The financial sector has a critical role to play in supporting positive environmental, social and economic outcomes across the continent, writes the CEO of Standard Bank Group.

There can be no doubt that anthropogenic climate change is an accelerating crisis. If we fail to reduce the carbon-intensity of growth, and take several other measures too, human life will become significantly more difficult. People everywhere will become poorer, more vulnerable and less secure.

While Africa has not made a significant contribution to global warming, it is among the most vulnerable to its negative effects. It needs to become much more resilient to those effects.

This implies, among other things, that the continent must continue rapid economic and human development.

Growth in Africa

Clearly, the world cannot afford for Africa to follow the same carbon-intensive development path as other regions have done and continue to do. It should be equally clear that Africa’s transition away from carbon-based growth will not be politically or socially sustainable unless it is perceived by Africans as fair, and unless it offers people pathways to better and more prosperous lives. As the South African government puts it, Africans require a just transition to a more prosperous net-zero economy.

While Africa has not made a significant contribution to global warming, it is among the most vulnerable to its negative effects. It needs to become much more resilient to those effects

This means enabling a just transition for the countries, communities and individual workers who currently depend on fossil fuels, and it means doing so in a manner that recognises the deep energy deficit across African economies. Fewer than 43% of people in sub-Saharan Africa have access to grid electricity.

Fortunately, technological advances have made it possible to achieve a transition away from non-renewable energy sources. Africa is rich in untapped renewables, such as solar, wind, hydropower and geothermal energy. The continent has the potential for economically viable natural carbon sinks. It has relatively little installed capacity in brown energy and many of those plants need replacement. For all these reasons, Africa has powerful comparative advantages in the global low-carbon economy.

Funding the transition

Making the transition as quickly and efficiently as possible will require appropriate political, economic, policy and regulatory conditions. These will need to be coupled with the necessary technical expertise and financial instruments.

Obtaining the required finance may well be one of the easier parts of the exercise. African nations have several opportunities at their disposal to attract funding for renewable energy and green infrastructure projects.

Governments have an important role to play in attracting the necessary funding. The South African government, for example, is calling for concessional finance for low-carbon projects and for support from the international development finance community for non-fossil fuel developments. It is also seeking funding to support energy efficiency and transmission projects, and for green hydrogen initiatives aimed at electric vehicles. As a result of these efforts, South Africa is now set to receive $8.5bn to help reduce its reliance on coal, as part of a deal announced at the COP26 climate summit.

The private sector’s contribution will be equally important. Equity market initiatives, such as the Johannesburg Stock Exchange’s launch of a sustainability segment, are helping to attract capital from developed markets.

Promoting sustainable investment

Standard Bank, and other African financial institutions, are also actively promoting inward sustainable investments.

The Standard Bank Group is a purpose-driven firm. We see promoting sustainable finance both as an ethical obligation and as a significant commercial opportunity. Our focus, primarily through our sustainable finance division, is on providing financial products and services that support positive social, economic and environmental outcomes, including green and social bonds, sustainability-linked loans, sustainable trade solutions and impact investing.

To date, we have completed three bond issuances under our sustainable bond framework, established in February 2020. Standard Bank’s issuance of a $200m green bond, via private placement with the International Finance Corporation, remains Africa’s largest green bond to date and will be used to finance eligible green assets aligned to our sustainable bond framework.

We are committed to meeting our duties to all our stakeholders in the context of available resources and given the constraints we face, and to making the largest-possible contribution to inclusive and sustainable development.

In doing so, we will be guided by our membership of the UN Principles for Responsible Banking, our commitment to advancing the UN Sustainable Development Goals and by the Paris Agreement’s target to limit global warming to well below two degrees Celsius above pre-industrial levels. We will also continue to improve the transparency and detail of our environmental, social and governance reporting in line with global best practice. We will soon be releasing our climate policy, as part of our regular reporting cycle this year, setting science-based short-, medium- and long-term climate targets across priority sectors.

As the World Bank has recently argued, Africa’s recovery from the pandemic and its medium-term development both require a degree of openness to further investment in so-called ‘brown’ activities.

Standard Bank agrees. Therefore, in certain tightly defined circumstances, Standard Bank will remain open to supporting brown energy and mining projects in Africa. In our view, a refusal to accept this would amount to denying Africa’s right to sustainable development. Over the past few centuries, Africa has borne very considerable economic and human costs for other regions. In our view, a total or immediate ban on further transitional projects in Africa in order to help reduce environmental pressure in much richer regions would be a cost too far.

Having said that, our long-term goal is clear. The Standard Bank Group will achieve a net-zero portfolio mix by 2050. This will entail reducing our financed emissions and simultaneously scaling up our financing of renewables, reforestation, climate-smart agriculture, decarbonisation and transition technologies, and supporting the development of credible carbon-offset programmes.

The climate crisis is the overriding global issue of our time. But we do not think it can be overcome in a spirit of zero-sum puritanism, in which people or countries seek to impose sacrifices on each other. To the contrary, the way out of the crisis is through inclusive and sustainable growth – and the financial sector can play a central role in unlocking a renewable energy and green infrastructure boom across Africa.

Sim Tshabalala is CEO of Standard Bank Group.


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