Banks and sustainability in a post-Covid-19 environment: Absa’s perspective on green possibilities
Some banks around the world have responded to the pandemic by focusing on the health of employees and customers, the relief of payments and the immediate stabilization of businesses (preservation of capital, in particular).
For most organizations, sustainability has become less of a priority or has been, at the very least, relegated to the bottom of the board agendas. Despite this, many argue that in a post-pandemic world, environmental, social and governance (ESG) strategies will be essential to rebuilding and growing the economy. If so, how are African banks successfully integrating ESG into paramount business imperatives and positively impacting the communities and environment in which they operate while maintaining profitability?
Leading rather than following
We have already seen stricter regulations, rising expectations from policymakers and pressure from civil society to comply with ESG requirements. Additionally, investors are overly cautious about risk mitigation given the current environment; recognizing the inherent exposures that climate change and social discontent bring with them. Without forgetting the young generations who campaign strongly for more sustainable lifestyles and commerce, who no longer wish to turn to institutions that they consider ethical and responsible.
Organizations can no longer afford to approach sustainability as a âgood to haveâ or as a separate function from the ârealâ business. It is essential that ESG principles become a central discussion in the boardroom and that specific committees or roles are dedicated to achieving the set goals – ensuring that sustainability is embedded in the business strategy and the basic operating model. This could include the appointment of leadership positions for sustainability, responsible for leading the ongoing strategy and implementation.
Ultimately, banks should be tasked with driving the sector’s agenda (by approximating specific ESG deadlines) and going beyond, rather than simply complying with current legislative frameworks and waiting for rules. additional are applied.
Balance green and green
One obvious area of ââcontribution is green finance – directing funds to sustainable businesses, investments and initiatives that generate the most positive environmental, social and economic impact, and helping clients move to more business models. sustainable.
In Africa, ESG considerations are becoming increasingly important in lending decisions, especially those that include natural resources and extraction. Lenders are now paying additional attention to the impact of financing on a country’s development goals, the environment and its people.
As might be expected, however, a significant portion of the balance sheet includes ‘brown assets’, and as a result, banks will need to strike a balance between profits and fiduciary obligations to shareholders, and the achievement of ESG objectives.
Of course, simply ‘unplugging’ certain investments – such as those involving coal and power producers in countries that rely heavily on the resource to produce basic electricity – could have adverse consequences, including large-scale unemployment and a total economic crisis. stop. Yes, banks will begin to move towards financing that meets specific âgreenâ criteria, however, in-depth data and information gathering will be needed to describe potential scenarios and how best to deal with them.
Having said that, the cost of renewables is certainly going down and technology is evolving, making implementation and adoption much easier. While the continent still has a long way to go to maximize energy security and implement sustainable energy sources, great strides have been made in varying the energy mix. Other facets that banks are able to explore are loans focused on green habitat improvement, ESG bonds / funds, or partnerships with development finance institutions (DFIs) to achieve specific aspirations.
Measure, measure and measure
One of the biggest industry debates around ESG has been the effective measurement of success. Specific targets need to be set, whether it starts with an internal audit of paper use, carbon emissions, or the scale of green finance.
Perhaps this could involve an index of customer and community confidence or highlight the contribution made to small business development, education and continental capacity building. Here it is essential that all levels of the company participate and that all employees are held accountable. Sectoral cooperation also enables standard assessment processes.
Tracking and reporting on environmental impact metrics, as well as financial metrics, gives organizations a complete view of business performance. This can help focus efforts on securing results, increasing accountability and transparency to stakeholders, and highlighting operational inefficiencies and cost reduction opportunities.
Absa Group Limited is one of the funding signatories of the UN Principles for Responsible Banking, joining a coalition of banks around the world who wish to play an active role in building a sustainable future. These Principles provide Absa with the tools to capitalize on new business opportunities within the sustainable development economy, while effectively managing risk.
Going forward, it is clear that institutions that do not begin to factor ESG into every decision (operational and strategic) will inevitably hamper ongoing growth plans and become reluctant targets of regulatory and public scrutiny. . Now is the time to embrace (green) possibilities.