Financial Sector Deepening Africa (FSD Africa) will be quantifying changes in credit risk under different nature and climate scenarios for African central banks this year, the Kenya-based development agency’s director of risk, Kelvin Massingham, told Responsible Investor.
Massingham was speaking to RI after FSD Africa was selected to deliver the UK government’s Nature Positive Economy programme, alongside the UNDP’s Biodiversity Finance Initiative (BioFin).
Established in 2012, FSD Africa is a non-profit company funded by the UK’s Foreign, Commonwealth and Development Office, which aims to promote financial sector development across sub-Saharan Africa.
The aim of the £7.2m Nature Positive Economy initiative, which was announced at COP15 in Montreal last year, is to support the transition of developing countries to nature-positive economies.
Massingham explained that FSD Africa will collaborate with six unnamed central banks in some of Africa’s largest economies and hopes to build upon work already done by the Dutch and French central banks.
Last year, the non-profit used publicly available central bank data to do nature stress tests for Zambia, Ghana, Kenya, South Africa, Egypt and Mauritius.
FSD Africa will also collaborate with the World Bank and BioFin to create a working group focused on central bank stress testing regarding nature, Massingham said.
In particular, it will centre on sharing learnings across geographies, creating knowledge briefs, and feeding into the work of global coalitions such as the Network for Greening the Financial System (NGFS).
As the group has not yet launched, no banks have formally joined.
FSD Africa also works with other players in the financial sector. It is currently conducting pilots of the Taskforce on Nature Related Disclosures (TNFD) with six entities in the banking and insurance sectors, and will look to increase that to 20 this year.
Massingham said: “During initial piloting of TNFD, when the financial institutions did their assessment, although they of course found nature to be a material risk for their portfolios, they all identified it as a major opportunity.”
Specifically, some banks are apparently looking at the potential for biodiversity bonds.
FSD Africa is also working with financial regulators in Kenya, Nigeria, Ghana and Egypt on how they can signal to their markets that nature-related financial disclosures are coming, in line with the commitment made by signatory countries in Target 15 of the Kunming-Montreal Global Biodiversity Framework.