Around the world, the diverse impacts of climate change are affecting every sector, including agriculture. Climate change is disrupting agricultural livelihoods, hurting agriculture-based economies, and putting food security at risk, disproportionately impacting low-income and other vulnerable populations. USAID’s ambitious and comprehensive whole-of-Agency approach to climate change, outlined in its 2022-2030 Climate Strategy, includes six high-level targets for addressing these challenges, including one related to climate finance. To reach these targets and therefore the Climate Strategy’s mitigation and adaptation goals, USAID Missions must catalyze climate action in both the private and public sectors.
The USAID Africa Trade and Investment (ATI) activity, in partnership with Open Capital and the Climate Policy Initiative, conducted a landscape analysis of climate finance options for agriculture across sub-Saharan Africa. The team assessed the status quo and identified barriers and opportunities to further scale climate finance across the continent. The resulting Climate Finance Innovation for Agriculture Report provides valuable insights into climate finance for agriculture in sub-Saharan Africa, explores avenues for low-emissions agriculture, and suggests interventions to facilitate the flow of climate finance.
As part of its efforts, ATI developed the Climate Finance Innovation Toolbox (available on Climatelinks) to encourage the design and implementation of climate interventions. The toolbox provides guides and resources to enable the assessment of climate finance contexts, build country-specific roadmaps, support the development of climate projects and carbon markets, and scale up climate lending from local financial institutions.
To identify opportunities for climate finance for agriculture, it was necessary for the team to first understand the barriers to it. They identified a range of both supply- and demand-side barriers to climate finance flows.
On the supply side, the key barriers primarily relate to the limited maturity and depth of local financial markets, alongside the limited range of financing instruments available. Additionally, limitations in regulation and policy constrain the growth of climate finance.
On the demand side, the most prevalent barriers are related to factors such as fragmented markets, small business sizes, limited investment readiness, and lack of understanding of how to measure climate impact and measure and access climate finance.
ATI then identified important actions both the USAID Bureau for Africa and individual Missions can take to facilitate the flow of climate finance for agriculture. At a regional level, the opportunity lies in supporting Missions to implement contextualized climate response strategies, such as by:
- Providing support to Missions to develop country and/or regional climate finance roadmaps to accelerate climate finance flows.
- Establishing a market acceleration facility to provide targeted technical assistance for the development and scale-up of effective climate projects and businesses.
- Establishing a climate finance development facility to provide early-stage/initial capital for climate-positive agribusinesses and projects.
- Supporting existing initiatives to increase the flow of climate finance.
USAID Missions are at the forefront of enabling the scale-up of climate finance at the national level. As a result, they need to consider their unique country contexts by assessing the prevailing state of climate action and climate finance traction in their countries. Using important criteria such as the assessment basis, a process used to assess the degree of climate finance traction within a specific country, Missions can establish whether a country is “early-stage” or “advancing” and then develop a tailored roadmap of interventions to address the country’s unique needs.
ATI’s research showed that early-stage countries should prioritize the development of climate-smart projects, relevant government policies, and regulations to enable climate change response and attract investments. On the other hand, advancing countries should focus on enhancing the use of suitable climate finance instruments (e.g., carbon credits and green bonds), strengthening market information systems, supporting fiscal reform to incentivize low-carbon investments, and strengthening developer capabilities to plan climate-friendly projects.
For more insights from ATI, check out the new Climate Finance Innovation Toolbox.
Kigen Chelimo
Kigen Chelimo, CFA is a Principal at Open Capital, a leading management consulting and financial advisory firm focused on Africa, with local offices across the continent. Kigen leads teams working with clients to develop scalable climate solutions across key sectors including agriculture, energy access, and WASH. Kigen holds an M.Sc. in Mathematical Finance, a first-class honors degree in Finance, and is a CFA charter holder.
