Balancing sustainability with growth in Africa
Sustainability has moved sharply into focus over the last few years as the world strives to meet the UN’s Sustainable Development Goals (SDGs) and Agenda 2063. However, in Africa, sustainability is at risk of taking a backseat as the continent works to address poverty and inequality.
David Renwick is head of the Investment Banking Division (IBD) at Absa Corporate and Investment Banking. Absa Group is one of Africa’s largest diversified financial services groups with a presence in 14 countries. Renwick says that while there’s universal agreement that there must be a transition away from fossil fuels and that climate change has the potential to severely affect Africa in terms of agriculture, food and water security, and healthcare, among other things, there is limited capacity in many African economies to deal with significant change, and many of these economies remain deeply dependent on fossil fuels.
“With oil and gas rich economies of Mozambique, Angola, Nigeria and Ghana, for example. It’s a careful and difficult balance. On the one hand, you’ve got to move fast enough to protect the environment and protect rapid environmental change, but you’ve also got to move slowly enough to ensure social stability.”
Collaborative balancing act
To undertake this balance successfully, Renwick says, requires collaboration and cooperation between four groups: individuals, civil society, the private sector and the public sector. Within the private sector, he believes the banking industry also has an important role to play.
“When I think about the role of banks, I think there are four aspects to consider. The first is capital allocation. From a Pan-African perspective, the way banks deploy capital, can in essence fuel or stimulate an economy. It can also cause an economy to contract. I think in broad principles, banks across the continent almost all have a growth agenda. That puts them in a unique position to start to allocate capital, more focused on specific needs, whether it’s around inclusive growth, healthcare, or education. They can also deprioritise their capital. In other words, they can allocate more to renewable energy and less to fossil fuels. We’re seeing substantial dialogue about this, and many financial institutions, really thinking long and hard about it.”
The second role that banks can play, according to Renwick, is in resource mobilisation. Increased global and regional connectivity allows banks to mobilise more capital through attracting international investors.
“There are great examples of that happening in terms of attracting new sources of capital to sustainability projects. Banks are also investigating how you harness the significant pools of capital that sit in the pension fund and asset management community. They’re actively in discussion with them for them to think about their mandates and to start to invest in some of these asset classes,” he says.
The third role is engaging in policy dialogue, which Renwick says banks are well positioned to do because of their proximity to regulators.
Commitment in action
Absa has embraced sustainability through becoming a founding signatory of the UN’s Principles for Responsible Banking, committing to strategically align its business with the SDGS and the Paris Agreement on Climate Change.
Renwick says the bank is supporting sustainability in three primary ways. Firstly, in how it thinks about its advisory capabilities. “By that I mean capabilities where we can talk to governments, talk to businesses to understand the sectors in which they are operating, and understand their own unique kind of ESG needs,” he says.
The second way Absa is seeking to support the sustainability agenda is through capital allocation and capital raising. “We have very clear policies we’ve developed around oil and gas standards and coal standards,” he says.
“We mustn’t forget is what often called the ‘missing middle’. It’s very easy to talk about the extremes. We all know that wind farms and solar farms are good and that new coal mines can be bad. But there’s a whole lot in the middle: cement producers and chemical plants, for example. People are always focusing on the two bookends, but actually there is a lot that happens in between, so we’re spending a lot of time understanding capital allocation around that. We’ve been quite open about our targets. We’ve committed within the corporate and investment bank that by 2025, we wanted to have facilitated capital raising in excess of R100 billion (roughly £4.9 billion) of sustainable linked or sustainable financing opportunities on a Pan-African basis.”
Finally, he says, Absa is working to be an active voice for good. “Renewable energy is a big thrust for us as an organisation,” he says. “Traditionally, we’ve been more of a debt provider in terms of harnessing our balance sheet in terms of loans and risk management products, but we’ve focused on becoming an active equity participant. We recently committed capital to Africa Rainbow Energy, an African-led, world-class, renewable energy investment platform. The new entity will have about R6.5 billion in gross assets initially and will invest in selected renewable energy technologies including solar, wind, concentrated solar power (trough), biomass and other solutions.”
“We recognise the important role that banks have in financing the transition to a low-carbon economy. We are well-positioned to act as a catalyst on the continent; linking big dreamers, ideas, and resources to tackle Africa’s challenges, and we’re really committing to the continent’s transition far more than we have to many other sectors in the past,” he concludes.
Source: BBC
