L-R: UBA CEOWilbrod Owor, aBi CEO Mona Muguma, Deputy Governor Atingi-Ego and UBA Chairman Julius Kakeeto after launching the ESG Framework
The banking industry has launched an Environmental, Social and Governance -ESG Framework, a step towards making sustainability operations mandatory.
The ESG is a set of aspects, including environmental issues, social issues and corporate governance that can be considered in investing, also referred to as responsible investing or impact investing.
Under ESG, financial institutions are required to consider the promotion or protection of the environment and social welfare as well as safeguards against corruption, when evaluating a project for financing.
In recognition of the need for sustainability and responsible investing as well as the need to align with international developments, the Bank of Uganda two years ago commenced the process to ensure that the local industry is ready for the change.
Bank of Uganda Deputy Governor, Michael Atingi-Ego said the rate at which the climate change effects are escalating calls for urgency in transforming the way business is done.
“This pioneering initiative will transform our collective approach to promoting best practices in ESG matters. The urgency of sustainability cannot be overstated. Our planet faces unprecedented challenges, from climate change to resource depletion and social inequalities,” he says.
Atingi-Ego said if the banking industry takes charge and all comply with the framework, it can catalyze sustainable economic activities and foster responsible business practices.
“Through lending decisions, investment strategies, and operational practices, you wield the power to redirect capital towards renewable energy, clean technologies, green infrastructure, and social impact initiatives,” he told the bankers.
Julius Kakeeto, Chairman of UBA, noted that business operations worldwide have changed, including factors affecting consumption as well as the demands of shareholders, regulators and communities.
“Whereas in the past, investors, shareholders, and potential investors focused solely on the financial performance of the companies in which they invest, hold stakes in, or anticipate investing in, and the return on investment earned, recent trends have revealed a change in expectations,” he said.
These, he said, were becoming aware that non-financial factors such as the impact of the company’s activities on the environment, equitable treatment of employees, the ethical culture of the business, and its stance on matters such as bribery and tax evasion affect the longevity of the company’s business.
The framework implementation and enforcement will be phased as the different financial institutions were found to be at different levels of instituting ESG practices.
On the implementation, Wilbrod Owor, UBA Chief Executive Officer said that all regulated FIs are expected to comply because the framework is a brainchild of the regulator, BoU.
He added that they were consulted and had their input before the framework was approved it. The performance of the institutions will be measured in phases, with targets based on 12-month, 24-month and 36-month milestones, which will also be part of BoU’s usual spot checks.
“But we are not waiting for regulations to see that tree-cutting causes desertification. You don’t need someone to tell you that you are financing a project that is damaging the environment,” said Owor
The bankers hope to support Uganda in achieving its sustainable goals while ensuring financial inclusivity and the social welfare of the population. The pillars of the framework include understanding ESG capabilities and opportunities at all levels of the UBA member institutions right from the Board level, management, training needs, IT and officer.
The other pillar is guidance on formulating a sustainable finance framework for green, social and sustainable bonds covering four core components of the process of project evaluation and selection, use of proceeds, management of proceeds and reporting.
The framework is also made to guide on identification and management of potential sources of ESG and climate-related risks, and their direct/indirect impacts on other risk subtypes over the short, medium and long term. The framework development and implementation are jointly facilitated by aBi Trust and MasterCard Foundation.
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