Sustainable finance roadmap in the offing

•  regulators to ensure green finance practices in sync across sector
• banks directed to screen borrowers for environmental impact

By Kingsley Webora TANKEH 

The Bank of Ghana (BoG) is working with the Securities and Exchange Commission (SEC), the National Insurance Commission (NIC) and the National Pensions Regulatory Authority (NPRA) to develop a sustainable finance roadmap, to ensure that green finance practices are in sync across the entire financial sector, the Head of Department of Banking Supervision at BoG, Ismail Adam, has disclosed.

Speaking at the opening of a training for bankers on Responsible and Sustainable Banking in Accra, Mr. Adam said the most critical role of the board of a financial institution is to establish a vision that integrates environmental, social and governance (ESG) risks into the institution’s long-term objectives. “It is not enough to take the issue of sustainability as compliance excess or as corporate social responsibility. Instead, we must embed this into our core activities, our values and long-term objectives,” he said.

“The choices made in the boardroom today will shape the financial systems in the world of tomorrow,” he added noting that the BoG is implementing a 10-point sustainability plan to guide its own policies over the next four years.

The five-day training, organised by the National Banking College in collaboration with UN Environment Programme Finance Initiative (UNEP FI) and the GIZ, started with the board members and senior executives of banks on the first day. This follows the BoG’s climate-related financial risk directive which took effect in January this year. According to Mr. Adam, the directive “sets clear expectations for financial institutions to disclose and manage climate risk.”

It compels banks to identify, assess and mitigate climate and environmental risks, including within their lending portfolios. Banks in Ghana are now required to assess the environmental footprint of prospective borrowers as a component of their credit risk evaluation, Mr. Adam said.

According to him, banks must comply with mandatory reporting requirements under the IFRS S2 disclosure standards. “Executive teams must incorporate these factors into credit risk assessments, investment decisions, stress testing and scenario planning. If you fail to take issues of sustainable banking on board, you risk losing relevance. You risk losing reputation,” he said.

Mr. Adam noted that the BoG has already watered the ground, having conducted training for compliance officers, credit officers and relationship managers on the five sectors most vulnerable to environmental degradation.  He added that the central bank has also engaged the boards of 18 banks to reinforce oversight of climate risk in lending and investment activities.

The Principal of the National Banking College and an advisor to the central bank, Gloria Darline Quartey, charged bankers to ask relevant questions to find out whether a client’s business activities degrade or preserve the natural environment. “Am I lending to somebody who is mindful of the environment and what they are doing? In knowing your customer, you actually know what to look out for through your interactions and decide whether you want to fund that or not fund that,” Mrs. Quartey cautioned.

Mrs. Quartey said the decision to gather board chairs and senior executives was taken “because they sit in the decision-making chairs. They have the responsibility of ensuring that ESG is embedded in our day-to-day operations through strategy.”

She noted that a policy-driven framework from management empowers staff to apply environmental screens knowing they are protected by institutional mandate. “Once we have their buy-in and it is incorporated into strategy, then the rest of the institutions are only left to operationalise it,” she said.

The Africa and Middle East Lead at the UN Environment Programme Finance Initiative (UNEP FI), Nuran Ashraf Atef Bayoumi Mohammed, noted environmental risk management offers significant dividend, saying for every dollar invested in coastal protection, fourteen dollars are saved in damages. She argued funding a solar enterprise rather than a heavily polluting industrial project also reduces long-term exposure to environmental liability and regulatory penalties. “Strong sustainability performance is linked to financial outcomes. Banks that understand and manage sustainability risks are better positioned to perform well over time,” she said.

The Head of the Private Sector and Innovation Promotion Programme at GIZ, Arlett Stojanovic, said the workshop aimed to “bridge the gap from talking about sustainability to actually showing how action can be taken in your everyday work.”She revealed that GIZ is collaborating with the Ministry of Finance to develop a green taxonomy.

According to her, this will clearly define economic activities that qualify as environmentally sustainable and inform lending decisions going forward. She noted that case studies from other markets now offer practical lessons on the ‘dos’ and ‘don’ts’ when integrating environmental criteria into lending.

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