This is an extract from a recent report “Landscape of Climate Finance in Nigeria 2025” by Climate Policy Initiative.
In 2021/22, USD 2.5 billion of public and private capital—from both domestic and international sources—was invested in climate action in Nigeria. This makes for an annual climate finance gap of USD 27.2 billion. While Nigerian climate finance grew by 32% in 2021/22, up from USD 1.9 billion in 2019/20, USD 2.5 billion represents just 8% of the estimated USD 29.7 billion needed annually for mitigation and adaptation until 2030. Nigeria’s climate finance gap is likely even larger given that the existing needs estimates do not cover prospective loss and damage costs, while climate impacts only promise to compound over time, leading to spiraling costs of inaction.
Nigeria was the third-largest recipient of tracked climate finance in Africa and accounted for almost a quarter of Western Africa’s regional climate finance in 2021/22. However, tracked flows were less than 1% of national GDP; almost equivalent to the total cost of the country’s foreign debt servicing in 2021/22; and minimal relative to government fossil fuel subsidies of USD 9.3 billion in 2022 alone. Moreover, (median) estimates indicate that the cost of loss and damage associated with the flooding in 2022 was in the range of USD 6.7 billion. The incidence of adverse (chronic and acute) climate events, and the associated costs of inaction, are only set to increase with insufficient action on both mitigation and adaptation.
Sources and Intermediaries
Public actors continue to provide the majority of climate finance in Nigeria, contributing USD 1.8 billion compared to just USD 760 million from private actors. Multilateral DFIs are the largest source of the country’s climate finance.
Public Finance
Public actors committed USD 1.8 billion in climate finance in 2021/22, a 20% increase from USD 1.5 billion in 2019/20. Of this public finance, 65% was provided on concessional terms.
Multilateral DFIs continued to be the largest provider of public climate finance in Nigeria, accounting for 67% of the public total. Since the COVID-19 pandemic, multilateral DFIs have increased the amount and flexibility of their financial support, offering new products like working capital loans, simplifying the approval and disbursement process, and emphasising DFI collaboration for African countries, including Nigeria. In 2021/22, multilateral DFI climate finance to Nigeria reached USD 1.2 billion, up by 45% from USD 0.8 billion in 2019/20. Multilateral DFIs channeled climate finance almost exclusively as debt—low-cost project debt (61%) and project-level market rate debt (39%)—most of which was directed to the AFOLU sector (61%) followed by water & wastewater (17%) and other cross-sectoral uses (14%) including policy support and capacity building.
Donor governments and bilateral DFIs followed as key providers, contributing USD 224 million and USD 217 million, respectively. Bilateral DFIs also largely channeled finance as low-cost project debt accounting for 97% of their flows. In contrast, 89% of climate finance from donor governments was in the form of grants, which were directed toward policy, national budget support, and capacity building. In 2021/22, top donor countries included France, the US, and Japan, who together contributed 18% of total public climate finance in Nigeria. In addition to international flows from donor governments, the Nigerian government also contributes its own budgetary resources to climate action. While several states are rolling out climate budget tagging, to date there is no institutionalized, federal-level climate budget tagging system to support comprehensive assessments of domestic public climate finance.
Multilateral climate funds provided less than 1% of public climate finance in Nigeria, or USD 5 million. In recent years, Nigeria has accessed funding from the GEF, CIF, and GCF. It is also set to increase engagement with the GCF via the Development Bank of Nigeria (DBN), which was recently accredited for access to funding in the range of USD 50 million to USD 250 million. This makes the DBN the only direct access entity to the GCF in Nigeria, which will allow it to do on-lending, blending, and project management in relation to mitigation and adaptation investments. The recent accreditation is highly relevant for MSMEs—which are the primary focus of DBN and constitute 97% of businesses in Nigeria and 45% of national GDP—since it will help facilitate their access to climate finance. Nonetheless, with only one national accredited entity to the GCF, more needs to be done—via capacity building—to facilitate direct access to international climate finance in Nigeria.
Private Finance
Private climate finance increased from a low base of USD 0.4 billion in 2019/20 to USD 0.8 billion in 2021/22, accounting for 30% of the country’s climate finance landscape. Despite being higher than the African average (18%), this amount is minimal given Nigeria’s climate finance needs and the potential private sector opportunities.
Corporations provided the majority of private climate finance in Nigeria at USD 496 million, or 65% of the private total. This compares favorably with continent-wide shares, wherein corporations provided 34% of total private climate finance in Africa. In Nigeria, tracked corporate flows were entirely channeled as (balance sheet) equity financing towards solar PV power and heat generation. This includes a large corporate financial commitment for the Gezhouba Lagos Solar PV Park. Households/Individuals also accounted for a share of solar PV investment in Nigeria, for a total of USD 65 million, or 9% of the private total. Philanthropic foundations provided USD 60 million in grant funding, the majority of which (72%) was for adaptation initiatives in the AFOLU sector. Despite Nigeria’s substantial pension fund market, institutional investors contributed less than 1% of tracked private climate finance.
To bridge this gap, institutional investors need access to de-risking mechanisms or blended finance structures that improve the risk-return profile of their climate investments; this is especially important in the context of infrastructure, which aligns well with the long-term investment profile of institutional investors such as pension funds. Indeed, evidence indicates that pension funds face various (real and perceived) barriers to investing in climate-smart infrastructure, including technology risk, navigating local and national regulations, and a lack of investment-ready, bankable projects. Tracked flows from commercial financial institutions are equally low (less than 1% of the tracked private total). For commercial FIs, which currently engage in minimal climate-related lending in Nigeria, there is a need for raising awareness of climate-aligned investment opportunities as well as capacity building such that they can assess and price climate risk and the potential for stranded assets into all new investment decisions.
Blended Finance
Blended finance—using catalytic (concessional) capital from public or philanthropic sources to mobilize additional private sector investment—will be essential for delivering on Nigeria’s NDC, given the shortfall in public climate finance (both domestic and international) and the current low participation of private sector investors. The Nigerian Climate Finance Accelerator (CFA) initiative was a step towards this, seeking to scale private investment into NDC-aligned projects; however, it exposed key gaps in relation to skilled transaction intermediaries to do deal structuring.
Actors must use limited concessional resources strategically to crowd in more risk-averse capital from private actors who would not otherwise invest in mitigation or adaptation. OECD data indicates that donor governments and multilateral organizations mobilized USD 148 million in 2021/22 for climate action in Nigeria (across all sectors), largely through credit lines (36%) and direct investment in companies and special purpose vehicles (31%) as well as guarantees (19%).
Uses and Sectors
Mitigation continued to dominate Nigeria’s climate finance landscape (48% or USD 1.2 billion), largely due to investment in solar PV. Adaptation accounted for slightly less than one third of the country’s total climate finance despite spiraling climate risks
Mitigation: Renewable energy investment—mostly solar PV—dominated the Nigerian mitigation landscape (68% of the mitigation total), while there was also a significant uptick in low-carbon transport investments. Other key mitigation sectors—notably buildings, waste, and industry—are being left behind, receiving little to no finance in 2021/22. Despite the relative dominance of energy mitigation finance, energy access remains a critical challenge for Nigeria. Currently, Nigeria’s import dependency for renewable technologies such as solar panels and energy storage systems results in relatively high costs for related projects. For the growth of renewable energy, it is imperative to create a strong enabling environment with the right incentives, as well as kickstarting demand. Given the shortcomings of Nigeria’s electricity grid, and the country’s positioning in a high sunshine belt, decentralized (solar-powered) off-grid solutions offer high potential for closing the energy access gap, particularly among last-mile, rural communities. Other key action points for mitigation include methane abatement by reducing gas flaring, which is highly prevalent in Nigeria. Industry and waste continued to receive negligible mitigation finance despite their contribution to emissions in Nigeria.
Adaptation: Despite escalating climate change impacts across the country and the associated costs to GDP, adaptation finance saw limited growth in 2021/22, reaching USD 735 million, or only 6% of Nigeria’s annual adaptation finance needs. Half of Nigeria’s adaptation finance was channeled to the AFOLU and fisheries sector (USD 371 million). Water and wastewater adaptation finance grew significantly in 2021/22 but remains minimal in absolute terms (USD 164 million) and relative to the scale of water stress throughout the country. Little-to-no adaptation finance was tracked for climate-resilient infrastructure in the key sectors of energy systems, buildings, transport, and industry.
Dual Benefits: Finance tagged as delivering dual benefits—for both adaptation and mitigation—accounted for 20% of Nigerian climate finance, or USD 497 million. Investing in activities with dual benefits is a means of ensuring effective use of scarce climate finance, simultaneously reducing emissions and building adaptive capacity. Most dual benefits finance in Nigeria (80%, or USD 393 million) was for the AFOLU and fisheries sector, reflecting the opportunities for climate-smart agriculture and sustainable resource management, including afforestation and reforestation activities.
Instruments
International public climate finance—which accounted for 68% of Nigeria’s total climate finance in 2021/22—was largely channeled as concessional (54%) and non-concessional (35%) debt. Heavy reliance on debt to finance climate action raises concerns, given the country’s already-substantial debt burden. At a more granular level, mitigation finance is channeled via a wider range of financial instruments, largely reflecting the commercial maturity of renewable technologies, compared to adaptation, which is dominated by public debt (78%).
Mitigation Instruments: Investments by a mix of public (49%) and private (51%) actors contribute to a relatively wide range of mitigation finance instruments in Nigeria. Equity accounted for 47% of total mitigation finance, largely reflecting corporates investing in renewable energy. Meanwhile, mitigation debt financing was spread across a wider range of sectors; primarily energy systems as well as transport and AFOLU. Green bonds are gaining traction for scaling climate action. Beyond traditional financing structures, more innovative solutions can be explored.
Adaptation Instruments: Adaptation finance continued to rely heavily on debt, underscoring the need to explore innovative financial instruments to stimulate investment in resilience. Nigeria faces a large debt burden of USD 91.5 billion, with external debt servicing costs amounting to USD 2.8 billion in the first half of 2024. Against this backdrop, exploring innovative financing options that do not worsen debt distress will be important for adaptation in Nigeria.
Access the report here
