In a world where funding for fossil fuel investment is waning, global Environmental Social and Governance (ESG) fund projected to hit $53 trillion by 2025 can present a system of autarky for over billion dollars’ worth of idle clean energy projects stranded across Nigeria.
Across the world, investors are now shifting attention from traditional funds to sustainable funds like ESG investing or strategies that consider a country’s environmental, social and governance ratings alongside traditional financial metrics.
For a country with proven gas deposits of 206.53 trillion cubic feet, most asset managers say the ESG initiative can be an escape path for many of Nigeria’s clearer energy projects, many of which are mired in obscurity due to paucity of funds.
They say the ESG initiative can breathe an air of fresh ideas to projects such as the $20 billion Brass LNG project in Bayelsa State; the $9.8 billion Olokola LNG in Ogun; the 5000km Nigeria-Morocco offshore gas pipeline, which in the current market price would cost an estimated $20 billion.
“For a country not in the race of transitioning from fossil fuels, Nigeria needs to leverage more on its gas potentials by creating a positive environment to attract big mega funds like the ESG initiative,” Charles Akinbobola, energy analyst at Lagos-based Sofidam Capital says.
A report by Bloomberg shows ESG funds recorded the highest flows last year, and by 2025, ESG investing is projected to reach $53 trillion in assets. This equates to roughly a third of all investment assets under management.
The surge in ESG assets is driven largely by regular investors requesting sustainable options for their hard-earned savings from banks and pension funds alongside shareholders increasing preference for more resilient investments, as against powering destructive companies, such as oil, tobacco and large-scale polluters.
The flows have also been helped by an accelerating push from governments globally to transition to a low-carbon economy, changing market rules and tax regimes to encourage climate-friendly investments, many of which are held by ESG funds.
A report by KPMG, a global network of auditing firm, notes that for countries to mobilise investments for sustainable infrastructure, they will need to focus on key parameters such as increasing the supply of bankable and viable sustainable infrastructure projects, raising the attractiveness of local currency green bonds and structuring clear reporting standards for green investments.
The report notes that commitments from corporates and governments towards a net-zero carbon emissions roadmap should incentivise attraction towards sustainable finance.
In Asia, sustainable investments are already gaining ground. For instance, Japan is seeing a fast rise in sustainable investments with relevant assets managed growing from just $7 billion in 2014 to $474 billion in 2016, and quadrupling to $2.18 trillion in 2018, according to the Global Sustainable Investment Review.
Total sustainable investment assets now account for 18 percent of all professionally managed assets in Japan.
“The ESG brings new potential revenue streams that can be incorporated into the financing package of Nigeria’s gas projects,” Niyi Awodeyi, CEO at Subterra Energy Resources Limited, says.
The reality of a world pushing for the energy transition to cleaner fuels amid rising output from natural gas producers in a mostly bearish global market is making it imperative for Nigeria to unlock its gas potential for domestic use. Only 9 percent of natural gas produced is used in Nigeria.
Most of Nigeria’s gas-fired power plants are also suffering from low gas supply and other operational problems, a development that is keeping many Nigerians in darkness.
“Nigeria should be positioning itself to attract more funds by creating a sustainable business environment as the world seeks to wean itself off fossil fuels and its concomitant environmental pollution challenges,” Awodeyi states.
For decades, tons of gas flared as Nigeria prospected crude oil. But with the realisation of the loaded benefits of gas, the Federal Government came up with an economic blueprint to turn gas flaring into a money spinning business.
In the first half of 2021, Nigeria declared 2021 to 2030 the decade of gas, which will allow the country to strategically focus on its vast natural gas resources and function as a bridge between the dominant fossil fuel of today and the renewable energy of tomorrow.
For most experts, starting 2021 as a decade of gas is a nice ring but marketing alone will not cut it, without addressing other major issues in terms of pricing, regulations and commitment to contracts.
Other stakeholders believe the government sector has to be bold about solving challenges such as unreliable gas supply, poor gas infrastructure, power sector liquidity issue, ineffective regulation of the energy value chain, and concentration and control of gas resources within a limited set of licence holders in the country.
From industry records, the Nigerian Liquefied Natural Gas (NLNG), which contributes about 1 percent to Nigeria’s gross domestic product (GDP), has, over the years generated $114 billion in revenues, $9 billion in taxes, $18 billion in dividends to the Federal Government, and $15 billion in feed gas purchase.