How ESG can drive Nigeria’s green financing market

In recent years, environmental, social, and governance (ESG) principles have gained significant attention globally. Countries around the world are increasingly paying attention to how businesses and investments align with ESG principles. In Nigeria, a country rich in natural resources but also grappling with economic challenges and environmental degradation, the growing emphasis on ESG could be a game-changer, particularly in green financing. By aligning investment strategies with sustainable development goals, ESG principles can unlock new opportunities for Nigeria’s economy while addressing critical environmental issues.

What is ESG?

Before diving into its potential impact, it’s important to understand what ESG stands for.

Environmental: This refers to how a company or investment impacts the planet. It includes things like carbon emissions, waste management, and resource usage.

Social: This dimension looks at a company’s social responsibility, such as its labour practices, community involvement, and respect for human rights.

Governance: Governance focuses on the leadership structure of a company, transparency, business ethics, and how well a company manages its operations.

When combined, these three pillars form the ESG framework, which investors and companies are increasingly adopting to ensure they are making responsible, sustainable, and socially beneficial decisions.

The current state of green financing in Nigeria

Green financing is crucial for funding projects that address climate change, biodiversity loss, and other environmental issues. In Nigeria, this financing is more important than ever. The country faces a range of environmental challenges, including deforestation, desertification, pollution, and water scarcity. At the same time, Nigeria’s economy is heavily dependent on fossil fuels, which creates a unique challenge: how to transition to greener industries while maintaining economic stability.

In 2021, Nigeria issued its first green bond, raising N15 billion (roughly $36 million at the time) to fund renewable energy and climate resilience projects. This was a significant step toward integrating sustainability into the financial system. However, compared to global standards, Nigeria’s green bond market is still in its infancy. According to the Climate Bonds Initiative, by 2020, global green bond issuance has surpassed $1 trillion. Nigeria, with its growing green initiatives, is clearly behind.

How ESG can stimulate green financing in Nigeria

The potential for ESG to stimulate green financing in Nigeria lies in the way it connects sustainable development goals with investment. Here are several ways ESG can drive the green financing market in the country:

Attracting international investments

One of the key drivers of green finance is international investment. Institutional investors—such as pension funds, sovereign wealth funds, and development banks—are increasingly seeking sustainable, low-carbon investments. For example, the European Union’s Green Deal and the US’s push for net-zero emissions have created significant financial flows toward sustainable projects globally.

If Nigeria aligns its financing strategies with ESG criteria, it could tap into this growing pool of international capital. In 2020, global ESG investments were estimated at over $30 trillion, according to the Global Sustainable Investment Alliance (GSIA). For Nigeria, presenting itself as a destination for green investments by improving its ESG framework could attract foreign direct investment (FDI), especially in sectors like renewable energy, sustainable agriculture, and eco-friendly infrastructure.

Reducing risk and enhancing transparency

ESG criteria help reduce investment risks by encouraging greater transparency and accountability. By focusing on governance structures, Nigeria could strengthen its financial institutions, reduce corruption, and foster a more attractive investment environment. This is crucial for green financing, where investors want to be confident that their funds will be used efficiently and for projects that genuinely benefit the environment.

For instance, if Nigeria strengthens its regulatory frameworks and enforces clearer guidelines on how companies should operate within ESG parameters, it will reduce the risk for investors. When markets know that funds raised for green projects will be used as intended—whether for solar power projects, reforestation, or clean water initiatives—they are more likely to participate in green bond offerings or other ESG-linked financial instruments.

Encouraging local businesses to go green

Another significant advantage of ESG is its ability to influence local businesses to adopt sustainable practices. As more Nigerian companies embrace ESG principles, they can attract not only investors but also consumers who are increasingly making eco-conscious choices. In the past, many local businesses viewed sustainability as an optional extra. Today, it’s a business imperative.

Nigeria has an abundance of untapped renewable resources, such as solar and wind energy. If more Nigerian companies pursue green certifications or issue ESG-compliant bonds, they could tap into both local and international green financing markets. Local businesses adopting ESG standards would also help improve the country’s overall investment climate, providing more opportunities for green financing.

Supporting government policy on climate change

The Nigerian government has already taken some steps toward addressing environmental issues, but there’s much more to be done. Nigeria’s Nationally Determined Contributions (NDCs) under the Paris Agreement aim for a 20% reduction in emissions by 2030. To achieve these ambitious goals, Nigeria needs substantial financial backing.

ESG principles can guide this process. With greater ESG transparency, the government can access international funds more effectively. The World Bank, for example, often ties its financial assistance to countries’ ESG performance. If Nigeria commits to a more robust ESG framework, it could unlock significant financing from both multilateral organisations and private investors.

Building public-private partnerships

Finally, ESG provides a framework for public-private partnerships (PPPs), which are vital for large-scale green infrastructure projects. The Nigerian government alone cannot tackle the massive task of transitioning to a green economy. By encouraging partnerships with private companies that meet ESG criteria, Nigeria can mobilise the capital and expertise needed for projects in renewable energy, green transport, and sustainable agriculture.

In 2022, Nigeria’s Central Bank announced plans to introduce green lending guidelines for financial institutions to encourage banks to fund environmental projects. This is a promising step, but for the policy to succeed, it needs to be underpinned by strong ESG principles that ensure both the environment and local communities’ benefit.

Conclusion

For Nigeria, ESG is not just a trend—it’s an opportunity. By embracing ESG principles, the country can attract international investment, reduce risk, and improve transparency. The green financing market in Nigeria holds significant potential to address environmental challenges while driving economic growth. However, realising this potential requires a concerted effort from both the public and private sectors to align with global sustainability standards. If Nigeria plays its cards right, ESG could become the catalyst for a greener, more sustainable future.

Jude Enajero; Finance Professional | AVP at Citigroup | CFA Candidate. Jude Enajero, MBA, is an AVP at Citigroup and Co-Founder of Learn Easy Finance. With expertise in finance and information systems, he aspires to launch a private equity sustainability firm, combining impact and innovation.