Presumably, it is now widely and globally known fact that the major cause of climate change (via global warming) is the emission of greenhouse gases (carbon dioxide) from the heavy global exploitation of coal and fossil fuels in power plants, transportation, housing, agriculture, and industries – however, the major polluters are from developed nations from America, Asia, and Europe.
Climate change simply means a change of climate, which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere, and which is in addition to natural climate variability observed over comparable time periods.
Unfortunately, it has also been widely discussed that the most vulnerable nations to the climate change effects are in Africa, if not all the 54 African nations, particularly the economically disadvantaged and rural communities. In Africa, the rural and economically disadvantaged communities survive on seasonal agricultural practices such as crop farming and livestock husbandry, as primary livelihood.
They are largely deprived of the basic economic amenities that can help them adapt to climate change in order to protect their agro-centric livelihood. The arable lands in Africa are increasingly being taken over by flood from sporadic and unpredictable rainfall, and drought from rapid desert encroachment, which is grossly eroding the standard of living of surviving rural and economically disadvantaged populace, as livelihoods are gradually vaporising.
Women and children are now exposed to infectious diseases and increased malnutrition. Therefore, leading to societal tensions and conflicts resulting from ill-timed climate-induced migration of affected people to the closest communities and countries that are yet to be affected to seek refuge and create a subsistence living for household and self.
Climate Change is No Hoax
Let’s scan through Nigeria and Ghana with a Climate Impact Len. In Nigeria, its vast agrarian land space of 923,768 sq. km, spanning across different climatic regions is now understood to be highly vulnerable to climate change; a country where 90 percent of food production come from small rain-fed farms of few hectares. From inquiries, the climate change effects crippling the livelihoods of the Nigeria rural economies as well as increasing food insecurity are: gross desert encroachment and drought into the arable lands particularly in the northern regions in the country. Due to widespread practice of seasonal farming and food production, investments from the private sector are grossly affected by the drought that now extends from expected April and May to June particularly in the northern regions and incessant flooding and erosion in the southern regions, which condenses expected food production yield and forces investment failure.
In the case of Ghana, just 1 percent of its arable lands are under irrigation, and as a result, vast majority of the farmers rely on rainfall for food production. Therefore, making them highly susceptible to the rapidly looming climate change effects. Another case story of climate change effects is the current state of Lake Chad. Before the drought and desert encroachment, the Lake, its banks and its islands are a source of livelihood for nearly two million people from different regions in Nigeria, Niger, Chad, and Cameroun. They are also a food-exporting hub, playing a key role for food security of a hinterland with nearly 13 million inhabitants and two metropolitan centres – N’Djamena, the capital of Chad, and Maiduguri, the capital of the State of Borno in Nigeria. The entire basin is home to about 50 million people as of 2015. The rich biodiversity of the Lake has enabled small communities to develop productive activities based on fishing, agriculture, and livestock farming. The dynamism of the area is mainly based on a complex system, adapted to the variability of the environment and characterized by the articulation of: mobility, multi-activity, and multi-functionality.
The Lake has dried up by more than 95 percent, forcing migration and conflicts in the region and neighbouring regions and countries. Between 2017 and 2018 in Nigeria, there were sporadic killings of people in the northern states and few western states allegedly perpetrated by the herdsmen as they migrated cattle from the drought-affected zones to fertile regions for the sole purpose to establish new colonies for feeding their cattle. In the expected course of any unpredicted migration forced by climate change, conflict ensued as the herdsmen migrated to the fertile arable lands of indigenes and forcefully took over their primary livelihood for the sustenance of their own primary livelihood. These are similar realities in other countries in Africa.
From the uncovered environmental and societal nemesis threatening the existence of the entire universe and humanity, the urgency for the public sector and private sector to adopt and employ climate finance methodology has never been more profound to combat climate change.
Demystifying Climate Finance
Globally and also locally, the term “climate finance” is commonly used interchangeably for “green finance”, and vice versa. I have also applied the two terms interchangeably for common understanding, and to prevent any form of ambiguity.
According to the United Nations Framework for Climate Change Convention (UNFCCC), climate finance is defined as local, national or transnational financing, which may be drawn from public, private and alternative sources of financing.
Climate finance is critical to addressing climate change because large-scale investments are required to significantly reduce emissions as mitigation, notably in sectors that emit large quantities of greenhouse gases. Climate finance is equally important for adaptation, for which significant financial resources will be similarly required to allow countries to adapt to the adverse effects and reduce the impacts of climate change.
Climate mitigation projects entail activities that reduce the emissions that primarily contribute to climate change. Activities are: renewable energy technologies as preferred energy mix, low carbon mass transit transportation, afforestation, low carbon and energy efficient buildings or housing, and sustainable agriculture, to name a few.
Climate adaptation projects entail activities that can sustain the perilous effects of climate change from floods, drought, heat waves, and desert encroachment. Adaptation activities such as climate smart agricultural practices, sustainable water and waste management and recycling, flood defence, climate insurances, and predictive weather and climate conditions technologies.
I recently spent a week with different actors within the Nigerian financial system from multi-lateral development financial institutions, to commercial banks, investment banks, pension fund managers, insurance companies, and private equity firms, to promote and encourage the methodology and objective of climate finance in a bid to galvanize critical financial actors to contribute to the collective agenda of combating climate change.
Most financial actors particularly the commercial banks, insurance companies and pension fund managers initially understood climate or green finance as a whole new type of finance that they needed to learn from the basics. To their surprise, they were appeased when I simply explained that climate finance does not mean that they should alter their subsisting financing forms such as project finance, corporate finance, bonds, insurance products, guarantee instruments.
In a layman explanation of climate finance, I explained to the financial actors that, to truly engage in climate finance is just a change of mind-set and consciousness in the kind of underlying assets and transactions that they provide funding for. Climate finance is not requesting the financial actors to relax due diligence criteria in order to provide funding for bankable climate impact and resilient transactions and projects. Just to cite few scenarios where financial actors can easily engage in climate finance.
Starting with Agriculture. Financing agriculture projects in the light of climate finance entails providing funding for sustainable or climate smart agriculture projects or businesses such as Greenhouse farming – food production with very little or zero use of soil without the use of fossil fuel powered heavy duty equipment like tractors and combine harvesters; solar irrigation farming that is not reliant on natural course of rainfall that has become unfavourable.
In the industries sector, financial actors should encourage (and be willing to provide the required funding to implement) the manufacturers to adopt the use of clean energy such as gas, or renewable energy to powered their factories via a captive power as a service arrangement with an experienced clean energy provider to avoid high acquisition cost, instead of providing funding for the acquisition of fossil fuel powered generators that emit carbon dioxide. Industries should also be encouraged to engage in comprehensive energy audit at the point of major assets replacement in order to factor in energy efficiency measures that will drop the energy demand of the factory, which in return reduces the energy generation capacity that is required to power the factory, which also translates to significant reduction in operating overheads.
The Federal Republic of Nigeria signed the Paris Agreement in 2015 committing to achieve its Nationally Determined Contribution (NDC) Targets by 2030 towards combating climate change. Since the Paris Agreement and the NDC targets went into effect in 2015, the primary factor constraining the country’s NDC implementation is lack of access to funding from the public and private sectors. It is critical to state that without constant flow of funds locally, and from the international markets, it would be very difficult for Nigeria to achieve its NDC targets by 2030.
My conclusion is that the required funding flow to enable Nigeria achieve its NDC targets by 2030 is available locally and from the international markets via bonds, guarantee instruments, commercial debt, concessional loans, equity and insurance products. What is required is for both financial actors and non-financial actors to understand the commercial viability and sustainability for their enterprises, and the positive social impact on the larger society, in conducting their usual investment and operating activities and decisions in a climate resilient and impact manner.
My next article will continue to highlight the simple-to-implement climate impact projects and activities across different sectors that are commercially viable to all parties involved.
.Adeojo (PhD), is the Managing Director, SMEFUNDS Capital Limited