BELOW IS a speech delivered at the 2023 Zimbabwe Independent Banks & Banking Survey and Award ceremony held last week on Thursday. The survey is sponsored by First Capital Bank:
I would like to acknowledge the organisers of this event for affording me a chance to share insights into the emerging field of Environmental and Social Governance (ESG).
The financial services sector stands at the crossroads of the destiny of humanity. You are now at the centre of things, with regard to shaping the “Future We Want”.
A future that is sustainable for us and our children. This is why a number of financial institutions have incorporated Environmental Social and Corporate Governance (ESG) in their corporate strategy.
We do not have Planet B, other than earth. The decisions that we make in our financial institutions have a bearing on the survival of humanity. We therefore must toughen up or lose our future.
The world is faced with a plethora of environmental and social challenges. These range from climate change, depletion of the ozone layer, deforestation, waste generation and hazardous chemicals spillages.
On the social front — child labour, workplace slavery, sexual exploitation abuse and harassment (SEAH), occupational accidents and fatalities continue to wreak havoc in the world of work.
Every 15 seconds a worker dies at work. Every day 6300 people are dying at work and over two million people are dying at work annually. Over the years, banks have evolved to start implementing Environmental Social Governance programmes to curb these problems. What started as a voluntary initiative, has become more regulated worldwide.
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The Reserve Bank of Zimbabwe (RBZ) has encouraged through the monetary policy statements, adoption of the Sustainability Standards and Certification Initiative (SSCI). Recently, the central bank issued the Climate Risk Guidelines for the Banking Sector.
These are very excellent and commendable efforts towards greening our financial services sector. Stakeholders in the banking sector must support these initiatives in order to guarantee a sustainable future.
The Zimbabwe Stock Exchange is now requiring environmental and social information disclosures for all listed companies. This is in line with global best practice and regional counterparts such as Johannesburg Stock Exchange. Without ESG, capital will be difficult to raise, worldwide. No investor wants to be associated with risk and poor reputation.
For how long shall we wait whilst pollution destroys our environment? For how long as financial institutions shall we provide financing to borrowers who affect society by their actions? For how long shall we be complicit with the destruction of our natural resources?
Implementing ESG to the level of best practice also includes transparency and reporting of ESG performance using internationally recognised standards such as the Global Reporting Initiative (GRI), International Financial Reporting Standards (IFRS) S1 and IFRS S2.
The practice of ESG reporting should be adopted across the banking sector in Zimbabwe. Progressive banks also have established exclusion lists specifying projects and activities that they cannot finance, such as activities related to trafficking of drugs, cruelty to humanity, child abuse, pornography, highly polluting activities and other social vices.
Progressive banks are mainstreaming sustainability in the evaluation of borrowers and using environmental and social criteria as one of the determinants of financing decisions.
Banks, which are forward looking, are already implementing energy saving and renewable energy projects in their own operations as well as promoting energy audits. Water stewardship and gender mainstreaming are also other key initiatives being implemented.
There is a proliferating undesirable practice amongst financial institutions and other organisations at large — which is the practice of greenwashing. Greenwashing is a situation where organisations lie about their sustainability performance to stakeholders in order to be perceived as environmentally and socially conscious. This practice of greenwashingmust come to an end.
The Reserve Bank of Zimbabwe is recommended to continue providing leadership in the banking sector and to develop mechanisms to prevent greenwashing and fraudulent ESG claims. The central bank is recommended to consider setting requirements for the independent assurance of sustainability information produced by banks in Zimbabwe. At Board level, we encourage capacity building of board members and implementation of ESG.
Implementation and adoption of ESG is being driven by a number of factors at local and international level. Some of the main issues include regulations, stock markets, customers, shareholders, civil society and pressure groups and the need for a social licence to operate.
Most international investors today are risk averse and any bank, that requires international support needs to tighten up on ESG.
With respect to corporate governance; banks must continue to improve their processes, structures and mechanisms that determine the direction of their organisations. Greater emphasis at regulatory level and best practice remain rooted, in weeding out corruption, unethical practices and bribery.
These antics have no place in our banking sector. Corporate governance remains a key pillar of ESG and is a key determinant of business continuity and public trust.
If we need to attract foreign direct investment (FDI) into Zimbabwe, implementing ESG could be one of the strategic moves to attract financing. A couple of banks in Zimbabwe are making headway with international green financing opportunities such as Green Climate Fund, Adaptation Fund and other Climate Investment Funds.
The benefits of implementing ESG for financing institutions include better relations with regulators, cost savings on resource costs, improved corporate image, access to international investors and access to stock markets.
The train has already departed. Lagging behind as a financial institution is dangerous. The cost of doing nothing is greater than the cost of acting on ESG. It is now or never. Action must be now and not tomorrow. For we do not have time to waste.
The following recommendations are critical as we move forward:
Financial institutions must consider including ESG in their corporate strategies
Boards of financial institutions must have capacity of oversight on ESG and be able to make ESG a board agenda
At operational level, bank chief executives (CEOs) and management should ensure that in bank processes — borrowing, recruitment, supplier engagement and other activities are in tandem with ESG standards.
Financial institutions must report on their ESG performance using recognised international standards.
Financial institutions must ensure that ESG information is reliable, traceable and truthful.
With regards to the central bank and in line with international best practices, it is imperative to require Banks to report their ESG performance on a regular basis
Strengthen requirements for sustainability reporting disclosure amongst the banks in Zimbabwe.
There is a dire need to set requirements for assurance of sustainability information from banks, in order to prevent greenwashing
There is need for capacity building of the whole financial service sector on emerging issues such as ESG, climate risk etc, in order to facilitate high level of implementation.
Diversify, the range of standards on sustainability in light of recent developments such as new GRI Standards, International Financial Reporting Standards (IFRS) S1 and S2; in order to harness and maximise the interoperability with other frameworks such as Sustainability Standards and Certification Initiative (SSCI).
We are living in a world with a population of seven billion people currently and by 2050, we shall have nine billion people. Each of them with their own material and resource needs to eat, to dress, to have accommodation and mobility.
It is time we adopt sustainable consumption and production patterns; it is time we green the financial services sectors. It is time we devote ourselves to action. Together we can! May I take this opportunity to congratulate those who were announced as winners in various awards categories. The sky is the beginning!
- Muzamwese is an international consultant in sustainability. He has carried out audits, training and consultancy in more than 100 businesses drawn from 30 countries across the world. He is a sustainability consultant and founder of Toxiconsol Consultancy t/a African Sustainability Consultants.
