This report highlights the state of climate risk regulation in Africa’s financial sector and presents an analysis of the financial stability architecture and climate risk initiatives in 12 selected deep-dive countries. It also highlights challenges hindering the integration of climate risk by financial sector authorities in Africa and offers potential areas of support for the key stakeholders in the finance ecosystem (authorities, private sectors, other institutions). Africa is one of the most exposed regions to climate change, with half of the 10 countries most affected by climate change located on the continent. Climate risk matters in Africa because the continent is among the most vulnerable to climate change, according to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).

The social and human impacts of climate change are documented by several institutions, including the IPCC, but for the purpose of this report, the focus is on the impacts of climate risks on African financial systems. Extreme weather phenomena such as rising temperatures and the increasing frequency of droughts and natural disasters are already affecting lives in Africa to varying degrees across countries. The visible effects of climate change throughout the continent and the increasingly material financial losses directly and indirectly caused by climate change are also accelerating climate risk awareness among financial sector regulators and the private sector.

Climate change poses a major threat to financial stability. A report published in September 2021 by the think-tank Ceres7 establishes $2.2 trillion8 of exposure to climate risk for syndicated loans in 10 major US banks.

The publication was commissioned by the AfDB/AFAC in partnership with the GCA and UNEP FI, with analytical support from McKinsey & Company.