CBN Mulls Regulations against Climate Risks to Drive Sustainable Banking Principles

•Says 2005 banking sector recapitalisation enabled Nigeria to cope with global financial crises

Dike Onwuamaeze

The Central Bank of Nigeria (CBN) yesterday,  disclosed that it was considering introducing regulations that would strengthen the practice of sustainable financial principles in the Nigerian banking system.

This was disclosed yesterday, in Lagos, by the Governor of CBN, Mr. Yemi Cardoso, who was represented by the Director, Financial Policy and Regulation, CBN, Mr. Haruna Bala Mustafa, at the Nigeria Sustainability Summit 2023 with the theme “Crisis Resilience and the New Nigerian Economy.”

The summit was organised by Access Holdings Plc in partnership with the European Sustainable Development Organisation (EOSD) and Financial Nigeria.

Mustafa, said that, “there is an ongoing effort to come up with regulations around climate related risks and I think it mirrors the trend globally.

“It is not yet official but we are mulling the idea of coming up with a regulation around climate risks to strengthen it and align it to national determined contribution and the energy transition plan.”

He said Nigeria commenced the observation of sustainability banking principles 10 years ago as a voluntary initiative, adding that, “in the context of the prevailing circumstances that we now face, and in the context of the existential threats that climate risks pose to the stability of the financial system, and also in the interest of long term sustainability of the industry, I think it is just trite logic that the central bank will put its feet on the gas pedal in terms of that tectonic shift that we expect to see from a voluntary effort.

“We want to take things a notch higher by way of regulation. So, there is an ongoing effort to come up with regulations around climate related risks. It is not yet official but I think it mirrors the trend globally.”

According to him, the CBN’s commitment to sustainability banking is total, which it viewed as a matter of strategic imperative.

“Back in 2012, the CBN lead the charge in terms of statement of commitment to nine sustainable banking principles, which we have been implementing.

“More recently we are looking to taking things to a much higher level by incorporating climate related considerations in those principles that are part of the global drive toward cleaner energy and net zero commitments and so on. We are cueing in to that global effort to evolve a better future for this and coming generations,” he added.

The central bank also said there was an obvious need to increase the current capital requirement of N25 billion for owning a banking licence, which has reduced significantly from about $200 million in 2005 to about $25 million currently.

Mustafa said: “The traditional function of capital is to cushion and absorb unexpected losses. It was as if the governor of CBN in 2005 saw tomorrow because just two years down the road the global financial crisis hit. But for that proactive move the second round effect of that crisis would have wiped off a number of banks and that would have had deleterious consequences for the stability of the Nigerian banking system.

“Now in 2023, here we are in the face of prevailing macroeconomic challenges that we currently face and to be able to cushion unexpected losses and support the aspiration of the current government to build $1 trillion economy that is rooted in sustainable principles, we need to take a second look at the capitalisation of our banks.”

In her welcome address, the Head, Group Sustainability, Access Holdings Plc, Ms. Omobolanle Victor-Laniyan, said the summit would address the imperative of fostering sustainability across Nigeria’s private sector.

Victor-Laniyan said: “The private sector has a pivotal role to play, leveraging its resources, innovation, and influence to drive positive change. It is in this spirit that we convene the Nigerian Sustainability Summit, to harness the expertise, resources, and innovation within our reach.

“Today, we come together under the theme, ‘Crisis Resilience and the New Nigerian Economy.’ This for us serves as a call to action, urging us to collaborate, and devise strategies that will position Nigeria at the forefront of the charge towards achieving Africa’s sustainability objectives.

“The private sector, with its dynamism, influence, and commitment, holds the key to driving meaningful change that will positively impact the environment, society, and our economy.”

In his keynote speech, Chief Executive Officer of EOSD, Mr. Arshad Rab, envisaged that sustainability certified financial institutions and their counterparts in corporate Nigeria should be the organisations to provide leadership in building an economy that delivers opportunities for Nigerians and “enable Nigeria move from conventional development to 21st century high speed, high innovation economic growth.”