SEC urges improved capital markets to address climate finance gap in Africa

The Securities and Exchange Commission (SEC) is stressing the importance of utilizing capital markets to address the significant funding shortfall for climate adaptation efforts in Africa. Emomotimi Agama, the director-general of SEC, highlighted the urgency of this matter during a discussion on “The Role of Capital Markets in Closing Financing Gaps for Climate Adaptation” at the African Development Bank’s annual general meeting.

Agama emphasized the necessity for project developers and private sector entities to present well-structured, sustainable projects with strong environmental and social metrics to attract funding for climate adaptation. He underscored that African capital markets could play a crucial role by harmonizing standards, integrating markets, and adopting the International Sustainability Standards Board (ISSB) framework.

The director-general acknowledged the disparity between Africa’s minimal contribution to global greenhouse gas emissions and its disproportionate exposure to climate-related losses, estimating an annual gap of up to $100 billion for climate adaptation by 2030. The continent’s climate finance needs are projected to reach $500 billion by 2030, requiring substantial investments in mitigation and adaptation measures to fulfill Nationally Determined Contributions.

Agama painted a vivid picture of the severe climate impacts faced by Africa, from droughts and food insecurity in the Sahel to vanishing fish stocks in the Gulf of Guinea and increased flooding in urban centers like Lagos and Nairobi. He pointed out the pressing need for substantial investment in climate-resilient infrastructure to counter these challenges.

Highlighting the inadequate flow of funds for adaptation, Agama called attention to Nigeria’s successful launch of its sovereign green bond, demonstrating the potential for local institutional capital to be mobilized for climate projects. The adoption of ISSB standards provided a platform for transparency and comparability in sustainability reporting, positioning Nigeria as a leader in the adoption of global sustainability disclosure standards.

Agama stressed the critical role of capital markets in addressing three key challenges faced by adaptation finance: perception issues, data and measurement gaps, and risk aversion. He urged deeper regional integration, harmonization of environmental, social, and governance (ESG) standards, and the deployment of credit enhancements to support early-stage climate investments.

In conclusion, Agama called on stakeholders, including regulators, investors, governments, standard-setters, and development partners, to collaborate in strengthening African capital markets to finance the resilience of the continent and its people. By aligning standards, integrating markets, and mobilizing institutional capital, he believes African nations can build a climate-resilient future that benefits all citizens.