Regulatory state and private sector initiatives on climate risks in the African financial sector

This session will share key insights from the flagship report “Climate risk regulation in Africa’s financial sector and related private sector initiatives” that was commissioned by the African Financial Alliance on Climate Change (AFAC) in partnership with the Global Center on Adaptation and UN Environment Financial Initiative (UNEP FI), and authored by McKinsey & Company.

Event description:

The global architecture for climate and green finance has matured considerably over the past decade, with the emergence of a series of high-level groups including the Task Force on Climate Risk and Financial Disclosure (TCFD), The Network of Central Banks and Supervisors for Greening the Financial Systems (NGFS), and more recently the Coalition of Finance Ministers.

In light of COP26, the signatories of the Glasgow Financial Alliance for Net-zero (GFAN) represent over $88 trillion of asset under management, offering a unique pool of liquidity that needs to find risk-adjusted returns and new revenue opportunities. But African institutions remain poorly represented in financial sector groupings making pledges. It is therefore critical that they engage early on and act in parallel their global peers to co-create mechanisms that are fit-for-purpose for the fast-evolving African financial ecosystem and markets.

Despite making a marginal contribution to greenhouse gas (GHG) emissions, African economies face a much larger exposure to climate change risk with both physical and transition risks at play and the prospect of significant knock-on effects on credit markets and loan portfolios. As such, there is a growing need for domestic actors, such as regulators, supervisors, underwriters and central banks to support and guide the financial system toward greater resilience against climate risks.

The creation of an enabling regulatory environment for green finance and the appropriation of global best practices domestically could gear much-needed capital toward the implementation of Africa’s Nationally Determined Contributions (NDCs), which present a $3 trillion investment opportunity by 2030 under the Paris Agreement.

This session will share key insights from the flagship report “Climate risk regulation in Africa’s financial sector and related private sector initiatives” that was commissioned by the African Financial Alliance on Climate Change (AFAC) in partnership with the Global Center on Adaptation and UN Environment Financial Initiative (UNEP FI), and authored by McKinsey & Company.

In particular, the report sheds light on:

• The state of integration of climate related risks in the financial system on the African continent focusing on ten countries.
• The financial stability architecture of the selected country case-studies, and
• Regulations on climate related risks by regulatory bodies and private sector initiatives.

It also highlights current challenges that are hindering the integration of climate risk by financial sector authorities and derive recommendations for potential areas of support.

The event will be convened both in person and online. It will be live streamed as part of a virtual conference on the Africa pavilion’s web-based event platform.