Head of Climate Change and Energy West Africa, British High Commission, Sean Melbourne, speaking at the launch of the Chamber Carbon Project by the Abuja Chamber of Commerce and Industry on May 31, 2022, explored the role of business in combatting climate change, saying that businesses will need to scrutinise their business models to ensure they are prepared as they can be from the risks of climate change but also the opportunities of a green industrial revolution
At the end of last year, COP26 concluded with agreement by all Parties to the historic Glasgow Climate Pact. This Pact, combined with increased ambition and action across mitigation, adaptation, and finance, means that the goal of limiting global temperature rise to 1.5°C remains in sight.
But it will only be delivered with concerted and immediate international efforts. And that’s where the vital role of business comes in.
Research shows that bold climate action could deliver at least $26 trillion in global economic benefits between now and 2030. It could also generate over 65 million new low-carbon jobs by 2030, a number equivalent to the combined workforces of the UK and Egypt today; avoid over 700,000 premature deaths from air pollution compared with business as usual; and generate an estimated $2.8 trillion in government revenues in 2030 through subsidy reform and carbon pricing alone.
Not that the main goal of business is to boost government coffers of course.
The key point I want to emphasise is that the transition to Net Zero will require unprecedented changes in how we invest, measure risk and assign value to assets. Furthermore, greening the global financial system is crucial to ensure that the risks from climate change, and the opportunities of transition, are systematically embedded and priced into mainstream decision making.
This is a major challenge. But it is also the greatest industrial opportunity of our time. The transition to a sustainable and resilient economy will be one of the most capital-intensive transitions in our history. A report from Ricardo Energy & Environment prepared for the UK Committee on Climate Change, estimated that the potential global market size for low carbon financial services could reach £280 billion per year as soon as 2030, and £460 billion by 2050.
The global shift to a low carbon economy will transform many sectors, including power, transport, construction, many industries and agriculture. And as the biggest economy in Africa and by far its most populous, the low carbon market opportunities in Nigeria are significant. Nigeria’s economy is expected to undergo massive change over the next two decades.
There’s a crucial opportunity to act now to achieve low carbon resilient growth and avoid carbon lock-in. According to the International Finance Corporation (IFC) Nigeria’s estimated climate-smart investment potential is over $104 billion through to 2030 in selected sectors.
The most obvious opportunity is perhaps in the renewables sphere but there are many others too. Access to energy is key to promoting inclusive economic development, poverty alleviation, social equity, and advances in health and education. Off-grid renewables offer the most cost-effective solution to bring energy to people who are not yet connected to the grid. As such these technologies can contribute significantly to building climate resilience in poor rural and urban areas.
Responsible waste management and support for the bio circular economy is another growth area, and I know the Abuja Chamber has supported and is committed to projects in this area.
Nigeria’s financial sector is ahead of the curve in many respects: Nigeria was the first African country to issue sovereign green bonds, back in December 2017, and several Nigerian companies have since launched corporate green bonds.
Thirty-four national and international banks, including 26 Deposit Money Banks, have signed the Nigerian Sustainable Banking Principles and are committed to applying these principles. Banks are also following dedicated guidance notes and sector guidelines, which are based on international standards and good practice. According to the IFC, the country has induced a comprehensive change in behaviours and mind- sets towards sustainable finance.
But relative to its populace and the size of its economy, Nigeria is not making the most of international climate finance. If it was, perhaps we would see the truly transformative approach Nigeria and quite frankly the world needs if sustainable development and climate goals are to be reached.
“Making markets Work” is a key focus of UK international climate finance. We want to reduce costs and risk perceptions of low carbon investments by providing concessional or market-rate finance to help projects reach financial close and demonstrate profitability.
Recognising that Paris Agreement targets cannot be met by governments and public money alone, our goal is to enable ‘clean and green’ private investments at the scale and pace required to address climate change and pollution.
That is why we are putting the full weight of the UK’s finance institutions – British International Investment, UK Export Finance and other new mechanisms – behind the effort to leverage investment into Africa. In February this year, British International Investment pledged £10 million alongside Nigerian credit guarantee firm InfraCredit, to help mobilise domestic pension and insurance investments and reduce risk for projects targeting off-grid and low-carbon ventures. More generically, we are developing new green financial products to enable African companies to access capital markets in the City of London.
We are keen to work with the Nigerian Government, and to strengthen our partnerships with business and civil society here, to develop the right enabling environment for low-carbon project proposals at scale to succeed, and to enable more Nigerians to tap into green finance.
If you will indulge me a few minutes more, I am keen to highlight some specific examples of where innovative UK firms are forging a lower carbon sustainable future, in partnership with Nigerian companies and other entities.
UK company Konexa, for instance, named Energy Company of the Future by the African Development Bank, are pioneering a model that they hope to take across Africa and here in Nigeria. They aim to demonstrate that if you provide 24-hour power through renewables with modern billing and metering systems and good service, then customers will pay. They are starting in Kaduna where major businesses will shift their model to low carbon energy. In due course at least 30,000 domestic customers will be connected.
Another company, Pyrogensys is working with universities on a biomass energy model which can convert cassava peel waste to biofuels and energy and will be rolling this out in Oyo.
Regen, another UK firm, uses artificial intelligence models, and provides satellite data and SMS information to farmers to enhance land regeneration activities. Working with UKAid, it has on-boarded 30,000 farmers of sesame, hibiscus and groundnuts in Kano and Jigawa and is sending them key information on soil regeneration through organic farming of nitrogen fixing crops. This model uses less inputs so saving carbon and money. The aim is to also generate funding through accredited carbon credits which will be sold to emitters. A significant portion of this funding will then flow back to the farmers to compensate them for the slightly higher costs of the model.
The UK is also supporting firms with new models of rice growing – alternate wetting and drying and earlier planting of seedlings – meaning less fertiliser, water and seeds – saving money but also the volume of methane emitted.
And we are looking at growing fibre crops – industrial hemp and kenaf – a substitute for cotton which is damaging to the environment when grown and processed. These crops can be blended with other fibres for material or used on their own for bag production. By 2025 most of Africa will ban the export of vegetables in plastic bags so it’s important to be prepared.
At COP26, adaptation and resilience finally received the attention it deserved, and will also feature prominently at COP27 in Egypt. And rightly so given some global warming is now locked in. The UK is supporting Lagos in preparing mitigation and response plans for flooding which in turn will reduce insurance premiums for business.
We are also working on new types of insurance products. Already agricultural flood insurance is available using parametric insurance via brokers such as Pula – which pays out as soon as the weather event happens, without the need to quantify losses.
New floods insurance products are key for other sectors. The whole insurance sector will need to adapt from dependency on vehicle and homes insurance given the impact climate change will have on both these sectors.
To conclude, climate change is a global challenge that affects us all. Protecting our environment for the next generation is vital for our common economic prosperity.
For the market economy to maintain its legitimacy it needs to deliver fair outcomes and meet social needs. The mighty asset management industry that provides the underlying liquidity to support the market economy must prove its worth and deliver real change in the face of the global climate emergency.
The financial services industry will be in the vanguard of the battle to come, but all businesses, large and small, will need to scrutinise their business models to ensure they are prepared as they can be from the risks of climate change but also the opportunities of a green industrial revolution.
With commitment and determination, working together, we can provide clean energy at scale, driving the sustainable use of natural resources, protecting the rainforests, and restoring degraded ecosystems. Working in close partnership, we can build more resilient cities and help the most vulnerable to adapt to the impacts of climate change.