Domestic ESG framework takes giant leap forward


…as IFC launches integrated programme

The nation’s Environmental, Social and Governance (ESG) ecosystem has received a major boost with the Integrated ESG (IESG) programme’s formal launch by the International Finance Corporation (IFC).

The programme – which is the culmination of a series of partnerships with entities such as the Bank of Ghana (BoG) – places particular emphasis on financial institutions, especially banks as well as businesses, with the aim of developing “a range of regulatory and market mechanisms leading to the adoption and implementation of better ESG standards”, the Corporation noted.

The IESG programme will follow a three-pronged approach covering regulatory level engagements, as well as market and firm-level engagements.

In his remarks, the IFC’s Senior Country Manager for a cluster of West African countries including Ghana, Kyle Kelhofer, disclosed that his outfit has injected more than US$4billion into the country.  More importantly, he is of the opinion that structures introduced by the programme will far outstrip the impact of direct investments.

“This programme builds on two previous advisory initiatives, the Environmental and Social Risk Management and the Corporate Governance programmes, which ran from 2015 to 2020 and supported the development and deepening of sustainable banking as well as the strengthening of corporate governance frameworks and institutions in Ghana,” he noted – while commending the BoG for its efforts which led to introduction of the corporate governance directive and Ghana Sustainable Banking Principles between 2018 and 2019.

Since then, all 23 universal banks in the country have taken steps to accelerate their ESG-compliance journey, said the deputy-Director of the Banking Supervision Department of the central bank, Ismail Adam.

Mr. Adam disclosed that as of September 2022, all the banks had completed and submitted a template developed by the regulator in addition to its Sustainable Banking Principles and Sector Guidance Notes, with a 53 percent reporting compliance level attained.  He described the progress as impressive, noting that the banks have only been trained in the first of seven principles so far.

“We have trained them in Principle-one, and we are optimistic that we should complete training in Principle-two by end of the year; and we believe with this there will be an even greater level of compliance,” he said.

While the framework is currently principle-based and not rules-based – meaning sanctions cannot be applied at the moment, he noted that a range of penalties can be applied in the medium-term.

“Seeing that all the banks were onboard and are enthusiastic about it, knowing what they stand to gain, I do not think sanctions will be necessary,” he added.

According to Chief Executive Officer-Ghana Association of Banks (GAB), John Awuah, compliance with the ESG principles will be one of the factors that define winners and losers in the increasingly competitive and rapidly evolving financial sector.

“We are moving in a direction where access to funds, even customer deposits, will be informed by ESG compliance,” he said.

He is confident that the subject will experience growth in the medium-term, because the strategy embraced by local banks aligns with both international standards and the nation’s developmental requirements.

With ESG-facing portfolios projected to have a compound annual growth rate (CAGR) of 12.9 percent by 2026 – rising from US$18.4trillion in 2021 to US$33.9trillion over the period, there is little surprise that interest is growing locally.

For instance, in the 2022 Ghana Banking Survey Report conducted by PricewaterhouseCoopers (PwC), which included a survey of 21 out of the 23 registered universal banks, 62 percent of bank executives acknowledged having such plans. Additionally, 8 percent of those surveyed stated that the topic is deliberated at the board level at least once annually.

Also, the Ghana Stock Exchange – in November 2022, launched a guidance manual for disclosures on ESG-reporting for listed companies. This is in addition to rules or the listing of green bonds, even as the instruments are expected to see a rally this year.

Locally, insufficient capacity of market intermediaries and gaps in the real sector due to the large semi-formal market were identified as key constraints in ESG-adoption.

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