Environmental Risk, Climate Finance, and Bank Lending Behaviour in Nigerian Banks

Climate-related financial risks are increasingly recognised by international banking supervisors as material threats to bank portfolio quality, capital adequacy, and long-term financial stability, yet integration of environmental risk into loan appraisal and risk management remains nascent in Nigeria. This study examines how Nigerian deposit money banks assess, price, and manage environmental risk in their lending portfolios, and evaluates the emerging landscape of climate finance product development. Primary data are gathered from 50 risk officers, sustainability managers, and credit analysts across ten commercial banks through structured questionnaires and semi-structured interviews. Secondary data on the sectoral composition of bank loan portfolios are sourced from Central Bank of Nigeria reports for 2019 to 2023 to evaluate exposure to high-emissions sectors. The study employs qualitative content analysis for interview data and regression analysis to test whether banks with formal environmental risk policies demonstrate different lending patterns toward carbon-intensive industries. The theoretical framework draws on the environmental risk-credit risk transmission channel, the green finance literature, and the Principles for Responsible Banking developed by the United Nations Environment Programme Finance Initiative. The study evaluates the Central Bank of Nigeria's Sustainable Banking Principles and the Nigerian Sustainable Finance Roadmap as drivers of bank behavioural change. Existing literature on African banking sustainability highlights the gap between policy adoption and operational integration of environmental risk, a finding this study tests with Nigerian bank-level evidence. Findings are expected to benefit the Central Bank of Nigeria's sustainable finance department, commercial bank sustainability teams, and international climate finance actors engaging with the Nigerian banking system. Keywords: environmental risk, climate finance, bank lending, sustainable banking, Nigeria