There is growing evidence that the development trajectory of Nigeria’s economy will need to change dramatically in the coming years. The ability to deliver on key national policy objectives, diversify the economy away from its heavy reliance on natural resources, increase job creation for its rapidly growing young population, and fill a substantial infrastructure gap will all support a new economic direction. However, to deliver on this new economic vision, investment will be critical [1].
Sustainable finance can help to stimulate the growth of high-potential industries including renewable energy, transport, waste management and critical measures addressing climate adaptation and sustainable agriculture. Further, it can support the promotion of job-creating technological innovation and catalyse business opportunities for the financial industry through the creation of new products (such as green bonds or sustainable loans), tools and services. It could also help Nigeria to access new markets both domestically and internationally that are showing a rapidly increasing appetite for sustainable investments [1].
At the same time, Nigeria's economy and other development sectors are highly vulnerable to climate change [2]. The financial sector will have a particularly important role to play in addressing this challenge by directing financial flows to areas that can facilitate the transition to greater sustainability for the African continent [3].
Key policies and governance approach
Nigeria has already made great progress in sustainable finance and has committed to a set of principles for the promotion of sustainable banking practices, including the mainstreaming of social and environmental variables in banking operations, supply chains and lending [1], [4]. In 2012, the Central Bank of Nigeria developed the Sustainable Finance Banking Principles, laying strong foundations for sustainable finance. Following this, Nigeria placed itself in the international spotlight, by joining the small group of countries who have issued a sovereign green bond. The Nigeria Green Bond Market Development Programme will build on this momentum and help unlock Nigeria’s potential in green bonds. Further evidence of growing momentum includes the Nigerian Stock Exchange joining the Sustainable Stock Exchanges Initiative and several insurance companies becoming signatories to the UN’s Principles for Sustainable Insurance [1].
In 2018, United Nations Environment Programme (UNEP) Inquiry in partnership with FMDQ Securities Exchange, developed the ‘Nigerian Sustainable Finance Roadmap’ which lays down the ways in which Nigeria can unlock investments to move towards a more sustainable growth trajectory. It highlighted the country’s potential sustainable investment opportunities - in clean energy systems, agriculture and sustainable land use, health care and education, low-carbon transportation, ICT and digital infrastructure, etc., - that can be privately financed through the banking system and the capital markets [3].
More recently, in 2021, the Securities and Exchange Commission (SEC) adopted the Nigerian Sustainable Finance Principles (NSFP) as developed by the Financial Services Regulation Coordinating Committee (FSRCC). The objectives of the SEC guidelines on NSFP are to: 1). Stimulate a resilient, competitive and sustainable capital market that promotes economic development and improves the quality of life for all; 2). Improve corporate governance practices to ensure that the participants in the capital market operate in a transparent and sustainable manner; 3). Nurture an environment that facilitates job creation and diversity, women empowerment, human rights protection, access to affordable capital market products by the economically less privileged; and 4). Contribute to efforts aimed at reducing global warming and other environmental footprints resulting from our activities and those of our stakeholders [5].
Successes and remaining challenges
The Nigerian Sustainable Finance Roadmap report indicated that the demand for additional sustainable investment in Nigeria is estimated at US$92 billion annually out to 2030, while the annual sustainable finance flow is estimated at just over US$8 billion. This implies that annual sustainable finance in Nigeria will need to increase by approximately 1000% to capitalize on the opportunities identified in the UN Environment Inquiry report by 2030. Thus, the current flows of sustainable finance in Nigeria are inadequate [6].
The challenges and barriers to sustainable finance in Nigeria include, among others: lack of enabling conditions including ineffective and inefficient policies, regulations and nonfinancial disclosure; inadequate analytical capabilities; limited sustainable investment opportunities; limited appetite for sustainability; lack of non-financial sustainability data; cost of doing business; lack of long-term capital; underdeveloped sustainable finance toolkit for financial decision makers; sub-optimal internal capacity (knowledge of climate finance, processes & procedures, tools and technology, and new products); and limited use of digital innovation to unlock sustainable finance and broad awareness raising [3], [6].
Initiatives and Development Plans
Nigeria’s adaptation support needs are met by both international and national sources. The international sources include multilateral and bilateral donors while the national sources include, among others, the Development of Natural Resources Fund (DNRF), the Ecological Funds, the Clean Technology Investment Fund (CTF), and the Sovereign Green Bond [7].
- The country’s potential sustainable investment opportunities include clean energy systems, agriculture and sustainable land use, health care and education, low-carbon transportation, ICT and digital infrastructure, etc., that can be privately financed through the banking system and the capital markets.
- Develop relevant definitions and technically robust taxonomies for sustainable assets and financial products in Nigeria.
- The development of sustainable standards or labels for financial products could also help scale the market.
- Sustainability disclosure by the users and preparers of financial information could be enhanced and made more consistent, drawing on international best practice where appropriate. This would allow more informed financial decision-making, including improved understanding of sustainability risks and opportunities.
- Develop financial policy and regulation that is aligned with aspects of sustainable development.
- Awareness raising efforts should be implemented which includes developing modules on sustainable finance within academic institutions such as business schools or within professional bodies or networks.
- Develop sustainable digital finance solutions.
[1] UNEP Inquiry (2018). Nigerian Sustainable Finance Roadmap.
[3] UNEP Inquiry (2022). Nigeria Green Tagging Banking Review.
[4] Green Economy Tracker, Green Economy Coalition (2022). Nigeria: Africa's waking giant. [Online]. Available: https://greeneconomytracker.org/country/nigeria.
[6] NGX Regulation Limited (2022). SUSTAINABLE FINANCE IN NIGERIA: PERFORMANCE AND OUTLOOK.