A new report from the collaborative forum of African financial institutions, the African Natural Capital Alliance (ANCA), and management consulting firm Oliver Wyman has underlined the growing importance of African regulators acting on nature-related risks to maintain financial stability.
The report “Improving the transparency of nature-related risks in Africa: the emerging regulatory agenda” outlines how financial sector stakeholders, including regulators, increasingly recognise that the depletion of nature poses risks to financial and economic stability.
The report clarifies that the issue is particularly urgent for sub-Saharan Africa as its economies depend disproportionately on nature. For instance, over 70% of people in the region depend on forests and woodlands for their livelihoods, compared to about half of the world’s GDP generated in industries that rely on nature. The rate at which character in Africa is lost exceeds the global average. For example, Africa’s Biodiversity Intactness Index (BII) score – which measures the number and abundance of species on land -declined by 4.2% between 1970 and 2014, considerably higher than the global BII score decline of 2.7% over the same period.
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In East Africa alone, failure to protect natural capital as a whole (including its stocks of soil, air, water, and all living things, which underpin the region’s economy and human well-being) would result in an economic loss of more than $11.3 billion a year, according to an assessment commissioned in 2021 by USAid.
Dorothy Maseke, the Nature Lead at FSD Africa and ANCA, says:
“Enhanced transparency of nature-related risks is fundamental to managing them effectively. This is the case for individual financial institutions, which need visibility of the nature-related risks in their lending, underwriting, and investment portfolios. And it is also the case for regulators to identify the nature-related risk concentrations for regulated entities and assess whether they are managed effectively.”
She adds that African regulators embracing this complexity is so important because the continent is disproportionately exposed to nature-related risks.
Sandra Villars, senior advisor at Oliver Wyman, says:
“The Global Biodiversity Framework (GBF), which was adopted in December 2022 by 188 governments across the world, aims to address biodiversity loss, restore ecosystems, and protect indigenous rights. This landmark agreement prompts governments to introduce policies to manage nature loss, leading to regulators having to act and highlighting the opportunities for regulators to do so proactively. African regulators could thus benefit from engaging with this new agenda early and being at the forefront of integrating nature into their regulatory regimes.”
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Abraham Ongenge, KCB Bank Kenya Director of Finance, says: ‘The financial sector has a critical role in addressing climate change. As the world’s largest source of investment capital, we can support it by channelling the necessary resources towards sustainable projects and businesses. The report is a valuable resource for financial institutions in Africa. It provides clear and concise guidance on integrating climate considerations into lending and investment decisions, highlighting the importance of transparency and disclosure in addressing climate-related risks.
As summarised in the report, there are four simple steps regulators can take as part of a nature-related disclosure roadmap while policy frameworks are being finalised in their jurisdictions:
- Engage with finance and environment ministries to align their regulatory approach with the government’s policy agenda on nature
- Assess internal capacity and act on gaps
- Assess the ability for action among regulated entities
- Engage in voluntary nature networks such as the Sustainable Insurance Forum (SIF), the Network for Greening the Financial System (NGFS), the African Natural Capital Alliance (ANCA), and the Task Force on Nature-Related Financial Disclosures (TNFD)
