Africa’s Banks Starting
to Rise to Challenge of Wider Environmental,
Social and Governance Concerns
UNEP Finance Initiative Spotlights How
Sustainability Factors are Shaping Lending
in Africa's Two Biggest Economies
Cape Town/Nairobi, 14 June 2007 - Seven
out of ten banks in South Africa and three
out of 12 banks in Nigeria are now factoring
environmental, social and governance (ESG)
issues into their credit risk assessment
for corporate and consumer loans.
The findings, by the United Nations Environment
Programme's Finance Initiative (UNEP FI),
highlight how wider, sustainability factors
are beginning to penetrate the lending decisions
of Africa's financial community?albeit to
varying degrees and, in this study within
the Continent's two largest economies.
The development, mirroring those in other
parts of the globe, is being fuelled by
a variety of factors including "reputational
risks" reflecting concerns by banks
over being linked to an environmentally
unfriendly or socially damaging project
or activity.
Other driving forces include the requirements
of multilateral banks and lending bodies,
such as the International Finance Corporation,
the Dutch FMO and the African development
Bank for local banks to meet ESG standards
including the Equator Principles.
Both South Africa and Nigeria now also
have an array of new environmental legislation
which may have important ramifications and
liability considerations for banks and lending
institutions.
The recent setting up of a sustainability
index on the Johannesburg Stock Exchange,
the first in Africa, is also concentrating
corporate financial minds in that country.
The findings, launched today at the World
Economic Forum meeting in Cape Town, are
contained in the report Banking on Value:
A New Approach to Credit Risk in Africa
compiled by the UNEP FI African Task Force
in partnership with the University of South
Africa Center for Corporate Citizenship.
The report also gives insights into how
the different banks surveyed are dealing
with the challenge of ESG. It is hoped these
insights will assist other banks on the
Continent to embrace such factors in their
lending and management policies.
Achim Steiner, UN Under-Secretary General
and UNEP Executive Director who is attending
the meeting, said today: "Banks in
Africa provide thousands of loans to businesses
and individuals. They are therefore well
placed to play a pivotal role in directing
the development of the Continent onto a
more sustainable path including assisting
in fighting poverty, social inequities and
delivering a healthy and vital environment".
"Environmental, social and governance
(ESG) issues are increasingly defining the
lending policies of banks world-wide as
they compete and operate in a globalized
market of trans- national corporations and
globally aware consumers. Africa's banks
are also clearly recognizing these realities?it
may be starting fastest in South Africa
and Nigeria but I have no doubt this will
become a Continent-wide phenomenon as Africa's
economies grow and Africa's companies become
increasingly regional and global players,"
he said.
The 52 page report- produced under the
guidance of Cas Coovadia, Managing Director
of the Banking Association of South Africa
and Justin Smith, Head of Governance and
Sustainability at Nedbank?involved more
than 25 financial institutions and key experts.
Banks who took part were ABSA; Industrial
Development Corporation; Barclays South
Africa; Citigroup South Africa, Investec;
Nedbank; Development Bank of South Africa;
First National Bank; Standard Bank and Standard
Chartered.
In Nigeria they were Access Bank; First
Atlantic Bank; Chartered Bank; First Bank
Nigeria; Citigroup Nigeria; Guaranty Trust
Bank; Diamond; Nigerian Import Export; Eco
Bank; United Bank of Africa; Fidelity Bank
and Zenith.
"While interviews are limited to Nigeria
and South Africa, we provide this study
and its findings to assist financial institutions
throughout the Continent in embedding ESG
issues in their management structures and
lending practices," said Messrs Coovadia
and Smith.
The report accepts that level at which
ESG issues are factored into loan and credit
decisions can be extremely varied ranging
from an explicit decision by the banks concerned
to ones that are either just emerging or
remain aspirational.
Nevertheless, the authors maintain that
ESG factors are taking root and can be fostered
further if Africa governments, ministries
of finance, Central Banks, industry and
business associations, national corporations
and local organizations press harder.
What the Experts Say:
"Banks in Africa have a crucial part
to play in the sustainable development of
the region. Considering sustainability factors
in the assessment of credit risk on commercial
loans will push the sustainability agenda
ahead, allowing for balanced and healthy
economic development in African nations."
Cas Coovadia, Managing Director of the Banking
Association of South Africa
"There is a clear uptake of sustainability
issues in South African and Nigerian banks,
but in many instances bank policies for
implementation need to be strengthened.
We hope the guidance provided in this report
assists to narrow the gap." Professor
Derick de Jongh, Director of University
of South Africa Center for Corporate Citizenship
"By including social and environmental
risk analysis in their credit processes,
African banks can take the necessary steps
to ensure the finance sector is playing
its role in securing long-term sustainable
growth in the continent." Justin Smith,
Head of Governance and Sustainability, Nedbank.
Notes to Editors
The full report Banking on Value: A New
Approach to Credit Risk in Africa, is available
for download at: http://www.unepfi.org
To go directly to the report follow this
link: http://www.unepfi.org/fileadmin/documents/banking_on_value.pdf
For More Information Please Contact Nick
Nuttall, UNEP Spokesperson, on Tel: +254
20 7623084, when travelling +41 79 596 57
37, E-mail: nick.nutall at unep.org or Paul
Clements-Hunt, Head UNEP FI, Tel:+41 79
349 5486, E-mail: pch at unep.ch
UNEP FI is a global partnership between
UNEP and the financial sector. Over 160
institutions, including banks, insurers
and fund managers, work with UNEP to understand
the impacts of environmental and social
considerations on financial performance.
The UNEP FI African Task Force (ATF) is
a unique group of financial institutions,
ranging from commercial banks to development
banks to asset managers, united by a common
objective of defining innovative approaches
to sustainability for the finance sector
in Africa.
