Ethiopia moves to green its financial system, signaling a new era for climate finance in East Africa

May 19, 2025 in Business, Companies, Finance, Financial Services, Foreign News, Investment by Editor

Addis Ababa | 256BN – Ethiopia has launched a major initiative to green its financial system, joining a growing number of East African nations aligning financial regulation with climate action in a move that could reshape investment flows across the region.

The Greening Financial Systems (GFS) Programme, officially unveiled at the Ethiopia Finance Forum, positions Ethiopia at the forefront of sustainable finance reform in Africa. Backed by the European Investment Bank (EIB) and funded by Germany through the International Climate Initiative, the programme aims to embed climate risk management into the country’s regulatory frameworks, support the creation of a national green taxonomy, and catalyze sustainable investment.

The initiative is spearheaded by the National Bank of Ethiopia (NBE), which is undertaking institutional reforms to integrate environmental considerations into its financial oversight. With climate change posing increasing risks to Ethiopia’s economy—through drought, floods, and agricultural disruption—regulators now recognize that financial stability and climate resilience are inextricably linked.

Governor Mamo E. Mihretu of the NBE described the financial sector as a critical enabler of Ethiopia’s green transition. He emphasized that building climate resilience within the banking system would help unlock the capital needed to drive sustainable growth and protect livelihoods. The launch event also saw technical cooperation agreements signed between the NBE and the EIB, witnessed by senior officials from Germany, the EU, and Ethiopia’s Ministry of Finance.

Ethiopia’s entry into the GFS Programme mirrors similar efforts in Kenya and Rwanda, which are already working to embed environmental, social, and governance (ESG) criteria into their financial systems. In doing so, East Africa is fast becoming a laboratory for innovative green finance models, where regulatory leadership is catalyzing real-world investment in renewable energy, sustainable agriculture, and climate-smart infrastructure.

What sets Ethiopia’s programme apart is its ambition to develop a National Green Taxonomy, a standardized classification system to define environmentally sustainable activities. This taxonomy will provide banks, investors, and policymakers with a common language for green finance, improving transparency, reducing greenwashing, and attracting international climate funding.

While central banks traditionally focus on inflation, liquidity, and financial inclusion, the GFS initiative marks a shift in their mandate—toward protecting financial systems from climate shocks and driving capital to green sectors. The National Bank of Ethiopia has established a dedicated internal task force to guide the implementation of this initiative, drawing on expertise from across regulatory departments and engaging with commercial banks and financial institutions.

The programme also includes capacity building for local banks, helping them design green lending products, adopt climate risk assessment tools, and develop sustainable investment portfolios. By empowering financial institutions to participate actively in the green transition, Ethiopia hopes to unlock private capital for climate-aligned projects that have long struggled to find financing.

Speaking at the launch, EIB Vice President Ambroise Fayolle praised Ethiopia’s commitment and said the programme would help create an enabling environment for climate action. He noted that Ethiopia joins a cohort of countries including Nigeria, Armenia, and Albania that are part of the broader GFS network.

Germany’s Ambassador to Ethiopia, Jens Hanefeld, said Berlin was proud to support Ethiopia’s efforts to green its financial system. He emphasized that financial resilience and access to green finance were central to the country’s long-term development and climate strategy. EU Ambassador Sofie From-Emmesberger echoed these sentiments, describing the programme as a cornerstone of EU-Ethiopia cooperation on climate resilience.

As climate challenges intensify, East African countries are realizing that financial reform is not just a policy imperative—it is a competitive advantage. By creating clear, green-aligned investment rules and frameworks, Ethiopia and its neighbors are improving their ability to attract impact capital and climate funding from international institutions.

For Uganda and other East African markets, Ethiopia’s approach could offer important lessons. The development of a green taxonomy, in particular, provides a useful model for aligning public and private sector investment decisions with national climate goals. As regional integration deepens and cross-border investments grow, harmonizing sustainability standards could further strengthen East Africa’s position as a destination for green finance.

With Ethiopia now on board, the Greening Financial Systems Programme is gaining traction as a continental platform for transforming finance to meet the realities of a warming planet. The question now is whether other countries in the region—including Uganda—will follow suit and embed climate into the heart of their financial systems.