Physical Address
Kampala, Uganda
Financial institutions in Uganda continue to enhance their focus on the sustainability agenda at industry and institutional level. This heightened focus has most recently been marked by the launch of the ESG Framework for the Banking and Financial Sector by Bank of Uganda and other industry stakeholders and the adoption of the Principles of Responsible Banking (PRBs) by banks – the most recent being Diamond Trust Bank (DTB).
It cannot be overemphasized that financial institutions and broadly, the private sector, have a key role to play in the efforts towards achieving the objectives set out in various sustainability frameworks such as the Sustainability Development Goals (SDGs), the Paris Agreement, and related frameworks.
To that extent, the PRBs are critical in influencing meaningful contribution of banks in driving traction towards more sustainable business practices. This article provides an overview of the PRBs. It also makes the case for the opportunity presented by the PRBs for banks to develop and promote climate financing solutions in Uganda.
An Overview of the Principles of Responsible Banking
The PRBs are a dedicated and leading framework whose purpose is to ensure that banks’ strategies and practices are in alignment with the world’s vision for the future – which vision is stipulated in the SDGs and the Paris Agreement. The PRBs are essentially a call to action and an accountability mechanism for banks to put people and the plant ahead of short-term profits through targeted and concerted steps independently and in collaboration with their stakeholders.
The principles contained in the PRBs include the following:
Principle 1 – Alignment: This principle requires banks to bring their corporate strategy in alignment with the needs of society as expressed in various frameworks. It follows then, that for banks in emerging economies such as Uganda, their corporate strategies should be aligned with key development priorities such as financial inclusion, trade & industry, education, and agriculture among others.
Principle 2 – Impact & Target Setting: The crux of this principle is dedicated and targeted steps towards addressing the concerns impacting society that banks can address. It requires banks to assess their impact and set correspondent targets to address that impact. This impact could be to the environment – in terms of financing to high-emission sectors for example. A correspondent target would be reducing the bank’s loan book exposure to high-emission sectors and increasing financing to renewable energy projects.
Principle 3 – Clients & Customers: This principle requires banks to take their customers & clients along the journey – and support them in incorporating sustainability considerations in their business practices.As financial advisors, banks stand in a unique position to support their customers adopt sustainable business practices coupled with extending sustainable financing solutions to support them on this journey.
Principle 4 – Stakeholders: The sustainability agenda is one that cannot be driven in isolation and as such, this principle requires banks to engage and establish key relationships with third parties that are necessary for the attainment of the sustainability objectives.
Principle 5 – Governance and Culture: Responsible banking must be infused within the culture and fabric of the organization and must form part of the way in which banks do business. Banks are required to demonstrate this culture through their governance processes – including appropriate elevation of the sustainability conversation at a board level.
Principle 6 – Transparency and Accountability: This principle requires a periodic review of the actions banks are taking as well as ensuring transparent reporting to society on those actions.
Action plan for promoting Climate Finance
On the basis of the PRBs highlighted above, there are several actions that banks can undertake to promote climate finance in Uganda. A few of these include the following:
- Embedding climate change considerations – including climate risk – as part of their strategic considerations;
- Establishing the requisite responsible banking governance frameworks at an institutional level – which may include sustainable finance frameworks, and climate risk policies among others;
- Enhancing board and senior management focus on sustainability as a key strategic imperative; and
- Designing products and services that drive the adoption of sustainable business practices including providing green, social, and sustainability-linked financing instruments tailored to clients’ needs.
Conclusion
The majority of the sustainability frameworks remain voluntary and non-binding in nature, especially for the private sector. Where private sector players adopt these frameworks, it is critical that the implementation be pursued meaningfully, and with dogged focus in order to drive lasting impact. The PRBs are a unique opportunity to drive this impact and are an avenue through which the adoption of climate financing solutions in Uganda can be accelerated.
Disclaimer: “The views and opinions expressed on the site are personal and do not represent the official position of Stanbic Uganda and Khulani Capital.”
