UK banks face risk over Africa’s renewable energy growth

Weak climate targets from UK banks put them at risk of missing out on the “enormous opportunity” of Africa’s renewable energy revolution, financial experts have told The Independent. Rapidly falling costs for solar, wind, and battery technologies have accelerated the decarbonization of electricity systems worldwide, extending to Africa, a region that has historically struggled to attract investment.

Renewable Energy Growth in Africa

Private sector investment in clean energy in Africa soared in recent years, more than doubling from $17 billion (£13 billion) in 2019 to $40 billion (£29 billion) in 2024, according to the International Energy Agency. With over 600 million people lacking electricity on the continent and African countries holding 60 percent of the world’s solar potential, the opportunities around clean energy in Africa are considered vast. The UK’s large financial services sector is well-positioned to invest in clean energy systems in emerging economies.

Bank Climate Policies

Elliot Thornton, research manager on the banking program at ShareAction, explains that international financiers can offer experience and expertise to develop renewable energy deals. Alasdair Docherty, an analyst at the Institute for Energy Economics and Financial Analysis, agrees that Africa will need hundreds of billions of dollars annually by 2030 to meet energy access and development goals, presenting a significant financing opportunity for UK institutions. However, British banks appear to be turning away from climate opportunities.

HSBC, the UK and Europe’s largest bank, has weakened its climate policies by removing its pledge not to take on new clients with significant investments in oil & gas exploration and revising climate change targets. The bank also withdrew from the Net Zero Banking Alliance. ShareAction has written to Standard Chartered, calling for it to align decarbonization targets and set a specific investment target for renewable energy in emerging markets and developing countries.

Missed Opportunities and Incentives

Thornton argues that banks need clear incentives to drive sustainable finance and lay the groundwork for future opportunities in emerging markets. He suggests that supporting renewable deals in new markets will not only open up further deals in the renewable energy space but also create more opportunities in the broader economy.

Perceived vs. Actual Investment Risk

Investing in energy infrastructure in emerging markets comes with challenges, including currency fluctuations, inflation, and political instability. However, these risks have been accused of being overblown by ratings agencies. Donald Trump’s spurning of renewables in the US also highlights that political risks related to the clean energy transition are not limited to developing countries.

The UN Development Programme has highlighted how risk frameworks can systematically penalize renewable projects. Tim Streeter, global head of investor relations at PIDG, believes there is a “significant gap” between perceived and actual investment risk in African renewable markets.

The Importance of Long-Term Planning

Thornton emphasizes the need for long-term planning in sustainable finance, particularly in emerging markets. He suggests that HSBC’s backtracking on climate commitments sends a weak signal about its commitment to sustainable finance opportunities.

When approached for comment, Standard Chartered declined to comment. HSBC stated its ambition to become a net zero bank by 2050 and its focus on financing that helps customers decarbonize.

A Massive Opportunity for UK Business

The Private Infrastructure Development Group (PIDG), a London-based investor, has mobilized $47.2 billion and served 232 million people over two decades by focusing on infrastructure in emerging economies. Recent years have seen opportunities for profit improve, driven by private capital, collapsing technology costs, and policy maturity.

Establishing a foothold in these markets by supporting the energy sector would also bring further business opportunities for UK banks and businesses. Supporting renewable deals in new markets will open up further deals in the renewable energy space and create more opportunities in the broader economy.

A Misguided Idea of ‘Risk’

While investment risks around renewables in Africa might be overblown, the risks around future climate shocks are regularly cited by climate scientists and economists. A recent report warned that current economic models may not capture cascading failures and compounding shocks that define climate risk in a warmer world.

The article was produced as part of The Independent’s Rethinking Global Aid project.