Pillar: Adaptation and Resilience

Lagos State is a pivotal economic hub in Nigeria, contributing a remarkable ~30% to the nation’s GDP. It is also one of the most densely populated cities on the African continent, occupying just 0.4% of Nigeria’s landmass while being home to over 27 million people.² Moreover, like most of Africa, Lagos is highly susceptible to climate change impacts but is not equipped to handle its repercussions.

Lagos is vulnerable to three Climate Impact Drivers (CIDs): sea level rise, extreme rainfall, and extreme heat. The effects of these drivers are heightened by its dense population and rapid urbanization. These hazards pose substantial threats to the livelihoods, assets, and infrastructure of its urban populace, particularly affecting the less affluent and most vulnerable segments of the population.

Leveraging advanced climate analytics, it has been identified that Lagos faces a projected increase in sea levels of up to 3 meters by 2050, temperature rises of +1°C, and up to 4 meters of flooding due to extreme rainfall. Combined, the cost of inaction for these three climate risks is approximately just under $40 billion by 2050, impacting physical, social, and economic systems.³ Specifically, over 1.4 million people in the city face direct risk from flooding.

These floods also threaten critical social infrastructures, including transportation, healthcare, and education. For instance, over 500 educational centers are at risk, and potential disruptions could impact 42,000 patients. Economically, the city could suffer significant infrastructure damage estimated at $5 billion, with an additional $6 billion required to relocate vulnerable populations. Furthermore, a projected GDP loss of $17 billion annually could result from disruptions caused by inundation.

The natural environment is also at significant risk. Projections indicate that 165 km² across 14 Local Government Areas could be inundated, threatening 82% of wetlands and leading to substantial biodiversity losses.

Given these findings, there is an urgent environmental, social, and economic need to take action against the impacts of climate change

The economies of African countries, like those of countries in other global regions, are heavily reliant on natural resources. Nature loss and degradation pose significant risks for economic development and well-being. Investments to protect and restore natural environments can help safeguard African and other global regions from risks associated with environmental degradation and unlock new economic opportunities.

A national nature strategy can facilitate countries’ efforts to navigate an increasingly complicated normative landscape characterized by numerous compliance obligations and commitments, including those stemming from the Kunming-Montreal Global Biodiversity Framework, national biodiversity strategies and action plans, and countries’ nationally determined contributions. National nature strategies can help countries respond to nature-related risks and opportunities, align policies with international, regional, and market priorities, and make implementation and reporting more efficient. National nature strategies can also help countries improve climate-related outcomes at the many points where nature interacts with the climate.

In this report, the authors present a framework that can facilitate efforts by African and other countries to draw up and implement national nature strategies. The framework provides start-to-finish guidance and covers the implementation of nature assessments, the establishment of a national vision and related targets, the development of a strategy to deliver on those targets, strategy implementation, the exploitation of nature-related opportunities, the management of nature-related risks, and compliance with international obligations, such as those stemming from the Kunming-Montreal Global Biodiversity Framework and from national biodiversity strategies and action plans. The strategy was developed in collaboration with a wide range of stakeholders, including policymakers, nature experts, and representatives of non-governmental and multilateral organizations.

The framework comprises four components, namely:

1. Baseline and Ambition: Reasons for a national nature strategy and outcomes to aim for.
2. Initiatives: Actions to take in order to achieve the aforementioned outcomes.
3. Instruments: Incentivizing action to achieve desired outcomes.
4. Governance and Implementation: Planning and implementing the strategy and assigning responsibilities.

Africa’s economy and the livelihoods of its people are intertwined with the vitality of its natural ecosystems—some of the most biodiverse in the world. The continent is also reliant on sectors that depend heavily on natural ecosystem services, such as agriculture and tourism. These sectors are critical to economic development as they provide employment and livelihoods for a large share of the population.

Yet, the health of these ecosystems is declining rapidly. For example, 3 percent of Africa’s GDP is lost annually due to soil and nutrient depletion of croplands.¹ Deforestation, pollution, and water abstraction all affect the ability of these ecosystems to support the economy in the future.

Halting and reversing nature loss will require coordinated, ambitious, and immediate action across the public and private sectors, as well as civil society. The financial sector can work in partnership with businesses across the real economy to benefit from the opportunities created by a nature-positive transition and to minimize its risks. Deploying sustainable finance instruments could support businesses in shifting to practices that reduce damage to nature, restore nature, and incorporate nature into their commercial strategies. The financial sector could also use capacity building, lending conditions, and engagement to support businesses in robustly managing nature-related risks.

This report aims to provide a fact base for how nature-related risks are relevant and material to financial regulators and private financial institutions. It covers both microeconomic and macroeconomic considerations and explores how an enabling environment could accelerate action from the private financial sector to manage nature-related risks and opportunities.

As technology advances, new types of players, new systems, better data and new tools and channels are emerging across the insurance value chain. This brings unprecedented prospects for better serving people’s insurance needs, and, in so doing, making insurance an engine of growth and development in Africa. Making the most of these opportunities requires collaboration and cooperation between market players and regulators to build an ecosystem in which responsible innovation can thrive. It also requires regulators to strike a balancing act between facilitating innovation and ensuring consumer protection.

But how to do so? Answering these questions first requires an appreciation of the state of innovation, the gaps and the barriers to innovation in the local country context. It also requires regulators to be aware of the range of tools at their disposal to address these gaps.These tools go beyond just regulation to also consider supervisory processes and systems and, importantly, engagement with the market. On this basis, a regulating for innovation action plan can then be developed.

FSD Africa’s Risk, Resilience, and Regulatory Lab – R3Lab, in short -works to create an enabling regulatory environment for innovation by
encouraging and facilitating regulatory and supervisory interactions between insurance regulators in Africa.
As part of the initial work of the R3Lab, we assessed the state of innovation in eight countries in Sub-Saharan Africa (SSA), took stock of the barriers to further innovation, and suggested tailored innovation promotion action plan recommendations for each country – in the form of a series of insurance innovation country portraits and synthesis note. We are now working with supervisors in these countries to take their action plans forward.

Drawing on the lessons learned and extensive engagements with supervisors across these and other countries, this toolkit (1)
documents the steps and learnings for regulators to conduct an innovation gap assessment, (2) provides a taxonomy of the tools through which they can enable innovation, (3) provides a practical guide for how to select and combine tools into concrete activities as part of an innovation action plan, and (4) sets out a key performance indicators (KPI) framework to effectively track progress of the innovation action plan.

The core approach is outlined in an infographic here.