Banking sector embraces ESG principles

The banking sector has taken a significant step toward embracing environmental, social and governance (ESG) principles, in a bid to promote sustainable banking practices.

At a crucial industry engagement organised by the Bank of Ghana, which afforded sector participants an opportunity to delve deep into the Ghana Sustainable Banking Principles – with a focus on principles 3 to 7, there was consensus that such tenets are imperative to achieving sustainable banking and fostering responsible financial practices.

Mr. Ismail Adam, Deputy Director-Banking Supervision Department, Bank of Ghana, highlighted the importance of principles 3 to 7.

“In our pursuit of sustainable development, the financial sector plays a pivotal role,” stated Mr. Adam, adding that: “By aligning our practices with the Ghana Sustainable Banking principles, we can create a positive impact on our economy, society and environment. These principles serve as a reference framework for banks, financial institutions and stakeholders to integrate sustainability into their operations, risk management and decision-making processes.”

Principle 3 talks about advancing gender equity and environmental considerations; principle 4, fostering collaboration for financial inclusion; principle 5, engaging stakeholders for resource efficiency; principle 6, promoting transparency; and principle 7, accountability.

The training session focused on key principles, including promoting good corporate governance and ethical standards

Sustainable banking has become a pressing priority in the banking industry, driven by global megatrend issues such as human security, anti-money laundering, socially responsible stewardship, information communication transparency and disclosure, corporate integrity, and environmental and climate change concerns.

The principles will be applied to five sectors that are particularly sensitive to environmental and social (E&S) standards and account for a significant proportion of portfolio exposure in banks. These sectors include agriculture and forestry; construction and real estate; manufacturing; oil & gas and mining; and power and energy.

Mr. John Awuah, president of the Ghana Association of Banks (GAB), underscored the need for financial institutions to be conscious of the impact their activities have on the environment and society.

He urged banks to reflect on their practices and uphold the principles they have committed to.

“As practitioners, we must consider the impact of our involvement in financial services on the environment, communities and people,” said Mr. Awuah.

“We need to be responsible and accountable for the activities we support, such as forestry, mining, energy and power, which can create environmental challenges. Reporting on our impact is crucial for measuring and improving our sustainability efforts, which is not only beneficial for the environment but also for the banking business. Non-compliance can lead to reputational damage and loss of customers and investors,” he added.

Mr. Awuah further emphasised the strong connection between sustainability and the banking industry’s overall stability. “Our brand affinity and risk mitigation are also linked to sustainability. Embracing environmentally sustainable practices can give us a competitive advantage and help maintain correspondent banking licences. It’s crucial for survival of the financial system.”

He called for coordinated efforts from all stakeholders within the financial institutions to make a difference. “Let’s all take sustainability seriously, from the board to the security personnel. By adopting sustainable practices within our institutions, we can set an example and encourage others to do the same”.

The Bank of Ghana’s initiative to equip the banking sector with the Ghana Sustainable Banking Principles demonstrates the nation’s dedication to aligning its financial practices with global sustainability goals.

As banks and financial institutions integrate these principles into their core operations, Ghana takes a significant stride toward a greener and more inclusive financial landscape.

The implementation of sustainable banking practices, the central bank noted, is expected to foster greater financial inclusion, social responsibility and environmental consciousness within the banking sector.

It added that with continued efforts and collaboration among stakeholders, the country will set an example for sustainable finance in the region and beyond.