A recent report issued by the African Natural Capital Alliance (ANCA) and management consulting firm Oliver Wyman has highlighted the increasing significance of African regulators in addressing nature-related risks, in line with their responsibility of ensuring financial stability.
The report, titled “Improving the transparency of nature-related risks in Africa: the emerging regulatory agenda,” highlights how stakeholders in the financial sector, including regulators, are recognizing the potential risks to financial and economic stability posed by the depletion of nature.
Sub-Saharan Africa faces an urgent situation due to its heavy reliance on nature for its economies. Over 70 percent of people in the region depend on forests and woodlands for their livelihoods, compared to about half of the world’s GDP generated by industries reliant on nature.
Moreover, Africa’s rate of nature loss surpasses the global average. For instance, the Africa Biodiversity Intactness Index (BII), measuring species abundance on land, declined by 4.2 percent from 1970 to 2014, higher than the global BII decline of 2.7 percent during the same period.
East Africa alone faces an economic loss of over $11.3 billion (Ksh1.6 trillion) per year if it fails to protect its natural capital, which includes soil, air, water, and all living things essential for the region’s economy and well-being, according to a 2021 US-AID assessment.
Dorothy Maseke, the Nature Lead at Financial Sector Deepening Africa (FSD Africa) and ANCA, emphasizes that enhanced transparency of nature-related risks is crucial for effectively managing them. Individual financial institutions need visibility into nature-related risks in their lending, underwriting, and investment portfolios.
Similarly, regulators need this information to identify risk concentrations for regulated entities and assess their management.
Sandra Villars, a senior advisor at Oliver Wyman, notes that the Global Biodiversity Framework adopted by 188 governments in December 2022 aims to address biodiversity loss, restore ecosystems, and protect indigenous rights.
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This agreement prompts governments to introduce policies for managing nature loss, leading regulators to act and creating opportunities for them to proactively integrate nature into their regulatory frameworks.
African regulators stand to benefit from engaging with this agenda early and taking the lead in incorporating nature considerations into their practices.
Abraham Ongenge, Kenya Director of Finance KCB Bank, highlights the financial sector’s critical role in addressing climate change. As the largest source of investment capital globally, the financial sector can support sustainable projects and businesses by directing resources toward them.
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The report serves as a valuable resource for African financial institutions, offering clear guidance on integrating climate considerations into lending and investment decisions and emphasizing the importance of transparency and disclosure in addressing climate-related risks.
