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How Nigeria can tap $53trillion global ESG fund for oil projects

By Kingsley Jeremiah, Abuja
22 July 2021   |   3:00 am
Projected to hit $53 trillion by 2025, the global Environmental Social and Governance (ESG) assets can provide leeway for most oil and gas projects in Nigeria, especially the private and public sector

Oil rig on Lagos waters Source: File Photo

Projected to hit $53 trillion by 2025, the global Environmental Social and Governance (ESG) assets can provide leeway for most oil and gas projects in Nigeria, especially the private and public sector, to address inherent hindrances.

Across the world, investors are now shifting attention to ESG, applying the non-financial factors as part of the key analysis process to identify material risks and growth opportunities.

At a time when funding for fossil fuel investments is being withdrawn, most analysts see priority for ESG as an escape path to financing projects in the sector.

A report published by Bloomberg had noted that global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management.

Just last month, the International Energy Agency (IEA) had called for an end to fossil fuel investment as part of an attempt to ensure net-zero ambition becomes a reality by 2050. Although stakeholders in the oil and gas sector have criticised the call, it, however, sent a negative signal to the industry, which has already witnessed about a five per cent reduction in investment due to the Covid-19 pandemic.

Nigeria, with elusive governance, regulatory and fiscal outlook has over $160 billion projects yet to see Final Investment Decisions in the upstream segment.

Across Africa, the African Refiner and Distributor Association (ARDA) puts needed funds for refinery upgrade alone at $15.7 billion while an additional $7.5 billion investment, inclusive of debt, equity, and grants, will be required to build clean cooking stoves and downstream infrastructure that are going to support the attainment of the UN Sustainable Development Goals (SDGs).

Business Development experts for Vitol Services Ltd, Richard Egan, and Guillaume Quigiver, noted that ESG creates a new opportunity for African countries to generate carbon credits.

According to them, Africa has the lowest cost of generating carbon credits in the world and as such, a case should be made for a framework whereby African carbon emissions submissions are accepted in the global marketplace, stressing “ESG brings new potential revenue streams that can be incorporated into a financing package.”

Financial experts have also stated that ESG considerations are currently driving shifts in lending policies for various financial institutions and under what terms they are willing to lend, adding that while several key financial institutions like the World Bank and several Export Credit Agencies (ECAs) have pledged to end support for fossil fuel projects, Asian ECAs and some European ECAs have not made any such policy proclamations.

With the Petroleum Industry Bill (PIB) already being prepared in anticipation of presidential assent as stakeholders are divided over proper consideration for ESG, energy economist, Prof. Wunmi Iledare insisted that ESG must be on the radar of the industry as an important determinant for future investment flow.

Iledare said: “The oil and gas industry in Nigeria is not anti-environmental optimisation,” adding that the Society of Petroleum Engineers makes conscious efforts to produce oil and gas in a safe and environmentally secure manner.

According to him, for years, Health, Safety, Environment, and sustainability is a recognized discipline in the Petroleum Engineering profession.

Industry expert, Henry Adigun equally told The Guardian that although ESG is not at its best in the PIB, there are conscious efforts in the country to prioritise ESG.

He noted that the country is making efforts to attract green bonds, adding that the focus on gas would be an elixir towards ESG investment.