Neither an irresponsible lender nor borrower be
Lending should be made only to economic activities that optimise the best return for the general community
The recent commitment of 130 banks from 49 countries to the UN principles for responsible banking (PRB), which were adopted in September 2019, marks an important milestone for the banking industry and so for the oil and gas industry as well. The principles guide banks on how to align their business strategy with society’s goals. This framework will undoubtedly play an important role in building a more sustainable future through a combination of project funding and investment considerations.
The PRB consist of six principles that set a global standard for responsibility.
- Alignment (business strategy to society’s goals).
- Impact and target-setting (increase positive impacts and managing risks to people and the environment because of our activities).
- Clients and customers (activities to create shared prosperity for the future).
- Stakeholders (engaging to achieve society goals).
- Governance and culture (effective governance).
- Transparency and accountability (reviews and reporting on sustainability).
Because stakeholders and society should be equally important for financial institutions, financial services firms will need to ensure that all risk-management categories are carefully considered before committing funding to the projects in future. As a leading financier of resource projects, with focus on mining, metals, oil and gas, Absa has seen sustainability become an even bigger focus when considering funding projects across Africa. Natural resources in all their forms are diminishing and it’s imperative that we all work in a sustainable and responsible manner to extract what is needed.
The key role of a bank is evolving and now includes making sure that where we provide funding, the economy and communities benefit as well. When considering funding of certain commercially viable projects, which include natural resources and extraction, lenders will place additional focus on the positive impact of our funding and involvement on a country’s developmental goals, the environment and its people.
Banks can only grow if they understand the symbiotic relationship between growth aspirations and the positive impact on country development, environmental and social responsibility goals.
Responsible lenders need to be committed to facilitating economic and sustainable growth, and sustainability challenges such as social inequality, growing population, increasing unemployment, pressure on natural resources, as well as climate change. Given Absa’s key role as systemic bank in the majority of markets we operate in, we also understand how energy poverty and infrastructure deficits worsen these challenges.
In this respect, now more than ever, financial institutions can pave the way to more sustainable economies by lending to economic activities that optimise the best return for the general community.
Capital providers can guide customers and stakeholders in their requirements for funding by applying the Equator Principles, which include applicable International Finance Corporation (IFC) performance standards on environmental and social sustainability (performance standards) and the World Bank Group environmental, health and safety guidelines for various sectors and for funding natural resources extraction transactions.
This means that any lending policy decisions should take a balanced view on their impact on the economies, development plans, communities, stakeholders, investors, clients and the environment at large. These considerations are non-negotiable and should adopted as standards.
• Webber is head of natural resources at Absa Corporate and Investment Bank.