In Nigeria, the quest for sustainable development intertwines with the urgent need to address climate challenges.
Small and Medium Enterprises (SMEs) play a pivotal role in this narrative, as they represent a significant portion of the country’s economy and can serve as engines of innovation and change.
Read also: African Guarantee Fund covers 75% risks of green field, women-led SMEs
However, their potential is often hindered by financial constraints and environmental pressures. This feature delves into the intersection of green SME funding and climate challenges in Nigeria, exploring the private sector participation in addressing the barriers and opportunities for sustainable growth.
The Landscape of Green SMEs in Nigeria:
Nigeria boasts a vibrant SME sector, comprising businesses across various industries such as agriculture, manufacturing, and services. Many of these enterprises possess the potential to adopt eco-friendly practices and contribute to mitigating climate change.
However, limited access to funding often stymies their efforts. Traditional financial institutions may be reluctant to invest in green initiatives due to perceived risks or a lack of understanding of sustainable business models.
Challenges faced by Green SMEs
Climate challenges exacerbate the struggles of Nigerian SMEs, especially those operating in vulnerable sectors such as agriculture. Erratic weather patterns, soil degradation, and water scarcity threaten productivity and livelihoods.
Additionally, inadequate infrastructure and unreliable energy supply further hamper the transition to sustainable practices. Without adequate support, SMEs face an uphill battle in adapting to these environmental challenges while remaining economically viable.
Climate action, emission reduction, and sustainable investment are no longer optional cost burdens. It is inevitable – and essential – that Africa and its private sector stay ahead of the curve.
Paris Agreement on Private Sector Participation
The full implementation of the Paris Agreement, for Africa, requires the active participation of the private sector, particularly Small and Medium Enterprises (SMEs) who are globally recognised as the key drivers of economic growth in Africa. SMEs make up over 90 percent of enterprises and account for up to 60 percent of job creation and economic development.
Their ability to reduce emissions and mitigate the environmental impact of their operations is a major determinant of Africa’s progress in climate change mitigation and adaptation.
Involvement of Nordic Development Fund and African Guarantee Fund
In 2016, the Nordic Development Fund (NDF) became African Guarantee Fund’s (AGF) fifth shareholder. Under NDF’s leadership, AGF launched a Green Guarantee Facility to unlock financing for SMEs investing in climate and green growth-oriented economy.
AGF has since then substantially fostered sustainable growth by offering the Green Guarantee Facility to lending institutions to enable them ease access to finance for Green SMEs. The Green Guarantee Facility aims to increase sustainable private-sector led economic growth in Africa, through efficient utilisation of untapped clean energy resources and other climate-resilient development initiatives.
To complement the Green Guarantee Facility, AGF offers a Capacity Development Grant to both Partner Financial Institutions (PFIs) and Green SMEs. This enables the lenders to enhance their technical capacities while also ensuring that there is a pipeline of credit ready green SMEs that these PFIs can finance.
To facilitate a strong value chain in green financing, there is a need to lobby for national, regional, and international policies conducive for all players to support lending in this sector.
It is in view of this that AGF in partnership with NDF launched the Green Finance Conference & Training as a response to the challenges of climate change within the framework of Nationally Determined Contributions (NDCs).
The Green Finance Conference provides a platform for all stakeholders to dialogue and showcase the many advantages that Green SMEs can contribute to the economy.
The event aims to analyse opportunities and propose solutions necessary to meet the financing needs of Green SMEs to enable them acquire skills and technologies that can mitigate the effects of climate change. Previous conferences have been held in Zambia, Kenya, Ghana, Côte d’Ivoire, Senegal, Benin, Mozambique, and Malawi.
The 9th edition of the Green Finance conference took place in Lagos, Nigeria under the theme: “The Role of Africa’s Private Sector in the Paris Agreement on Climate Change.”
The high-level conference was followed by a 3-day training on Credit Risk and Product Development in Green Finance, for senior managers of Financial Institutions.
The Green Finance Conference provided a platform for all stakeholders to increase their understanding of AGF’s Green Guarantee Facility and how it enables banks on-lend to green and climate-smart projects.
Speaking at the Opening Ceremony, AGF Group Chief Executive Officer, Jules Ngankam emphasised the need for the financial sector to be aligned with the ongoing green transition.
“The green transition is defining a new way of living, a new way of doing business, and a new way of exchanging goods and services. At the core of this green transition are the commercial banks and it is imperative that they provide financing tailored to suit the needs of the Green SMEs.”
“Our objective here is to provide enhanced expertise to Africa’s financial ecosystem and to propose practical solutions to increase financing of small and medium-sized enterprises so as to ensure green growth and climate-resilient development.”
NDF Managing Director, Satu Santala said: “We are committed to financing green and inclusive low-carbon and climate resilient growth of African economies to improve the livelihood of communities.
“Partnerships are at the core of NDF’s approach to climate finance and this partnership with AGF significantly supports Africa’s private sector which plays a pivotal role in climate action while creating employment and prosperity in the continent. The private sector is also an essential source of financing and innovation in the transition towards green, resilient and sustainable economies and societies.
“At NDF, we provide both catalytic early-stage financing for African startups to develop climate solutions and also help them grow by crowding in investments through private equity and debt funds.’’
The President of the Chartered Institute of Bankers of Nigeria, Kenneth Opara also noted the important role the private sector plays in climate change, emphasising that this unlocks new growth, creates jobs and drives sustainable agriculture.
Opara said: ‘’We hope that climate change efforts will unlock new opportunities for green growth and job creation, ranging from renewable energy and clean technology to sustainable agriculture. There are countless avenues for the private sector to get the required solutions that deliver environmental, social, and economic benefits.”
Special Adviser to the Lagos State Government on Climate Change and Circular Economy, Titilayo Oshodi, speaking on behalf of the Secretary to the State Government noted that Africa’s private sector is a key driver of the success of the Paris Agreement. She said: “African businesses can accelerate the transition to a sustainable climate-resilient future by harnessing the power of entrepreneurship, innovation, and collaboration.”
Green SME funding
Unlocking the potential of green SMEs requires innovative financing mechanisms tailored to their needs. Impact investors, development finance institutions, and government initiatives can play a crucial role in providing financial support and technical assistance to eco-conscious enterprises.
By offering grants, loans, or equity investments, these funding sources enable SMEs to invest in renewable energy, energy efficiency, waste management, and other sustainable initiatives. Moreover, capacity-building programs can enhance their knowledge and skills in implementing green technologies and practices.
Opportunities for Collaboration and Innovation
Collaboration between stakeholders is essential to foster a conducive environment for green SMEs. Public-private partnerships can leverage resources and expertise to scale up sustainable projects and initiatives.
Furthermore, fostering innovation through research and development grants encourages the emergence of eco-friendly solutions tailored to Nigeria’s specific climate challenges.
By nurturing a culture of entrepreneurship and innovation, Nigeria can harness the creativity and resilience of its SME sector to address pressing environmental issues.
Policy and regulatory support
Government policies and regulations play a critical role in shaping the landscape for green SMEs. Clear frameworks and incentives, such as tax breaks or subsidies for eco-friendly practices, can incentivise businesses to adopt sustainable approaches.
Strengthening environmental standards and enforcement mechanisms ensures compliance and fosters trust among consumers and investors. Additionally, promoting access to green financing through dedicated funds or guarantee schemes enhances the accessibility of capital for SMEs committed to sustainability.
In Nigeria’s journey towards sustainable development, green SMEs emerge as key protagonists, driving innovation, job creation, and environmental stewardship.
However, their success hinges on overcoming financial barriers and navigating complex climate challenges. By prioritising green SME funding, fostering collaboration, and implementing supportive policies, Nigeria can unlock the transformative potential of its SME sector, paving the way for a greener, more resilient future.
Through concerted efforts and collective action, Nigeria can position itself as a leader in sustainable entrepreneurship, demonstrating the power of SMEs to catalyse positive change amidst climate uncertainty.
