How Banks, Policymakers, and SMEs Can Turn Climate Shocks into Investable Solutions

Uganda’s green finance conversation is evolving beyond pilot projects to focus on scaling real, investable solutions.

This shift was evident at the Uganda Green Enterprise Finance Accelerator (UGEFA) Dialogue Forum, held under the theme “From risk to opportunity: Mainstreaming green finance for SMEs.”

When moderator Flavia Tumusiime, Head of Broadcasting at Nation Media Group, asked what climate risk looks like for the people who grow Uganda’s food, Dr Colin Agabalinda, an inclusive rural and climate finance specialist at ARCAFIM–IFAD, gave a vivid answer: “When agriculture sneezes, the economy catches a cold.”

With over two-thirds of Ugandans depending on agriculture, climate shocks ripple far beyond the farm.

Agabalinda outlined risks such as prolonged droughts, floods, erratic rainfall, pest outbreaks, and high input costs that lead to reduced yields, unstable incomes, and loan defaults.

“When yields collapse,” he warned, “repayments collapse as well.”

He recalled instances in 2022 when flooding destroyed harvests, causing entire community-based loan portfolios to deteriorate almost overnight.

The panel also featured Dr Lena Giesbert, Senior Manager at Adelphi, Eng Dr Pablo Martinez, Country Representative at the Global Green Growth Institute, and Diana Nanono Ssengendo, Sustainability Manager at dfcu Bank.

Together, they explored how financial institutions can transform these risks into opportunities through innovation, regulation, and partnerships.

Dr Giesbert noted that Uganda faces increasing climate volatility, including floods, landslides, and droughts, which directly threaten cash flows, collateral values, and loan performance.

Transition risks such as changing energy tariffs, traceability standards, and new green policies further complicate lending to agriculture-focused portfolios.

These developments make it increasingly clear that climate risk is also financial risk.

Eng Dr Martinez described Uganda’s new National Green Taxonomy, launched in September 2025, as a common language for defining and classifying green investments.

Backed by the Ministry of Finance, the taxonomy helps banks and SMEs identify, structure, and report climate-aligned projects.

He urged participants to view it not as a static document but as a living framework.

“Test it, challenge it, and refine it,” he said, “so that it works for Ugandan institutions and SMEs.”

He emphasized that the taxonomy serves both as an opportunity map and as an early-warning system that highlights investments misaligned with Uganda’s climate goals, helping financial institutions to identify potential stranded assets before they materialize.

Diana Nanono Ssengendo explained how dfcu Bank is integrating climate risk into credit assessments through ESG analysts who evaluate borrower exposure and develop improvement plans for high-risk clients.

Supported by UGEFA’s Green Finance Academy, the bank is expanding its green product portfolio and forming strategic partnerships to drive climate-aligned investments.

Through the dfcu Foundation’s Financial Expansion for Agribusiness Transformation (FEAT) Programme, the bank aims to reach over 100,000 agri-SMEs by 2029, offering technical assistance, climate-smart agricultural solutions, and market linkages to enhance resilience and productivity.

Looking at recent investment trends, Dr Giesbert noted that financiers are increasingly directing funds toward clean energy solutions such as solar systems, clean cooking technologies, and biogas for production and storage.

Agri-energy productivity tools, including solar-powered pumps, cold-chain systems, and irrigation technologies, are helping farmers stabilize yields and reduce reliance on rainfall.

Green manufacturing, particularly in agri-processed foods, honey, and wheat value chains, is also gaining traction for capacity expansion and quality certification upgrades essential for export growth.

Waste management has emerged as another profitable sector, as banks recognize the commercial potential in converting waste into value.

Across these areas, financiers are drawn to predictable demand, reliable revenues, and manageable risks, factors that make green ventures highly bankable.

Bank of Uganda has identified green finance as a strategic priority and is developing supportive policies and regulations.

Meanwhile, the National Planning Authority is crafting a comprehensive green finance strategy to close implementation gaps and streamline existing initiatives.

Globally, climate finance nearly doubled between 2019 and 2021, signaling both heightened risk and opportunity as banks reduce fossil exposure and expand renewable investments.

Uganda is building the domestic framework to attract this capital. Uganda Development Bank (UDB) launched a Climate Finance Facility in 2023, and within a year, the share of green projects in its portfolio rose from 8.9% to 28.1%, demonstrating how policy alignment can quickly translate into deal flow.

The European Union has also stepped up its support, contributing €90.4 million in 2020 and another €58.4 million in 2022 under the Green Deal policy to advance sustainability in agriculture, energy, transport, and wastewater management.

Government’s sustainability agenda is anchored in Vision 2040, the Uganda Green Growth Development Strategy 2017/31, and the Third National Development Plan (NDP III).

To facilitate implementation, the Green Public Expenditure Review (GPER) was introduced in 2020, revealing a green finance shortfall estimated at $11 billion and calling for greater budgetary allocation toward environmental and climate-related spending.

GPER also emphasized the vital role of financial instruments such as green loans, credit guarantees, grants, and bonds in accelerating Uganda’s transition to a low-carbon economy.

According to the UN Environment Programme (UNEP), green finance refers to the use of financial flows, whether from banks, microcredit institutions, investors, or insurers, dedicated to sustainable development priorities.

It supports environmentally sound projects, fosters clean technology commercialization, and promotes sustainable growth.

For Uganda, expanding access to green finance for small and medium enterprises (SMEs) is particularly crucial, as these enterprises are the backbone of industrialization and job creation.

As new products such as green bonds, equity funds, and blended finance mechanisms take root, Uganda’s financial sector is steadily transforming climate risk into climate opportunity.