Professional Assessment of Green Finance Instruments and Environmental Risk Integration in Nigerian Banks

Green finance integration is an emerging priority for the Nigerian banking sector, driven by the Central Bank of Nigeria's Nigerian Sustainable Banking Principles and global pressure on financial institutions to address climate-related financial risks. This study conducts a professional assessment of green finance instruments and the integration of environmental risk into the lending and investment decisions of Nigerian commercial banks. Primary data were collected from 55 sustainability officers, environmental risk managers, and senior credit officers across twelve commercial banks through structured interviews and questionnaires. Secondary data were obtained from the Central Bank of Nigeria's Nigerian Sustainable Banking Principles annual reporting for the period 2020 to 2023. Green finance instruments assessed included green bonds, sustainability-linked loans, and environmental and social governance-screened investment portfolios. Environmental risk integration was measured by the proportion of credit approvals incorporating environmental and social impact assessments. Results showed that only 22% of loan approvals above 500 million Naira incorporated formal environmental risk assessments. Three banks had issued green bonds, collectively raising 145 billion Naira for renewable energy and energy efficiency projects. Environmental and social governance investment screening was practised by four of twelve banks surveyed. The study concludes that green finance mainstreaming in Nigerian banks is nascent and uneven, and recommends mandatory environmental risk assessment thresholds in the Central Bank of Nigeria's prudential guidelines for large-ticket credit exposures.

Keywords: green finance, environmental risk, sustainable banking, Nigerian Sustainable Banking Principles, commercial banks