Project – The impact of green financing on sustainable economic development in Nigeria

CHAPTER ONE

INTRODUCTION

Background to the Study

Sustainable development is now a mantra for which every country is striving for it and green finance which is advancement in financial activities harmonized with environmental protection and ecological balance is considered as the foremost solution for it. The contemporary global landscape is marked by pressing environmental challenges, among them are climate change, ecological imbalances, and biodiversity loss, whose reverberations are felt across economies and political realms. These challenges, acknowledged as imminent threats to humanity’s long-term progress and survival, have garnered attention from experts and institutions (Abuatwan, 2023; Jha & Bakhshi, 2019). In response to this critical juncture, the ascent of green financing (GF) has proven indispensable.

Green finance is a financial service that promotes sustainable growth and addresses climate change by funding environmentally sustainability projects (World Bank 2022). This dynamic financial approach not only offers crucial support for initiatives in clean technology, renewable energy, energy-efficient infrastructure, and transportation projects but also serves as a strategic instrument to mitigate the far-reaching impacts of these ecological concerns. Its fundamental objective is to foster harmonious and enduring growth that encompasses both economic and ecological advantages (Liu et al., 2023).

The adoption rate of Green Finance is growing at an exponential rate. However, the Global Green Finance report Barry (2022) proposed that green finance, encompassing categories like green bonds, loans, venture capital (VC), Private Equity (PE), initial public offerings (IPOs), and acquisitions, surged beyond $720 billion. Notably, green bonds reached $522.7 billion in 2021, constituting over half of such financing. Green loans surpassed $135 billion, with strong demand propelling double-digit growth for select financial firms, while VC, PE, green tech acquisitions, and IPOs contributed around $63.2 billion (Abuatwan, 2023).

Therefore, recent years have seen a noteworthy surge in the issuance of green bonds, reflecting an amplified interest in funding sustainable endeavors and combatting climate change (Zheng et al. 2021). The imperative of cultivating an effective green economy holds particular significance in less developed nations especially in Nigeria, serving as a catalyst for both sustainable development and economic advancement (Liu et al. 2020; Liu & Wu, 2023).

In the pursuit of addressing challenges emanating from swift population growth, poverty alleviation, and wealth inequality reduction in Nigeria, green financial solutions emerge as transformative tools. Therefore, championing ecologically sound alternative energy projects that optimize resource usage, these solutions contribute to ameliorating these multifaceted issues (Zheng, et al. 2021; World Population Review 2023).

The dynamic interplay between green finance and sustainability economic development in Nigeria serves as a driving force for environmental responsibility and financial resilience, simultaneously advancing sustainability across the industry (Angom, 2021; Mangwa & Jagongo, 2022). A wealth of studies substantiates this notion. Moreover, a comprehensive exploration of the available literature reveals that green finance can bolster sustainability economic development by incentivizing investment in environmentally friendly projects and sustainable development (Liu et al., 2023; Abuatwan, 2023; Jha & Bakhshi, 2019).

Since the industrial age, ecological inequality has led to carbon dioxide (CO2) and other Greenhouse Gases (GHGs) which eventually produced global environmental issues. With the induction of technological advancements, the environment has been affected by pollution, global warming, Ozone depletion, depletion of natural resources, deforestation, and loss of diversity. Rapid and excessive industrialisation, without taking any precautionary measures to protect the environment as well as mismanagement of industrial projects, has created further environmental, water and health problems. Sustainable development in alignment with economic growth is becoming a great challenge globally. With the increase in awareness about the environmentalism, it becomes essential for the finance sector to become concern about its role in handling environmental issues (Jha & Bakhshi, 2019). This study therefore, examined the impact of green financing on sustainable economic development in Nigeria.

1.2    Statement of the Problem

The unsustainable exploitation of resources have engendered alterations in the ecosystem with accelerated, abrupt and irreversible changes with significant consequences for human well-being, threatening the survival of many communities as evident in the Niger Delta, desertification and overgrazing in the North, erosion, deforestation and surface water pollution in the South. These of course have continued to exacerbate the worsening living condition of many Nigerians especially the rural population who live in the fringes.

Noting that sustainable economic development is to recognize that environment and economic development are not exclusive of one another but are complementary and interdependent and in the long run, mutually reinforcing (Okonkwo & Uwazie, 2015).  The complex nature of this relationship explains why it has been difficult to give an operational content to the concept of sustainable economic development or to formulate practical policy guidelines for its realization, yet there is an evidence of excessive demands being made on limited natural resources and on the already weakened ecosystem. Under the condition of increasing “absolute poverty” rate in Nigeria where the National Bureau of statistics said 60.9 percent of Nigerians in 2010 were living in “absolute poverty” this figure had risen from 54.7 percent in 2021, the environment had therefore, continued to exhibit ravages of mismanagement as observed in overgrazing, erosion, deforestation, desertification and surface water pollution. In this situation, not just quality of life but like itself, is endangered many a times it is difficult and sometimes impossible to reverse these effects. A paradigm shift to sustainable consumption and production (SCP) initiative will not only preserve the ecosystem but generate new opportunities for trade and investment, stimulating green growth and subsequently, sustainable development, therefore, fostering the green economy framework in Nigeria.

More so, most documented literature on green financing such as Abuatwan (2023), Liu et al. (2023), Liu and Wu (2023), Zhang (2023), Mangwa and Jagongo (2022), Zakari (2022), Angom (2021), Jha and Bakhshi (2019) among others are found in other countries. Little empirical evidences are studies conducted in Nigeria. Therefore, a study on green financing on sustainable economic development is relevant in the context of Nigeria.

1.3    Research Questions

From the statement of the problem, this study is guided by the following research questions.

To what extent does carbon finance impact sustainable economic development in Nigeria?

In what ways does green credit impact sustainable economic development in Nigeria?

How does green investment impact sustainable economic development in Nigeria?

1.4    Objectives of the Study

The broad objective of this study is to examine the impact of green financing on sustainable economic development in Nigeria. The specific objectives are to:

examine the impact of carbon finance on sustainable economic development in Nigeria;

access the impact of green credit on sustainable economic development in Nigeria;

analyze the impact of green investment on sustainable economic development in Nigeria.

1.5    Hypotheses of the Study

The hypotheses for this study are stated in null (H₀) form as:

H₀₁:   There is no significant relationship between carbon finance and sustainable economic development in Nigeria.

H₀₂:   green credit does not have any significant effect on sustainable economic development in Nigeria.

H₀₃:   There is no significant relationship between green investment and sustainable economic development in Nigeria.

1.6    Significance of the Study

The study will be significant to state owned enterprises, students, general public and State Corporations Advisory Committee as it will offer contributions from both a theoretical and practical perspective. To regulatory bodies, they can utilize findings from this study to enhance their policy formulation and regulation with the aim of ensuring that all stakeholders engage in sustainable projects for optimum economic development. It helps the development of ecological service industries with low resource consumption, low pollution and high employment capacity. At the same time, the government increases the financing cost of heavy industries by regulating the industries with high pollution and energy consumption. It also imposes certain pollution cost penalties to promote the green transformation of polluting industries. The proportion of green industries such as environmental protection in Nigeria will be further increased, and the optimization of industrial structure and green transformation will be gradually realized.

Theoretically, the study will also provide more information regarding the importance of green financing and the preceding impact sustainable economic development in Nigeria. To the deposit money banks, understanding the importance of green financing and the available mechanisms of facilitating the concept as well as understanding the actual impact of this concept will be of significant value their operations. As a dimension towards, banks are likely to develop, designing, implement and manage new financial products that will propel them towards more profitability hence an improved financial performance.

The general public as stakeholders are also meant to benefit from the study since recommendations are likely to encourage green investment opportunities, provide a link to financial facilitation to green projects, while also ensuring for the protection of the environment through production of environmentally friendly goods, and provision of environmentally friendly services that will significantly improve on their living standards.

In regards to the field of academics, this research regarding the impact of green finance will significantly contribute and add to the already existing body of knowledge regarding green financing and sustainable economic development in Nigeria. While it also provides more theoretical knowledge and empirical literature, researchers in this field of finance will also benefit.

1.7    Scope of the Study

This study examined the impact of green financing on sustainable economic development in Nigeria. The study included variables such as sustainable economic development as continuous improvement in the economic well-being and quality of life of people in a particular country in line with targeted goals and objectives. It is measured by human development index. Also, green financing are represented by carbon finance, green credit and green investment. This study is specifically limited to cover the periods 1986-2022. The base year 1986 was chosen to have an extensive coverage of the study and to incorporate the reforms that took place in that year (Structural Adjustment Programme (SAP) while the current period is premised on the year data can be found being annual time series data. The study sourced data from the World Bank Pollution Management data base and the CBN Statistical Bulletin, 2022.

Organization of the Study

The study is divided into five chapters. The first chapter entails background of the study, statement of the problem, research questions, objectives of the study, hypotheses to be tested, significance of the study, scope of the study, organizations of the study and operational definition of terms. This is followed by conceptual review, theoretical review and empirical studies. Methodology, where the model to be adopted is specified, the method of analysis as well as the estimation procedures forms the pedestal of chapter three. The chapter four is exclusively reserved for analysis of data culled and interpretation while chapter five presents summary, conclusion and policy recommendations based on the strength of the findings.

1.9    Operational Definition of Terms

Green Financing

Green finance basically comprises all forms of financial instruments such as green bonds and instruments along with financial institutions such as green banks and green funds that are involved in the investment of environmentally sustainable products and projects.

Green Economy

Green economy is an economy that is sustainable between the ecological environment and society, rather than a crude green economy with unsustainable use of resources and severe environmental damage as the cost.

Sustainable Economic Development

Sustainable economic development is the continuous improvement in the economic well-being and quality of life of people in a particular country in line with targeted goals and objectives. It is measured by human development index in this study

Carbon Finance

Carbon finance is quantification by the proportion of CO2 emissions to gross domestic product. The primary source for the CO2 emission is coal, oil, and natural gas

Green Credit

The green credit facilities mainly discuss the green payment and loans of SMEs. They are computed by utilising the sum of green credit of registered firms classified by the sum of credit of listed firms.

Green Investment

Green investment projects denote the way of source apportionment to ecological pollution resistor, targeting to decrease the environmental impairment of a firm’s operation and comprehend sustainable growth.

Project – The impact of green financing on sustainable economic development in Nigeria