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Relevance of ESG to banking sector (2)

BY: Access Bank Ghana Plc

Some institutional investors are also divesting from assets that could potentially depreciate over time because of the proliferation of Environmental, Social and Governance (ESG) sensitivities, e.g., fossil fuel assets.

They are seeking investments that will deliver real impact on climate change, create inclusive growth, and reduce inequalities in communities. Banks like Access Bank have a long history of engagements in communities through their Employee Volunteering Programme.

Every year, employees are mandated to align with the bank’s programme to undertake community engagements that align with its Sustainable Development Goals (SDGs) of influence. Last year, Access Bank undertook initiatives aligned with SDG4, aimed at inculcating the habit of reading in children across 12 communities in Ghana.

Banks need to take the preferences of institutional investors seriously because investments into ESG funds have been increasing steadily. The millennial generation is in line to receive a historic and the most valuable transfer of inheritable wealth estimated at US$68 trillion by 2030. Millennials are generally known to be environmentally and socially driven and will typically endorse institutions with demonstrable environmental and social considerations.

Millennials are generally twice likely to invest in a fund or stock with clear social responsibility criteria. Banks who embed ESG criteria in their fund allocation, investment portfolios and corporate practices will be better positioned in attracting not only an important client base, but a dynamic workforce more interested in purpose driven institutions.

Investors are becoming concerned about the effects of climate change, extreme weather and regulatory compliance. Investors are also becoming concerned about social contracts and relationship of organisations to their communities, and are obviously paying heed to the dramatic increase in ethical consumerism which is driving how consumers choose products in the market. Above all, diversity, inclusivity and stakeholder activism are informing values attributed to organisations by ESG investors. To stay relevant and competitive, integrating ESG has become essential and critical to the long-term survival of banks, because of the competing imperatives of ESG aligned funding.

The essentials of ESG aligned investments

Proponents seeking investments in ESG funds will typically seek information about ESG performance. The ESG performance is an integral part of corporate disclosures, which are made through sustainability/ESG reports. The corporate ESG Report provides an understanding of an organisation’s ESG performance. The report outlines progression in ESG initiatives over time, benchmarked against local, national and/or global standards.

It also outlines measures where compliance has been met, are yet to be met and where they fall short of compliance. Generally, organisations will highlight partnerships with environmental and social causes, as well as internal or third-party assessments on employee satisfaction, development and employer turnover. The best reports will appeal to a wide range of stakeholders in non-technical language, including company vision, mission and letter from CEO or Governance Board.

To attract ESG investment, banks in Ghana, especially, will need to highlight how they meet the Sustainable Banking Principles (SBP), especially, and their ESG performance into their Annual Reports and how they are fully compliant with reporting to Bank of Ghana’s Sustainable Banking Reporting requirements. To enhance credibility, ESG reports can also be independently assured to verify disclosures and win confidence of stakeholders.

How can banks integrate ESG into their operations?

1- Develop a plan: Identify material ESG issues that are critical to the bank, stakeholders and broader public. Establish ambition and buy-in of leadership, which is imperative to driving tangible change. Commitment to ESG issues which are aligned with a bank’s bottom line generally unlocks more tangible results as compared to prioritising unrelated issues. Develop a plan which focuses on closing the gaps identified with SMART actions and defined goals that are delivered over a set timeframe with due consideration to materiality and impact of the action plan.

2- Establish a dedicated ESG desk: It is important to dedicate resources towards implementing ESG and not consider implementation as extra work for existing staff as some banks, including Access Bank, have done already. Realignment of existing job descriptions could also yield tangible results, and it is worth noting that the scope of ESG implementation may be potentially too large to realise without a dedicated desk.

3- Drive visibility through corporate reporting: ESG reporting is critical in attracting ESG aligned investment as investors and stakeholders will appreciate a Bank’s ESG performance. It is important to avoid greenwashing and commit to disclosures that are verifiable. The ESG reports can be a stand-alone document or integrated into the Annual Financial Report and can be combined with consistent marketing informed by a requisite communications strategy and strategic PR initiatives to improve on visibility and branding to appeal to wider stakeholders.

4- Commit to continuous improvement: ESG investors are likely to track your ESG performance over time. It is therefore important to integrate a culture of growth, continuous improvement and education of key stakeholders including leadership, employees, customers and key collaborators, especially supply chain, about your ESG initiatives and commitments.

Some leading banks like Access Bank have proven credibility in good Governance through their history of crafting internal sustainability initiatives that encourage employees to act as responsible citizens. They have long established a Sustainability Policy which enshrines the organisation of a Sustainability Week every year to celebrate the bank’s commitment towards good governance and environmental safeguards, refresh employees on current trends in ESG and operations, and most importantly, reposition the bank’s trajectory towards sustainability.