Why ‘ESG investing’ in Africa should be part of COP27

By Boniface Abudho, Africa Research Analyst, Knight Frank

Fast facts

• Access to electricity in Sub-Saharan Africa increased from 33% in 2010 to 46% in 2020, yet more than 570 million people are still without access
• Less than 20% of the total Sub-Saharan Africa population has access to clean cooking energy, dropping to less than 5% in rural areas
• According to recent UN forecasts, Africa is likely to double its population from 1 billion to 2 billion by 2050

COP27 is the next meeting of 198 countries that have signed the UN Framework Convention on Climate Change. The meeting will be held in Sharm El-Sheikh City in Egypt from the 6-18 November. The UN urges industrialized nations to lead by example by taking bold and immediate actions.

ESG investing refers to investments that promote a healthy environment, social responsibility, and good governance, including investments that will reduce an organisation’s Greenhouse Gas (GHG) emissions - one of the main drivers of climate change.

Renewable energy investments

According to recent UN forecasts, Africa is likely to double its population from 1 billion to 2 billion by 2050. Responsibly sourced and sustainable energy can play a big part in helping fulfil the needs of the forecast population boom. Inclusive planning and consensus building are vital for the continent’s successful clean energy transition.

Conventional energy sources, including gas, coal, and oil, produce greater greenhouse gases. In contrast, most renewable energy sources, such as solar energy, produce almost no greenhouse gases, highlighting the important role that renewable energy can play in tackling climate change; however investment in the sector is lacking across the continent.

Indeed, many Sub-Saharan nations are actively pursuing hydrocarbon investments as a way to boost their economies in the wake of the pandemic and Ukraine war-linked slowdown.

Ironically for those continuing to invest in hydrocarbon industries, renewable energy sources are also cheaper to maintain in the long-term, when compared to the costs associated with the extraction, production, or import of oil and gas, with the former clearly an untapped socio-economic booster for Africa waiting to be unleashed.

Untapped renewable energy potential

Africa is home to various renewable energy sources that remain heavily underutilised. Indeed, The International Renewable Energy Agency (IRENA) and the AfDB (African Development Bank) both approximate Africa’s solar photovoltaic (PV) potential at 7900GW, underscoring the fact that the continent has one of the world’s greatest (untapped) potential for solar generation.

According to the same IRENA report, Africa has additional potential for hydropower and wind energy at 1,753GW and 461GW, respectively.

Still laggard

Interestingly, out of the US$ 2.8 trillion invested in renewable energy worldwide between 2000 and 2020, only 2% went to Africa. According to IRENA, most of this percentage was received by just a few countries.

An International Energy Agency (IEA) report released in 2021 supports the need to invest more in sustainable energy. It highlights that by 2030, the annual clean energy investments in developing economies should be multiplied by seven, from less than US$  150 billion in 2021 to over US$ 1 trillion by 2050, if the world is to reach net-zero emissions target by 2050.

Without a significant scale up in energy transition investments, Africa may fail to meet the Global Sustainable Development Goals and it’s climate change pledges, but all is not as simple as it seems. There are of course a myriad of barriers to investing on the continent, ranging from the risk of geo-political instability, to inadequate regulatory infrastructure to accommodate quantum of capital waiting in the wings.

You can read more about some of these challenges and opportunities in our 2022 Africa Report.