Climate Action in Emerging Economies: Building Resilience for a Sustainable Future

Addressing climate change has become a defining challenge for emerging economies, which bear its disproportionate impacts while holding immense potential for adaptation and innovation. The British International Investment’s (BII) Emerging Economies Climate Report 2023 underscores the vulnerabilities of regions like Africa, Asia, and the Caribbean and highlights opportunities for fostering resilience and sustainable growth. Its findings emphasize the importance of targeted investments, robust policy frameworks, and region-specific solutions to drive impactful change.

The Growing Threat of Climate Change in African Economies

Africa faces an increasingly dire climate reality, with flooding, drought, and extreme heat ranking as the most significant physical risks. The report reveals that 79% of surveyed businesses in these regions are already experiencing climate impacts, a marked rise from 68% in 2022. For example, Nigeria’s Coscharis Farms has suffered severe losses due to erratic rainfall and prolonged droughts, illustrating the urgent need for tailored interventions to address such region-specific challenges.

These climate risks ripple beyond immediate physical damages, straining food security, economic stability, and infrastructure. Communities reliant on agriculture face intensified vulnerabilities, driving rural-to-urban migration and placing unsustainable pressure on urban centers. Adding to these challenges are transitional pressures, including market shifts and regulatory demands. While firms across the continent strive to align with global sustainability goals, economic and infrastructural constraints often impede progress toward low-carbon transitions.

Business Adaptation: Progress and Persistent Barriers

Despite these challenges, African businesses are proving resilient, with 65% reporting adaptations to their business strategies. These include excluding high-carbon investments and developing climate-friendly products. However, adaptation efforts vary widely. Larger corporations often lead the charge, leveraging resources to invest in renewable energy and climate risk assessments, while SMEs struggle to implement similar measures due to financial and technical constraints.

East Africa’s renewable energy sector showcases promising strides. Inspired Evolution, a regional energy fund, has spearheaded investments in solar and wind projects, reducing carbon footprints while enhancing energy access. Yet, the absence of consistent government incentives—such as tax credits—remains a significant barrier to broader adoption. These private-sector innovations highlight the economic potential of climate adaptation, but without cohesive policy support, such initiatives risk losing momentum.

Beyond energy investments, businesses are exploring operational efficiencies as a means of climate adaptation. Industries dependent on water-intensive processes are implementing innovative resource management strategies. Meanwhile, integrating climate risks into business planning, though gaining traction among larger firms, remains a significant challenge for SMEs lacking resources and expertise.

Financing the Climate Transition

The report underscores the critical role of climate finance in enabling impactful action. A staggering 98% of respondents agreed that increased investment is essential for transitioning to net-zero operations and enhancing climate resilience. Yet, emerging economies—including those in Africa—receive a disproportionately small share of global climate finance. For instance, while annual global climate finance flows reached $1.3 trillion in 2021/2022, Africa’s allocation remains insufficient given its vast needs.

Innovative financial models like blended finance offer viable solutions. Programs such as BII’s Climate Innovation Facility combine concessional funding with commercial investments, enabling businesses to pilot groundbreaking solutions. However, the scalability of such initiatives hinges on robust policy support and international collaboration. The finance gap is particularly pronounced for SMEs, which face steep barriers to accessing affordable capital. Collaborative frameworks that prioritize equitable access to funding are critical to addressing these disparities.

Regional financial institutions also have a pivotal role to play. By forming partnerships with international organizations, they can channel resources to high-priority projects. Moreover, integrating climate resilience metrics into financial decision-making processes offers a clearer pathway to sustainable investments, ensuring funds are allocated where they are needed most.

Policy and Capacity Building: Paving the Way Forward

Addressing climate challenges effectively requires enabling policies and robust capacity-building efforts. Governments across Africa must enact legislation that incentivizes renewable energy, sustainable agriculture, and resilient infrastructure. For instance, introducing carbon credits and tax rebates could catalyze private-sector investments in green technologies. Policymakers must also avoid a one-size-fits-all approach, tailoring regulatory frameworks to the unique socio-economic contexts of their regions.

Capacity building is equally essential. Firms need access to sector-specific training and technical support to implement climate adaptation strategies effectively. Peer-to-peer learning initiatives, facilitated by climate specialists and research institutions, can drive innovation and bolster resilience. The report emphasizes equipping businesses with tools for climate risk assessments, goal setting, and progress measurement.

Public awareness campaigns also play a crucial role in fostering grassroots support for climate initiatives. By educating communities on sustainable practices, these campaigns can encourage widespread participation. Additionally, universities and research centers act as incubators for context-specific solutions, bridging knowledge gaps and addressing local challenges.

Insights for Business Leaders and Policymakers

For Africa’s business leaders, the report offers actionable insights to strengthen resilience and competitiveness:

• Incorporate Climate Risk into Core Strategies: Embedding climate considerations into risk management frameworks enhances operational resilience and investor confidence.
• Foster Collaborative Partnerships: Public-private partnerships between governments, investors, and businesses unlock critical funding and technical expertise.
• Prioritize Localized Solutions: Tailored strategies that address region-specific challenges are more likely to deliver sustainable outcomes.

Policymakers, on the other hand, play a pivotal role in fostering a supportive ecosystem for climate action. Streamlining regulations, expanding access to climate finance, and prioritizing infrastructure investments will accelerate progress. Strengthening cross-border cooperation across Africa offers an additional avenue for pooling resources and expertise. As the continent advances toward sustainable development, the synergy between proactive business strategies and robust policy measures will be instrumental in mitigating climate risks and unlocking economic opportunities.