Fossil Fuel Instability: Why African Fiduciaries Must Reposition Capital

African institutional investors are being urged to reassess their exposure to fossil fuel assets as the ongoing conflict in Iran underscores the structural instability of global oil and gas markets, according to a new analysis published by Project Syndicate.

The report, authored by Nicole Martens, highlights that for African trustees, directors, asset managers, and other fiduciaries, the question is no longer whether capital should be reallocated away from fossil fuels, but whether institutions will act proactively before market forces compel them to do so.

Martens argues that the Iran conflict has served as a stark reminder of how geopolitical volatility can trigger sudden and severe swings in energy prices, exposing the inherent risks of long-term investments in coal, oil, and gas infrastructure across the continent.

While specific figures on African fossil fuel investments were not disclosed in the original commentary, Martens’ analysis aligns with broader trends showing that sub-Saharan Africa remains heavily dependent on fossil fuel revenues, with several countries deriving more than half of their export earnings from oil, and gas.

According to the African Development Bank, fossil fuels accounted for approximately 60% of total energy consumption in Africa as of 2023, and extractive industries continue to play a dominant role in national budgets in nations such as Nigeria, Angola, and Algeria.

However, the volatility of global commodity markets has increasingly strained fiscal planning. The International Monetary Fund noted in its 2024 Regional Economic Outlook for Sub-Saharan Africa that oil-exporting countries experienced average revenue shortfalls of 15–25% during periods of price downturns, exacerbating debt vulnerabilities and limiting fiscal space for development.

Martens’ commentary emphasizes that fiduciaries across Africa face growing pressure to uphold their duty of prudence and loyalty by considering climate-related financial risks in investment decisions. This includes evaluating not only direct exposure to fossil fuel equities and bonds but also indirect risks through sovereign debt, infrastructure financing, and pension fund allocations.

She further notes that the transition away from fossil fuels is not merely an environmental imperative but a financial one, citing the increasing likelihood of stranded assets as global demand for hydrocarbons declines due to decarbonization policies in Europe, China, and other major markets.

Although the original Project Syndicate piece does not name specific institutions or funds, it reflects a growing consensus among global financial regulators. The Task Force on Climate-related Financial Disclosures (TCFD) and the Network for Greening the Financial System (NGFS) have both warned that failure to assess climate risks could constitute a breach of fiduciary duty under evolving legal interpretations in jurisdictions including the UK, the EU, and increasingly, parts of Africa.

In South Africa, for example, the Prudential Authority has begun requiring banks and insurers to disclose climate-related risks in their financial statements, while Kenya’s Capital Markets Authority has issued guidance encouraging pension schemes to integrate ESG factors into investment strategies.

Martens concludes that African fiduciaries stand at a critical juncture: they can either lead the continent’s capital toward resilient, future-oriented investments or risk being locked into declining assets that threaten both financial returns and long-term stability.