More severe droughts, plagues, floods and famine are some of the anticipated impacts of climate change that we face globally. Over the past few years we have witnessed some of the impacts in Africa already: the 2019/2020 East African locust plague, the cyclones in Mozambique, the drought in South Africa. Against a backdrop of large infrastructure gaps and social inequality, tackling the climate crisis on the continent is a complex challenge. Sustainable finance can play an important role in driving that much-needed change.

Large investments are required across the African continent to combat climate change and drive inclusive growth. The African Development Bank estimates that financing for the continent’s infrastructure falls short by up to USD108 billion per year. This is where sustainable finance plays an important role. “For us, sustainable finance means driving capital towards projects and businesses that promote environmental protection and inclusive growth,” says Heidi Barends, Co-head of Sustainable Finance at Absa CIB. “This ranges from environmental projects that drive renewable energy and clean transportation, to social projects that deliver affordable housing or much-needed social infrastructure.”

“Our target is to finance or arrange ZAR100 billion for environmental, social and governance-related (ESG) projects by 2025,” adds Shiran Moodley, Co-head: Sustainable Finance at Absa CIB.

Absa is taking strides to contribute to a sustainable future

Absa Group is committed towards enabling a sustainable future. This is evidenced by its continued support of South Africa’s renewable energy programme, its new Sustainable Financing targets and by the Group becoming a founding signatory to the United Nations Principles for Responsible Banking (PRB) framework, in 2019. Additionally, the group published its sustainability policy and coal financing standard in 2020 and its first Task Force on Climate-related Financial Disclosures (TCFD) report in March this year.

“We’ve made commitments about how we report, how we manage disclosures and how we convert our inherent operating model into a more sustainable entity,” Moodley explains. “Absa CIB is making meaningful changes to the way we operate, in order to facilitate sustainable solutions for our clients. That means changing the way we assess deals by looking beyond credit metrics to include environmental and social aspects as well.”

Africa’s unique challenge

“Africa as a continent is least responsible for climate change, but it’s the continent on which the impacts will be felt the most,” says Barends. “As a key player in the regional economy, Absa’s role is to effect a just transition.”

Many countries in Africa are fossil-fuel dependent, relying on fossil-fuel industries to provide jobs, tax income or stable electricity. Decisions to limit emissions can have significant unintended consequences on the lives and livelihoods of people.  A just transition means solving for the social aspects, for example ensuring access to decent work, housing, and basic services, while transitioning from fossil-fuel dependency to renewable energies.

This requires a nuanced understanding of what’s possible, what’s practical and what’s reasonable. “The way that the just transition plays out in Africa may be vastly different from how it’s currently playing out in developed markets,” Moodley points out. “There are reasons for that, including economic dependency on certain minerals, the cost of transitioning and the availability of alternate energy sources. Social implications are incredibly important to consider in the African context.”

Sustainable finance solutions, then, need to be applied on a case-by-case basis, taking both challenges and opportunities into consideration. “We want to partner with our clients on their transition journeys,” says Moodley. “We work closely with our clients across Africa to identify new opportunities or mitigate risks arising from environmental changes, and to engage on their transition strategies and investment needs.”

The investment needed to drive inclusive growth, mitigate climate change and adapt to the changing weather patterns in Africa is vast. “Climate change affects everyone. It’s a threat multiplier that exasperates the challenges the continent already faces, for individuals, businesses and states,” says Barends. “In delivering sustainable finance we are preparing our clients and positively impacting the societies in which we operate.” DM

Shiran Moodley/Heidi Barends Co-heads Sustainable Finance, Absa Corporate and Investment Banking