African financial institutions unprepared for nature-related risk: Report

By Andrew Wasike

NAIROBI, Kenya (AA) - African financial institutions are not ready for unforeseen nature-related risks, a new report warned Thursday.

The report from Vivid Economics by McKinsey and UK-funded financial sector development agency, FSD Africa, details a first-of-its-kind analysis conducted on three private banks and the financial systems in Zambia, Egypt, Ghana, Mauritius, Kenya, and South Africa, nature-related risks in agriculture and other fields such as extractives

It urged African financial institutions to shift to a nature-positive society as nature-related risks are comparable with climate-related risks.

“Financial institutions must institute new approaches to portfolio management that get ahead of changing regulation, of consumer preferences, and of the huge economic damage threatened by tipping points in critical natural systems. Getting this right could tip the scales between growth and decline for portfolios across the continent,” said Mark Napier, the CEO of FSD Africa.

The report found that financial institutions could benefit by adjusting investment strategies toward nature-positive outcomes. For example, action to protect and grow nature and changes in consumer demand could likely create high-growth opportunities in agricultural commodities such as alternative proteins.

It suggests that to effectively and holistically address environmental risks and opportunities, regulators and financial institutions could consider nature and climate-related risks together from the start as part of an integrated framework.

Critical understanding of the connections between nature, climate change and business can help financial institutions build resilience and capture opportunities presented by a net-zero and nature-positive future.​​​​​​​