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South Africa and Kenya are at the forefront in Africa for adopting and reporting on sustainable finance by incorporating Environmental, Social, and Governance (ESG) principles, according to a new report by World Wide Fund for Nature (WWF), an international non-governmental organisation.
WWF’s first Sustainable Banking Assessment (SUSBA) for Africa Report 2024 indicates that a majority of banks in Africa are progressively adopting regulatory and industry standards, while also employing additional Environmental, Social and Governance (ESG) experts to integrate sustainable finance practices and promote green development and transition in response to the rising demand for sustainable products.
The evaluation examined 25 banks in eight African nations, including Cameroon, Gabon, Kenya, Namibia, South Africa, Tanzania, the Democratic Republic of Congo (DRC) and Zambia.
SUSBA's assessment framework was based on six essential pillars of strong environmental and social (E&S) integration, referred to as the six 'P's: Purpose, Policies, Processes, People, Products and Portfolio.
The evaluation revealed that banks in South Africa and Kenya have average scores of 50.1 per cent and 43.7 per cent, respectively, in ESG integration, leading the region in sustainable finance practices due to supportive regulations and increasing institutional commitments.
Banks in Tanzania, Namibia and Zambia were found to be moderate performers with respect to developing sustainability integration, while banks in Gabon, Cameroon and the DRC were at the initial stages of implementing E&S principles in their banking practices.
E&S practices in South Africa's financial sector have been gaining traction, showcasing the nation's dedication to sustainable growth. The South African Reserve Bank has launched various initiatives to incorporate ESG factors and tackle climate-related risks in the financial industry.
Moreover, South Africa has progressed in green finance, with organizations engaging in climate resilience projects and issuing green bonds. Commercial banks have also created products to fund renewable energy and sustainable infrastructure, aiding the country's shift towards a low-carbon economy.
WWF recognised Kenya as a leader in Africa for its advancements in sustainable finance, driven by initiatives such as the Kenya Green Bond Programme and the Sustainable Finance Initiative from the Kenya Bankers Association.
These initiatives aim to motivate financial institutions to adopt sustainable finance principles and align with global standards.
The report showed that 84 per cent of African banks do not disclose their portfolio greenhouse gas emissions. Researchers noted a disconnect between banks’ strategic goals and their leadership’s dedication to sustainability. Although 72 per cent of banks include sustainability in their strategies, merely 52 per cent mention responsible lending in leadership declarations.
Although there is a solid base in sustainability strategies throughout the region, the analysis uncovered major deficiencies in climate risk management, transparency and tackling nature-related challenges such as deforestation.
To address these shortcomings, African banks need to actively adopt the advised strategic measures to enable this transition, ensuring that current business operations progress towards sustainability while preserving financial stability, WWF suggested.
By dedicating themselves to these changes, banks will not only safeguard their institutions for the future but also speed up the move to sustainable and environmentally friendly business models, the report stated.
