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Unlocking Climate Finance in Nigeria with Green Banking

Lagos, 15 February 2022 – A new report launched today aims to help financial regulators in Nigeria create a greener financial system. The Nigeria Green Tagging Banking Review supports a strong monitoring and disclosure framework that would allow financial institutions in the country to accurately and transparently report their financial footprint to financial regulators.


The review was launched by the Climate Bonds Initiative, Climate Transition Limited, UN Environment Inquiry, the Global Environment Facility (GEF) and Financial Centre for Sustainability (FC4S) Lagos. Developed as part of the Green Finance Platform’s GEF Aligning Finance Policies project, it includes scenario-based analyses of loans portfolios from three Nigerian commercial banks and assesses the percentage exposure of their portfolios to low-carbon and high-carbon assets based on established taxonomy.


"The findings from the study has further influenced our decision to carry out a detailed climate risk analysis on the loan portfolio and subsequently infuse the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations into our strategy as a financial institution,” said Abubakar Suleiman, Chief Executive Officer, Sterling Bank. “This will enable us move our portfolio to low-carbon assets while exploring the vast opportunities available in green finance which aligns with our HEART strategy."


Nigeria’s economy is extremely vulnerable to the impacts of climate change due to a high exposure to sectors such as agriculture, transportation, and oil and gas. "Sub-Saharan Africa, being amongst the largest group of developing nations, face many challenges, but none as existential as the direct and in-direct impacts of climate change,” said Olumide Lala, Co-Founder and Director of Climate Transition Limited and lead author on the report “The World Economic Forum, amongst others are consistently repeating the same narrative of the need to “Act Now” around investment and planning and to appreciate that we are past the point of climate mitigation and are entering a new world of climate adaption”.


Results from the green tagging review indicate a majority of bank lending is to assets in carbon-intensive sectors. “As such, using Nigeria as a model, with its historic focus upon the exploitation of hydrocarbons to the benefit of its economy, it is now beginning to re-think its position and actively seeking options to make the necessary fiscal adjustments, added Olumide Lala, Co-Founder and Director of Climate Transition Limited “The recent Green Tagging of projects within the selected review of participating domestic banks, demonstrated very vividly the actual and potential vulnerabilities of the Nigerian economy and how exposed the Financial Sector is in general to climate related impacts of which there are many within developing nations”.


Based on the results on the assessment, the report provides strategic recommendations for the development of green bonds issuance and proposes a reporting framework for financial institutions to report on green financing, piloted by commercial banks in Nigeria.


“The Green Tagging review provided an opportunity for us to understand the assets in our portfolio from a different perspective, exploring the levels of potential exposures to climate-related financial risks,” said Kola Lawal, Chief Risk Officer at Stanbic IBTC Bank. “The review presented strong arguments for transitioning the portfolio to more sustainable assets, factoring in peculiarities of the local market. With climate-related risks featuring as some of the top risks facing the world over the coming decade, the review was very valuable for our business, especially at this time.”


Recognizing the need for an effective mechanism for identifying and measuring climate-related risks faced by Nigeria’s financial sector, the report also calls financial regulators to promote transparency and integrity of regulatory disclosures.


“By embracing international best practice and integrating the recommended strategies and methodologies into the planning phase of transition Nigeria can still achieve its desired ambitions, enshrined in its Nationally Determined Contributions, which were agreed to be implemented since the 2015 Paris Accord, of a low carbon economy by 2060. These undertaking of risk assessment around financial sector impacts clearly provide an unambiguous road map of desired investment options to achieve these aims” concluded Olumide Lala.

The sharing of comparable and reliable environmental data is critical to understand the system-wide impacts of climate change on financial stability, and to create positive environmental impacts in the real economy, towards aligning Nigerian financial system with the Paris Agreement.


“The Nigeria Green Tagging Project has enabled us to identify untapped opportunities in our market while making positive environmental and social impact,” said Ademola Adebise, Managing Director and CEO of Wema Bank. “We believe that if we harness these opportunities and collaborate with the right stakeholders, the country will definitely have a prosperous future.”


Contacts

Olumide Lala Director, Climate Finance Services Climate Transition Limited olumide.lala@climate-transition.net


Camille Andre Green Finance Manager Green Growth Knowledge Partnership candre@ggkp.org


Click here to join the report launch.





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