Impact of green financing on Nigeria’s economic growth

As the Nigerian economy grapples with fluctuations in the exchange rate and rising inflation, resulting in the astronomical increase in prices of goods and services, the government of the day is taking both proactive and reactive measures to curb these distortions by introducing policy initiatives and executive orders to boost economic growth and restore Nigeria to its place of pride as the giant of Africa.

Global cooperation is the cornerstone for the stimulation of economic growth. In the words of President Bola Ahmed Tinubu, during his speech at the United Nations General Assembly (UNGA) 2023, “…the question is not whether Nigeria is open for business. The question is how much of the world is truly open to doing business with Nigeria and Africa in an equal, mutually beneficial manner.” The fact, however, remains that most progressive nations and organisations are more inclined towards investing in and partnering with governments that promote sustainable development in their policy framework.

Sustainable development requires adequate funding to improve the quality of lives and enhance the environment. However, the resources required to achieve a more sustainable Nigeria by 2030 as projected by the government, are limited. The international community commits to providing finance, technology and capacity-building support to developing nations.

A reference in point is the preamble of the United Nations Framework Convention on Climate Change (UNFCCC), which recognises that environmental standards may pose unwarranted economic and social costs to developing countries and commits to alleviating the special difficulties of developing countries whose economies are particularly dependent on fossil fuel production, use and export, such as Nigeria.

Nigeria has continuously demonstrated its unwavering commitment towards entrenching the principles of sustainability by implementing various initiatives and policy frameworks. In a strategic move to bolster green economic initiatives in Nigeria, the Presidential Committee on Climate Action and Green Economic Solutions was established on 19th May, 2024 to coordinate and oversee all policies and programmes on climate action and green economic development.

Interestingly, notable Nigerians occupy strategic positions of authority on the global sustainability stage. For instance, the United Nations Deputy Secretary-General, Amina J. Mohammed, is of Nigerian origin. Also noteworthy is Tariye Gbadegesin, who sits as the Chief Executive Officer of the Climate Investment Fund. Green financing may be the missing piece of the puzzle to address the current economic challenges, particularly the issue of exchange rate misalignment, bedevilling Nigeria.

Green finance is a loan or investment which promotes environmentally positive activities and could be considered a dual win streak, because both the recipient economy and its environment benefit from the funding. Green finance has significantly contributed to the economic growth of countries such as China, the United Kingdom, and South Korea, generating billions of dollars in investments, driving innovation in clean energy technologies, reducing carbon emissions, and improving environmental sustainability. Where such green grants and investments are obtained through initiatives championed by the Central Bank of Nigeria (CBN), the pressure on the foreign exchange market could greatly reduce because the inflow of these grants would be channelled directly through the CBN, thereby boosting the nation’s foreign reserves.

Another strategy to attract substantial foreign exchange into the economy would be to seek adequate compensation from carbon credit as a country that captures, stores and thereby reduces carbon emissions. Consequently, a deepened collaboration between the CBN, stakeholder organisations and financial institutions is expedient to develop a nexus between sustainability within the banking sector and the promotion of a sound financial system in Nigeria.

For the banking sector, the first step in the right direction would be to prepare an investor friendly regulatory framework on green financing which creates a transparent and accountable governance structure to drive the initiative. With the right policies in favour of green investment and climate friendly projects, there would be enormous benefits to Nigeria such as reduced dependence on fossil fuels arising from conversion to clean and renewable energy, reduced carbon emissions from gas flaring activities, job creation leading to poverty reduction, reduced flooding, innovation and technology development, community development, and massive impacts on other sectors of the economy.

A second and crucial step would be to review the extant Nigerian Sustainable Banking Principles (NSBP’s), in line with current realities, and most importantly, by including the very topical ‘climate change’ as a principle.

With the UNGA 2024 scheduled to commence on 10th September 2024, the contributions of the banking sector to the global sustainability agenda, remain to be seen and felt. The moment of opportunity to reset the trajectory for sustainable economic growth is now, led by the CBN as the apex financial regulator, whose principal statutory mandate is to ensure monetary and price stability in Nigeria.

Owuamalam, a Nigerian Lawyer, Banker, Youth and Sustainability Champion, wrote from Abuja.