Just over a year ago, I wrote about environmental, social, and governance (ESG) investing at a time when Rwanda, Africa, and much of the world were experiencing a surge of optimism among investors. Since then, I’ve come to appreciate just how much can change in a single year. Globally, momentum has shifted. Under growing political pressure, some players in the financial sector have begun to scale back or reconsider their commitments to climate goals. In the U.S., some asset managers have been retreating from ESG investing after a political backlash. This doesn’t need further explaining considering that the U.S. President Donald Trump administration believes less in climate. To understand the scale of this political pressure, consider the latest development: US investment funds pulled $13.3 billion from BlackRock alone in anti-ESG campaign. BlackRock reported $138bn in net inflows in the Americas last year. In contrast, asset managers in Europe have been placing greater emphasis on sustainability, driven in part by growing investor concerns over their track record in this area. As a result, European pension funds such as the likes of UK’s People’s Pension, The Netherlands’s PGGM Group, and Danish AkademikerPension, are becoming increasingly critical of asset managers that distance themselves from ESG. America-based asset managers such as BlackRock, State Street, and Vanguard are ranking poorly on ESG metrics. They all received E grades — the second-lowest score – in the latest report by ShareAction, a responsible investment non-profit group. Even Europe, considered the most progressive market for ESG investments, experienced its first quarter of net outflows since Moningstar began tracking this data in 2018. European sustainable funds collectively saw $1.2 billion withdrawn, a striking contrast to the $20.4 billion in restated inflows in the final quarter of 2024. In Africa, institutions especially in the financial sector, are taking sustainability more seriously albeit at a slow progress. A few of them already have ESG metrics to measure how they invest or lend money to projects with greater environmental and social impact. Just last year, Rwanda unveiled an ESG framework – a comprehensive set of standards – to attract investors. In fact, the government secured a EUR 200 million sustainable loan from JP Morgan in addition to a series of green and sustainable bond issuances. Not to mention series of developments that have happened in the same period: In November 2024, the Rwanda Bankers' Association (RBA), in collaboration with the International Finance Corporation (IFC), launched ESG guidelines for banks, providing a guide for how they can integrate ESG considerations into their operations, risk management, and reporting practices. We also saw Rwandan companies last year coming to the market with new ESG instruments. Prime Energy Plc and the Development Bank of Rwanda (BRD) issued new sustainable debt instruments. Prime Energy issued an inaugural green bond, while BRD issued the second tranche of its sustainability linked bond. This story seems to resonate quite well with the rest of the continent. In this period, Kenya and Rwanda have launched green taxonomies to enable market participants classify their particular economic activities as to whether or not these are ‘green’ or environmentally sustainable, and promote the transition to a low-carbon economy. As of September 2024, 12 African countries had developed or were developing guidelines for social and sustainable bond issuances: South Africa, Nigeria, Egypt, Morocco, Kenya, Ghana, Senegal, Cote d’Ivoire, Rwanda, Mauritius, Seychelles, and Tunisia. In Q1 2024 alone, Africa had seven issuers of sustainable bonds, led by the African Development Bank (AfDB) with three deals of combined volume of $3.1 billion and Ivory Coast at $1.1 billion, Climate Bonds Initiative indicated. According to the African Policy Research Institute (APRI), as of November last year, Africa had issued over 20 green bonds in countries such as Tanzania, Rwanda, Gabon, Seychelles, Nigeria, South Africa, Kenya, Morocco, Mozambique, Namibia, Mauritius and Zambia. Since 2019, banks have been the largest issuers of green bonds in Africa on average. One analysis by Dalberg showed that in 2024, financial institutions accounted for 32 per cent of all issuances, just behind multilaterals and development finance institutions (DFIs) at 60 per cent, and ahead of businesses at 6 per cent, with governments and municipals trailing at 1 per cent. The green bonds issued in Africa have funded climate mitigation and adaptation projects, including renewable energy, forestry, sustainable agriculture, sustainable water and clean transport projects. Green bond issuances have generated $9.6 billion of financing for the continent. However, South Africa, Nigeria, Morocco, Egypt, and AfDB account for 91 per cent of these issuances, Financial Sector Deepening (FSD) Africa has shown in their recent report. Yet, Africa still accounts for less than 1 per cent of global sustainable debt issuances. This says a lot about the need for the continent to deploy necessary efforts to claim its fair share of these investments. The reality is that Africa desperately needs this kind of capital. The continent needs $190 billion annually to implement its collective Nationally Determined Contributions (NDCs), the continent’s commitment to limiting global warming to 1.5 degrees Celsius, in line with the Paris Agreement. However, Africa’s annual climate finance flows are only $44 billion, comprising 23 per cent of the $190 billion financing needed. The true gap is likely even wider, given that countries may underestimate their financial needs, especially for adaptation. This shortfall underscores the urgency to test, deploy, and scale financing mechanisms to better position Africa to address climate challenges. The good news? Conscious and environmentally responsible investors have not disappeared completely. For African countries and companies looking for this capital, look to Europe.
