Nicola Mawson
This decade is set to see a large push towards environment, social and governance (ESG) by banks, which are not only taking advantage of the opportunities in Africa to provide sustainable solutions, but also pushing towards ensuring they meet their own developmental goals as the UN’s Sustainable Development Goals draw closer.
A recent KPMG Southern Africa Banking Survey found ESG is a priority in the global banking environment and this trend is especially important for African banks, which have unique opportunities to integrate ESG into their offerings over the next decade.
KPMG noted that Africa was currently poised to be the second fastest growing regional economy, with more than 10 African countries experiencing substantial economic growth.
KPMG’s survey indicated that green financing, offering affordable housing solutions through tailored bonds, skills development, and unique solutions for healthcare and related infrastructure are the way forward for banks.
More than 80% of those surveyed by KPMG expect corporate banking products and services to provide revenue streams when it comes to ESG opportunities.
Partner and head of banking advisory at KPMG in Southern Africa, Claude Nguetsop said there were many benefits in ESG investing for the financial sector.
“The growing sectoral focus on ESG is linked to higher returns and benefits now coming to the fore, as banks and financial service providers begin to see tangible results from their efforts,” Nguetsop said.
“As regulatory obligations grow and evolve, and consumer sentiment leans towards supporting ESG principles more and more, this operational pillar will secure a stronger foothold in all banking operations across Africa.”
Nedbank has already committed to financing more green projects, with its targets being to have no exposure to fossil-fuel-related activities in terms of financing by 2045. By 2050 – the United Nations’s target date for implementation of its Sustainable Development Goals – all lending and investing will support a net-zero carbon economy.
Absa too has indicated that it will reach net zero for its own emissions, and indirect emissions by 2050. Its sustainable finance issuance framework published in December, said it expected to reduce exposure to coal financing as a percentage of its balance sheet to 0.03% by 2050 from 0.20% last year, for example.
Africa’s largest bank, Standard Bank, said in its sustainable finance framework from October last year that it aimed to achieve net zero from its portfolio of financed emissions by 2050.
Yet, a European Investment Bank (EIB) Report last year indicated that sub-Saharan African banks were challenged by the fact that there were relatively undiversified debt securities, which restrains bond investors’ demand.
This issue, however, can be mitigated by a more diversified basket of offerings, including through issuing green bonds, the bank said.
It also noted that making ESG bonds available had “increased substantially” to almost $5.1 billion in 2021, up from $1.2bn half a decade before which it said showed there was growing demand for this asset class.
Africa’s share of the global total of ESG bonds is still very small at 0.3% compared with Europe’s 37.8% share, “despite the significant exposure of sub-Saharan Africa to climate change,” the EIB said.
KPMG’s survey found that only half of the participants believe they were somewhat or minimally prepared to fulfil current and anticipated requirements of effective ESG reporting as well as ensuring regulatory compliance.
There were also challenges such as the lack of correct data to measure progress against, while many southern African countries still rely heavily on climate sensitive industries, such as mining and agriculture, KPMG said.
The auditing and accounting firm added that there was a gap in ensuring effective and timeous delivery of renewable energy solutions, even though demand is growing at an exponential rate.
Despite this, KPMG believes that “southern African banks have a unique opportunity to position themselves as leaders in sustainable finance and responsible banking practices over the next decade”.
BUSINESS REPORT