Getting Africa's financial sector ready to cope with climate risk is vital for a smooth transition to net-zero emissions and resilience, according to a new report published by three global institutions.
The report was launched on Wednesday, 10 November, by the African Financial Alliance on Climate Change (AFAC) at the COP26 climate conference.
The report is titled "Climate risk regulation in Africa's financial industry and related private sector initiatives." It is a joint publication by the African Development Bank, the Global Center on Adaptation, and the UN Environment Finance Initiative. It proposes action areas that will enable Africa's financial industry to implement global best practices on environmental, social and governance integration, climate-risk disclosure and green finance.
The study assesses the state of climate risk integration in prudential, financial, regulatory, and supervisory frameworks. It also identifies potential levers to stimulate deeper outreach and adoption of climate risk regulations in the financial system, especially in countries that are in the early stages of the process of integrating climate risk regulations in the financial sector.
In his opening remarks at the launch of the report, Anthony Nyong, Regional Director of the Global Center on Adaptation, Africa, voiced the sense of urgency for the sector. "Forty-nine banks in Africa have over $200 billion in lending across sectors with high-potential climate risks," he said.
Nyong was joined by panelists, Admassu Tadesse, President & CEO of Trade and Development Bank; Patty Karuaihe-Martin, CEO, NamibRe; Caesar Mwangi, CEO, ICEA Lion; and Jahan Chowdhury, In-Country Engagement Director for the NDC Partnership.
The panel agreed that the local financial industry must deliver solutions that fit African needs, learn from global best practices and increase collaboration among peers. They also noted that African Nationally Determined Contributions under the Paris Agreement are often disconnected from financial sector development plans. For that reason, regulators must pay closer attention to ensure that the industry aligns with the global landscape for climate action in order to create policy environments that can attract climate finance at scale.
To support this mission, the Financial Sector Development Department of the African Development Bank is developing the Africa Financial Sector Corporate Governance initiative to provide technical assistance to banks and regulators in building their capacity to identify, assess and manage climate risks.
"African banks are vulnerable to the increasing frequency and severity of climate change shocks unless regulators and lenders take action to mainstream these risks into their regulations and operations. By strengthening their capacity, banks will be able to build quality portfolios and mobilize climate funding, thereby increasing the flow of capital for adaptation as well as mitigation," said Sofiane Sekioua, Chief Investment Officer at the Bank.
Kevin Kariuki, Vice-President for Power, Energy, Climate and Green Growth at the African Development Bank, in his closing remarks, presented a win-win scenario. "Global alliances making net-zero pledges represent a large pool of liquidity, and as their membership grows, they will be looking for new frontiers for green investments. Africa has the natural assets needed to get to net-zero. To close the loop, the African financial sector has a catalytic de-risking role to crowd in external capital."
The African Development Bank will deploy resources within the framework of its ten-year Climate Change and Green Growth Strategy (2021-2030) to position Africa's financial industry at the forefront of the low-carbon and climate-resilient transition.
Please find the AFAC report here.
Contact:
Gershwin Wanneburg, Communication and External Relations Department, African Development Bank, email: g.wanneburg@afdb.org
