Climate finance is often discussed as though more money should automatically produce better development outcomes. A new cross-country analysis from Sub-Saharan Africa suggests that the reality is considerably more complicated. Across 37 countries and 23 years of data, the type of climate finance and the institutions through which it moved were closely associated with whether financial inflows translated into stronger sustainable development.
The study, published in Discover Energy on 24 September 2026, examined climate finance, institutional quality, energy access and sustainable development between 2000 and 2022. Its central finding was not that climate finance is ineffective. Rather, the analysis separated broader climate-related finance from mitigation-related finance and found sharply different patterns. Mitigation finance was consistently associated with better sustainable development outcomes, while broader climate-related finance showed a negative relationship in the models, particularly where governance and implementation systems were weak.
That distinction matters for African governments and development partners because the continent faces two pressures at once. It needs substantial investment to adapt to climate risks and build lower-carbon infrastructure, while hundreds of millions of people still lack reliable electricity. The question is therefore not only how much climate finance reaches the region, but what happens to it after it arrives.
A 23-year view across the region
Researchers David Adebisi Samuel and Michael Olatunde Agbabiaka assembled panel data for 37 Sub-Saharan African countries, including South Africa, Nigeria, Ghana, Kenya’s regional peers, Zimbabwe, Zambia, Ethiopia, Mozambique and a broad range of smaller economies. The sample covered 2000 to 2022, producing a regional view that could capture both differences between countries and changes within them over time.
The analysis drew on sources including the World Bank’s World Development Indicators, Worldwide Governance Indicators, UNFCCC climate finance reporting, the IMF Climate Finance Tracker and UNDP data. The researchers constructed indices for sustainable development, institutional quality and the political economy of energy access, while also incorporating climate finance measures and controls for trade openness, population growth and inflation.
Rather than relying on a single regression, the researchers used a dynamic panel approach. Their main models used Generalized Method of Moments techniques designed to address persistent development patterns, unobserved country differences, reverse causality and potential endogeneity. A panel autoregressive distributed lag error-correction model was then used as a robustness check to test whether the relationships also held over longer adjustment periods.
This matters because countries that already have stronger institutions may both attract different kinds of finance and achieve better development outcomes. Statistical techniques can reduce some of that bias, but they cannot turn observational country-level data into a randomized experiment. The results should therefore be read as strong longitudinal associations rather than proof that a particular funding stream directly caused a specific development outcome.
Two types of finance moved in opposite directions
The baseline model showed substantial persistence in sustainable development. The coefficient on the previous year’s sustainable development index was 0.9685, with p<0.001. In practical terms, countries tended to carry much of their existing development trajectory forward from one year to the next. Rapid reversals were uncommon.
Against that persistent background, broader climate-related finance was negatively associated with the sustainable development index. Its coefficient was -0.0123, with p<0.001. The authors interpret this pattern as evidence that financial inflows can struggle to produce development gains when implementation is fragmented, absorptive capacity is limited or accountability systems are weak.
Mitigation-related finance followed the opposite pattern. Across the model sequence, funding oriented toward mitigation was positively associated with sustainable development. The distinction is important because mitigation projects, such as renewable energy infrastructure, clean technology deployment and emissions-reduction programmes, often operate with clearer measurement, reporting and verification requirements. The study argues that these structures may help financial resources move through more accountable and measurable channels.
The baseline specification itself had an R-squared of 0.946, while the reported J-test probability was 0.304, supporting the validity of the instrument set used in that model. Trade openness was also positively associated with sustainable development, with a coefficient of 0.0028 and p=0.0060. Population growth had a smaller positive coefficient of 0.0026 with p=0.0157, while inflation was not statistically significant in the short-run baseline.
The governance channel became clearer
The researchers then tested whether institutional quality could help explain the divergent finance results. Here the split widened. Climate-related finance had a coefficient of -0.1610 for institutional quality, with p<0.001. Mitigation-related finance had a positive coefficient of 0.1880, also with p<0.001.
These coefficients do not mean that receiving general climate finance automatically damages institutions. They show that, within this dataset and model, the broader funding measure was associated with weaker institutional outcomes after the included controls and dynamic structure were taken into account. The authors point to possible mechanisms such as parallel financing channels, fragmented implementation and opportunities for rent extraction when accountability chains are weak.
The mitigation result points in a different direction. Programmes tied to emissions reduction and energy investment often carry more explicit monitoring, reporting and contractual requirements. Those features may reinforce coordination and transparency rather than bypassing domestic systems.
The same divergence appeared when the political economy of energy access became the outcome. Climate-related finance had a coefficient of -0.0681, while mitigation-related finance had a positive coefficient of 0.0997. Both were statistically significant at p<0.001. This suggests that the way funding interacts with energy institutions may be one of the routes through which climate money becomes either productive investment or a weaker development intervention.
Energy governance carried part of the effect
In the full mediation model, the two finance measures remained significant even after institutional quality and energy governance were introduced. Climate-related finance had a coefficient of -0.0234 and mitigation-related finance a coefficient of 0.0243, both with p<0.001. That persistence indicates partial rather than complete mediation: governance explained part of the relationship, but not all of it.
The political economy of energy access itself was positively associated with sustainable development, with a coefficient of 0.0372 and p=0.0151. The full model reported an R-squared of 0.926 and a J-test probability of 0.172. The researchers concluded that energy governance was a particularly important transmission channel because climate investment can only deliver broad social benefits when energy systems are capable of converting investment into accessible, reliable infrastructure.
There is an intuitive development logic behind that result. A renewable-energy project can reduce emissions, but its development value is larger when electricity also reaches households, schools, clinics and productive businesses. Conversely, funding can be substantial on paper while delivering less durable benefit if projects are poorly coordinated, disconnected from national systems or unable to overcome institutional bottlenecks.
The long-run test supported the same story
The robustness analysis provided another useful number. The error-correction term was -0.2571 with p<0.001. This indicates that about 25.7% of the previous year’s deviation from the estimated long-run equilibrium was corrected each year. Put differently, the model suggested a stable long-run relationship among climate finance, institutional quality, energy access and sustainable development, but adjustment was gradual rather than immediate.
The researchers also tested for cointegration before estimating the long-run relationship. The Kao residual test produced an ADF statistic of -5.066 with p<0.001, supporting the existence of a common long-run relationship among the variables. The data nevertheless contained substantial heterogeneity. Climate-related and mitigation-related finance were highly correlated at 0.9324, a point the authors addressed through lagged instruments and model diagnostics.
That high correlation is also a reason for careful interpretation. The two funding categories are not isolated policy worlds. They can move together, overlap in practice and be influenced by the same donor priorities. The statistical separation is informative, but policymakers should not assume that every adaptation-oriented or broadly classified climate project will reproduce the negative coefficient observed at the aggregate level.
Why this matters for South Africa and its neighbours
South Africa was one of the 37 countries in the panel, but the study did not estimate a standalone South African effect. Its value locally lies instead in the regional pattern. Southern African governments are simultaneously trying to expand electricity access, modernise grids, finance renewable generation, adapt infrastructure to climate risks and attract international capital. The findings suggest that those goals cannot be separated from public-sector capability.
For climate financiers, this creates a practical challenge. Strict project controls can improve accountability, but excessive reliance on parallel donor systems may weaken the very national institutions needed to sustain programmes after external funding ends. The study’s results favour a model in which fiduciary safeguards, transparent allocation, measurable performance and stronger domestic energy institutions develop together.
The authors specifically recommend stronger safeguards for broad climate-related finance and greater use of performance-based mechanisms. They also argue that mitigation finance should be expanded where governance and energy systems can translate it into inclusive low-carbon development.
Important limits remain
The regional scope is a strength, but aggregation is also a limitation. Thirty-seven countries with very different political systems, energy markets, fiscal capacities and climate vulnerabilities are combined in one panel. National averages can conceal major differences between projects, provinces and communities.
The authors also note that System GMM may not fully capture nonlinear relationships or spillovers between neighbouring countries. Climate finance can affect cross-border power pools, trade and regional infrastructure, while institutional reforms in one country may influence investment decisions elsewhere. Project-level data would provide a sharper test of which financing designs actually work.
Even with those cautions, the study challenges a simple assumption at the centre of climate policy. Financial volume alone is an incomplete measure of success. Across this 23-year African dataset, the developmental value of climate finance was closely intertwined with the institutions, accountability systems and energy structures through which it operated. For a region facing both severe climate exposure and the world’s largest electricity-access gap, strengthening those transmission systems may be as important as securing the next round of funding.
Source Information
Study Title: The political economy of energy access and institutional mediation in climate finance for sustainable development in Sub-Saharan Africa
Authors: David Adebisi Samuel and Michael Olatunde Agbabiaka
Journal: Discover Energy
Year: 2026
DOI: 10.1007/s43937-026-00134-7
