African Countries to Issue Climate Bonds to Fund Mitigation Strategies

October 8, 2014 – It’s a tiny step but 24 African countries have launched the African Risk Capacity Extreme Climate Facility (ARC-XCF) bond issue. Starting in 2016 the bonds will raise money for climate projects.

Africa is deemed by most climatologists to be most vulnerable to atmospheric warming and climate events. The World Bank believes Africa will need to invest $14 to 17 billion USD per year from 2010 to 2050 for Sub-Saharan countries. This estimate is based on a mean global temperature rise of 2 Centigrade (3.6 Fahrenheit) degrees.

Why? Because Africa today is challenged to meet the food and freshwater requirements of its population. Deforestation, desertification and declining biodiversity are further increasing the vulnerability of the continent. ARC-XCF bonds will encourage public and private funds to invest in a secure instrument for funding adaptation strategies. The initial issue is for $1 billion with a thirty year maturity. Obviously, this isn’t nearly enough money to deal with risk mitigation for all the countries of Africa involved. But it is the first financial instrument of its kind and we should see other creative funding methods emerge over the next few years as world leaders move to adopt climate adaptation strategies.

How is Africa determining how funds are distributed. The African Extreme Climate Facility has established a multi-hazard Extreme Climate Index baseline for all signatories. They are doing this by tracking extreme climate events by country. Funding for projects will occur when extreme climate events exceed these baseline thresholds. But funding will only be released for prior approved plans.

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