The global goal of net zero by 2050 for greenhouse gas (GHG) emissions requires a radical shift in approach and thinking to achieve.
As stakeholders across the public and private sectors engage and work towards this goal, fundamental matters at the heart of the objective abound, and stakeholders must solve these matters to achieve this goal.
One such concern is ensuring a just transition for developing economies, particularly in the African continent, and another is urgently mobilising the needed financial resources to drive energy transition plans.
Governments across developing economies where most green projects are located have an enormous challenge in creating an enabling environment, developing the right policies, and attracting investments into these projects.
Therefore, to meet the net zero target, the level of investments channelled towards the green energy transition must be scaled significantly and urgently. Some approaches that can spur investments towards the green energy transition include the following.
Stakeholders need to focus on de-risking green projects. It entails developing a policy framework that reduces the risks attached to green projects, thereby reducing the cost of funding for these projects and developing the local green financial market. It would encourage innovative financial instruments that provide loss reserves and guarantees.
Having these reserves helps to absorb default losses, protecting investors from losses. This arrangement will make green projects more attractive to investors. In addition, a well-diversified portfolio could help investors reduce concentration risks by spreading the portfolio risks across various industries and sectors of the economy.
Also, stakeholders could consider bridging the green-fossil cost gap, such as lowering the green tech upfront costs by increasing funding for innovations (including research and developments) and providing investment subsidies to help bridge the cost gap.
In addition, financiers should structure their financial instruments to promote green projects while penalising GHG-intensive assets. Governments would also require the appropriate carbon pricing scheme, including taxes. The online Deloitte report, Financing the Green Energy Transition discusses the barriers to sustainable investments, such as the political, market and transformation barriers. A collaborative approach is required to achieve the net zero goal.
Akinyemi Awodumila is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics.
