UK Banks Face Risk of Losing Out on Africa's Renewable Energy Revolution
Financial experts have cautioned that UK banks, due to their weak climate targets, are at significant risk of missing the "enormous opportunity" presented by Africa's booming renewable energy sector. This warning comes as the continent experiences a surge in clean energy investment, driven by falling technology costs and growing energy access needs.
Soaring Investment and Untapped Potential
In recent years, private sector investment in clean energy across Africa has more than doubled, rising from $17 billion in 2019 to $40 billion in 2024, according to the International Energy Agency. With over 600 million people still lacking electricity and the continent holding 60 per cent of the world's solar potential, the opportunities are vast. Experts argue that the UK's large financial services sector, with its global footprint, is uniquely positioned to capitalise on this growth in emerging economies.
"Africa will need hundreds of billions of dollars annually by 2030 if it is to meet energy access and development goals," explains Alasdair Docherty, an analyst at the Institute for Energy Economics and Financial Analysis. "This presents a significant financing opportunity for UK institutions. Treating these needs primarily as a 'climate obligation' risks missing that this is about enabling core infrastructure in markets with huge growth potential."
Backtracking on Climate Commitments
Despite the clear opportunities, major UK banks appear to be retreating from climate-focused initiatives. HSBC, the largest bank in the UK and Europe, has recently weakened its climate policies by removing a pledge against new clients with significant oil and gas investments and revising its warming target from 1.5°C to up to 1.7°C. The bank also withdrew from the Net Zero Banking Alliance last year, despite earlier net-zero commitments.
Similarly, ShareAction has called on Standard Chartered, a UK bank focused on emerging markets, to align its decarbonisation targets with the 1.5°C goal and set specific renewable energy investment targets for developing countries. Elliot Thornton, research manager at ShareAction, notes: "HSBC is not providing itself a stable platform by backtracking on its climate commitments. Flip-flopping on targets gives a weak signal about making the most of sustainable finance opportunities."
Proven Success and Future Prospects
Organisations like the Private Infrastructure Development Group (PIDG) demonstrate the profitability of investing in African renewables, having mobilised $47.2 billion over two decades. Tim Streeter of PIDG states: "Emerging markets, representing 86 per cent of the global population, are the ideal growth frontier for renewables investments." He attributes improved profit opportunities to private capital influx, lower technology costs, and better policies.
Docherty adds that UK involvement in such projects typically extends beyond financing to include deal structuring, technical expertise, and operational support, opening broader economic opportunities. "Where UK and European finance hesitates, others will inevitably step in," he warns.
Misguided Perceptions of Risk
While investing in emerging markets carries challenges like currency fluctuations and political instability, experts argue that risks are often overstated. Docherty points out that risk frameworks may over-penalise renewable projects, even with mitigations like guarantees. Streeter notes a "significant gap" between perceived and actual investment risk in African renewables, with PIDG's losses being minimal compared to agency predictions.
Conversely, climate risks from continued fossil fuel investment are underplayed. A recent report highlights that economic models fail to account for cascading climate failures, posing severe threats. Dr Jesse Abrams of the University of Exeter warns: "We are thinking about something like a 2008 crash, but one we can't recover from. Once we have climate breakdown, we can't bail out the Earth like we did the banks."
In summary, UK banks must strengthen their climate targets to seize Africa's renewable energy boom, balancing perceived risks with the immense financial and environmental opportunities at stake.
