How Nigeria can use the Climate Change Act to unlock climate finance for the country (2)
Lack of climate finance is a major barrier preventing Nigeria and other developing countries form acting on climate change.
In the previous article we outlined serval ways in which the Nigeria could leverage the Climate Change Act to unlock climate finances for the country covering appropriation, green bonds and greening national and sub-national borrowing plans. Today we conclude by looking at other key sources.
Private Sources and Institutional Investors
The domestic market for issuance of financial instruments is active and presents a ready platform for redirecting flows to climate related interventions. Our analysis suggests that since 2019, the issuance levels has increased from N12.8 trillion to 2021s N19.8 trillion.
However, the component of green instruments is less than 0.4 percent and has been declining in the period. At about N16 trillion, the resources listed on the NGX is significantly more than the Federal Government’s planned borrowings.
This provides a compelling case for the need to engage the private sector actively in raising the levels.
The Climate Change Council (CCC) clearly has a role to play in engaging private sector finance through advocacy with the money market operators, the regulators, pension fund operators as well as the stock exchanges.
Here the two most promising avenues for mobilization and redirection of resources in the capital markets would be Corporate issuance and Pension Fund and Money Market Subscriptions to issuances. Pension fund presents as much N25.7 trillion that can be accessed.
PFAs have continually increased their exposure to green instruments, from 0.25 percent in 2019 to 0.62 percent in 2022. The CCC could set a target to increase this to 1 percent of total assets.
The CCA contains a provision that its Council may borrow money from financial organizations or other institutions for the purpose of executing its mandate under this Act. (Section 17 PART IV).
Such borrowings could be through the issuance of climate instruments (green, sustainable, sukkuk, social or a hybrid). These could be absorbed by the resources available to the institutional investors mentioned above.
Multilateral and bilateral sources, according, to the OECD, remain the biggest sources of climate finance. It would auger well for the CCC, to retain this as an essential option in not just mobilizing resources but catalyzing other sources of funding.
Multilateral and bilateral sources are diverse and covers both adaptation and mitigation. Engaging with domestic public resources, domestic private resources (outlined in the sections above) will be a key part in demonstrating the level of seriousness and establishing the institutions that will help Nigeria to attract international finance.
The NCCC can work closely with the Office tasked with the implementation of the ETP to set up a national just transition platform that can mobilize billions of foreign assistances to scale up climate action in Nigeria.
High ambitions are clearly disclosed in various documents, such as the Energy Transition Plan ($410b), the NDCs ($177b) and the all-encompassing Medium-Term National Development Plan (MTNDP).
Proactive/strategic action is key
Evidence from the GCF shows that Nigeria has only been able to mobilize $118m from the green climate fund, compared to South Africa’s $600m.
South Africa recently set a record at COP26 when it announced that it had reached an agreement with a consortium of donor countries to receive $8.5 billion to support her energy transition and implementation of Nationally Determined Contributions (NDC).
COP27 is now half way and nothing much has been heard in the form of a deal for Nigeria. Nigeria must not attend merely as spectators or to make commitments that it will struggle to fulfill.
With the devastating impact of climate change in Nigeria so evidently demonstrated by the unprecedent flooding events in the country, it is time to put in place a robust and long-term plan to enhance climate mobilization to underwrite green and climate resilient investment for Nigeria.