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.
UNEP News Release 2007/22