Sustainable investing has been rising significantly in Africa, particularly in the mining space.
Many investors support schemes to improve community development and create transparency and disclosure with increasing demand for information about how mines are responding to the environmental threat.
Today, the importance of Environmental, Social and Corporate Governance (ESG) has become important when it comes to banks providing funding for projects or clients.
This article first appeared in Mining Review Africa Issue 1, 2020
The commitment of 130 banks from 49 countries to the United Nations Principles for Responsible Banking which were adopted in September 2019 marks an important milestone for the banking industry and so for mining industry as well.
The principles guide banks on how to align their business strategy with society’s goals.
This framework will undoubtedly play an important role in building a more sustainable future through a combination of project funding and investments considerations.
The Principles for Responsible Banking consist of six principles that set a global standard for responsibility. These are:
- Alignment (business strategy to society’s goals)
- Impact and target setting (increase positive impacts and managing risks to people and environment because of our activities)
- Clients and customers (activities to create shared prosperity for the future)
- Stakeholders (engaging to achieve society goals)
- Governance and culture (effective governance)
- Transparency and accountability (reviews and reporting on sustainability)
Symbiotic relationships are key
Because stakeholders and society should be equally important for financial institutions, financial services corporates will need to ensure that all risk management categories are carefully considered before committing funding the projects in future.
As an example, as a leading financier of resource projects, with focus on mining, metals, oil and gas, Absa has seen sustainability become an even bigger focus when considering funding projects across Africa.
Natural resources in all its forms are diminishing and it’s imperative that we all work in a sustainable and responsible manner to extract what is needed.
Read more about the environment
The key role of a bank is evolving and now includes also making sure that where funding is provided, the economy and communities should benefit as well.
Going forward, when considering funding of certain commercially viable projects which include natural resources and extraction, lenders will place additional focus on the positive impact of our funding and involvement on a country’s developmental goals, the environment and its people.
Banks can only grow if they understand the symbiotic relationship between growth aspirations and the positive impact on country development, environmental and social responsibility goals.
As a responsible lenders committed to facilitating economic and sustainable growth, banks must acknowledge sustainability challenges such as social inequality, growing population, increasing unemployment, pressure on natural resources, as well as climate change.
In addition, banks must also understand how energy poverty and infrastructure deficits worsen these challenges.
In this respect, now more than ever before, financial institutions can pave the way to more sustainable economies by lending to economic activities that optimises the best return for the general community.
Capital providers can guide customers and stakeholders in their requirements for funding by applying the Equator Principles which include applicable IFC Performance Standards on Environmental and Social Sustainability (Performance Standards) and the World Bank Group Environmental, Health and Safety Guidelines for various sectors and for funding natural resources extraction transactions.
This therefore means that any lending policy decisions should take a balanced view on the impact on the economies, their development plans, impacted on the communities, stakeholders, investors, clients and the environment at large.
These considerations are non-negotiable and should adopted as standards.
AUTHOR: Shirley Webber- Absa CIB, Head Natural Resources, ABSA CIB