Practice. 2020. https://saiia.org.za/research/green-finance-mechanisms-in-developing-countries-emerging-practice/.

Wikipedia

{{cite report |author=South African Institute of International Affairs |title=Green Finance Mechanisms in Developing Countries: Emerging Practice |date=18 December 2020 |url=https://saiia.org.za/research/green-finance-mechanisms-in-developing-countries-emerging-practice/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{southafricaninstituteofinternationalaffairs2020green, author = {{South African Institute of International Affairs}}, title = {{Green Finance Mechanisms in Developing Countries: Emerging Practice}}, institution = {South African Institute of International Affairs}, year = {2020}, month = dec, url = {https://saiia.org.za/research/green-finance-mechanisms-in-developing-countries-emerging-practice/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }