Climate change is a threat multiplier that exasperates the challenges Africa already faces

• Financial system is driving inclusive growth in Africa
• Facilitating sustainable solutions to protect the environment and the future
• Supporting the transition through sustainable financing

Increasing challenges in cybersecurity and environmental, social, and corporate governance (ESG) which includes green bonds, technology for sustainable purposes such as geolocation, and integration of ESG into trade finance needs to be addressed to shape our future.

The SIBOS 2021, with an overarching theme, “Recharging global finance,” discussed how the financial ecosystem can reassess and reenergise to meet the client, regulatory and society’s future demands. Sibos was held digitally for the second time in October 2021.

Africa’s financial system encourages investments to help drive inclusive growth

Shiran Moodley, co-head of sustainable finance at Absa Corporate and Investment Banking (CIB), said the effective financial market development can best ensure that Africa is well-placed to attract global capital. “We believe that African regulators, policymakers, exchanges, providers of capital and users of capital are best served by a financial market ecosystem that is characterised by openness, transparency and accessibility”.

Heidi Barends, co-head of sustainable finance at Absa CIB, said that its strong conviction is that Africa will recover from the ravages of the global pandemic. “Effective financial market development and strong governance will help ensure access to capital. Ensuring a better life for all Africans will be more critical”.

Vaccination remains the focus across Africa to prevent the spread of COVID-19 and led to the re-opening of  the economies. They need to ensure that they remain globally connected and know how to adapt to the new normal. In the areas of geopolitics, global economy and financial system, it's clear that the next phase of global outlook is uncertain. The timing and pace of the removal of stimulus, the overhang of much higher public debt, disruption in global supply chains and the potential for further mutations of the virus are contributing to the uncertainties.

Facilitating sustainable solutions to protect the environment and the future

Sustainable finance can drive the much-needed change in climate emergency and post-pandemic economic recovery. Large investments are required across Africa to combat climate change and drive inclusive growth. Sustainable finance means driving capital towards projects and businesses that promote environmental protection and inclusive growth. This can range from environmental projects that drive renewable energy and clean transportation, to social projects that deliver affordable housing or social infrastructure.

Moodley said Absa CIB’s priorities and initiatives for 2021 and 2022 include increasing energy security and access while decreasing emissions. Barends stated that the priorities are in supporting renewable energy projects across the continent, increasing access to basic services by financing affordable housing, student residence and other bankable social infrastructure projects. They likewise support the client’s transition journeys by providing sustainability-linked bonds and loans.

Supporting the transition through sustainable financing

Banks need to make firm commitments to enable a sustainable future. South Africa’s renewable energy and the United Nations Principles for Responsible Banking (PRB) framework are some of the programmes that can help institutions change the way the deals are assessed. They can incorporate environmental and social aspects into their analysis. They need to make meaningful changes in the way African companies and global firms operate to facilitate sustainable solutions for clients and for the future.

Many countries in Africa are fossil-fuel dependent and rely on this industry. The decisions to limit emissions can have significant unintended consequences on the lives and livelihoods of people. A just transition means solving for the social aspects while transitioning from fossil-fuel dependency to renewable energies. The way the just transition plays out in Africa will be vastly different from how it is playing out in developed markets. This is mainly due to Africa’s economic dependency on certain minerals, the cost of transitioning and the availability of alternative energy sources.

Sustainable finance solutions need to be applied on a case-by-case basis, taking both challenges and opportunities into consideration. Banks need to partner with clients on their transition journeys to identify new opportunities or mitigate risk arising from environmental changes. They need to engage in transition strategies and investment needs. It needs huge investments to drive inclusive growth, mitigate climate change, and adapt to the changing weather patterns in Africa. In delivering sustainable finance, banks can prepare clients for the transition and positively impact the societies in which they operate.

Climate change is a threat multiplier that exasperates the challenges the continent already faces. However, it provides an opportunity for the banks to step up and support the just transition through sustainable financing.