By Chukwuma Umeorah
It is no longer news that Nigeria face severe environmental crisis, with extensive deforestation and desertification posing significant threats to its economic stability and citizen well-being.
According to the United Nations Office for Outer Space Affairs (UNOOSA), between 2002 and 2023, Nigeria lost over 178,000 hectares of natural forest, equating to a 95 per cent reduction in tree cover.
The country has an annual deforestation rate of 3.7 per cent, leaving 62 million Nigerians directly affected by its adverse impacts.
To tackle this grim reality, the Federal Government through the Nigerian Exchange Limited (NGX) is championing the creation of specialized green bonds to combat environmental degradation.
Rather than a one-size-fits-all approach, these bonds would provide dedicated funding for initiatives aimed at preserving forests, restoring degraded lands, and implementing sustainable land management practices. This initiative sees collaborative efforts from the federal government and the Securities and Exchange Commission (SEC), with significant contributions from various stakeholders.
Without a doubt, a number of the big entities operating in Nigeria are quoted on the NGX, and concerns have been raised around their operations and their impact on the environment, particularly regarding carbon emissions and the level of ESG compliance. Although compliance with ESG principles is not reserved for big firms or quoted companies alone, it also applies to smaller companies, businesses, and even government activities.
Issuance of specialized green bonds
Entities can explore the issuance of specialized green bonds specifically targeted at financing projects that address deforestation and desertification. These bonds could fund reforestation initiatives, agroforestry practices, and sustainable land management techniques, thereby directly tackling the root causes of these environmental challenges. While serving as a platform for issuers to adequately secure funding for these activities, it would also ensure transparency in their operations.
In 2016, NGX launched the Green Bond Market Development Programme in collaboration with the Debt Management Office (DMO) and the Federal Ministry of Environment, fostering innovative financial instruments aligned with Nigeria’s climate goals. This led to Nigeria’s maiden sovereign green bond issuance in 2017, valued at N10.69 billion, with subsequent corporate green bonds from entities like Access Bank and North South Power Company, mobilizing over $136 million for green projects.
The market is currently being tapped as several Nigerian states are actively exploring the issuance of green bonds, including Gombe. Its governor, Muhammad Inuwa Yahaya, in January 2024, approached the NGX to secure a N30 billion green bond from the Nigerian capital market aimed at addressing climate change challenges and fostering sustainability within the state. This decentralized approach highlights the increasing recognition of sustainable finance as a powerful tool for achieving sustainable development goals at both national and sub-national levels.
Development of robust carbon markets
Beyond green bonds, there is a need to deepen Nigeria’s carbon market, incentivizing forest preservation and land restoration. Through partnerships and collaboration with stakeholders and the Nigerian Climate Change Council, NGX is working on the framework for Nigeria’s carbon market, offering avenues for entities to invest in projects mitigating deforestation and desertification. Additionally, SEC has developed a comprehensive framework for sustainability reporting, highlighting that it may soon be mandatory for companies and corporates to align with global best practices.
Deputy Director Legal and Enforcement Lagos Zonal Office, SEC, John Briggs, in a recent engagement with market stakeholders, highlights the importance of these guidelines, noting, “What the Commission intends to do is enforce these reporting guidelines in line with the master plan, which is the national roadmap for the adoption of the ISSB sustainability standard.”
The Federal Government is also not resting on its oars in ensuring that the environment is safe. In 2021, Nigeria announced its net-zero commitment at COP26 in Glasgow. This was followed by the passing of Nigeria’s Climate Change Act 2021 and the subsequent establishment of the National Council on Climate Change (NCCC).
Similarly, the administration of President Bola Tinubu has continued the efforts to establish a $2.5 billion carbon market. In December 2023, at COP28 in Dubai, the President announced the creation of an Intergovernmental Committee on Carbon Market Activation.
This committee is tasked with developing a comprehensive blueprint for Nigeria’s carbon market, focusing on sustainable growth and significant emissions reductions and highlighting the importance of this carbon market in positioning Nigeria as a leader in green growth and industrialisation.
In response to the pressing need for global collaboration in addressing environmental challenges, the NGX has formed strategic partnerships with international organizations to amplify its impact. A notable partnership is with the Luxembourg Stock Exchange (LuxSE), a leading global platform for sustainable finance. This groundbreaking collaboration facilitates the cross-listing and trading of green bonds, enhancing their visibility and appeal to international investors. By establishing a strong platform for green finance, this partnership enables Nigerian green bonds to gain global recognition and attract crucial investments from environmentally conscious investors worldwide.
NGX CEO, Temi Popoola, underscored the significance of these partnerships, stating, “The limited flow of climate finance remains a major issue for the implementation of mitigation and adaptation actions in Africa, particularly Nigeria. NGX’s collaboration with internationally recognized organizations like the IFC is aimed at sharing valuable green finance experiences and best practices, as well as promoting the development of sustainable finance market segments to support various stakeholders.
