Environmental, Social & Governance (ESG) principles have become even more important for any company's profitability and sustainability. Below, RMB Botswana's Sector Lead, Mining & Natural Resources MOEMEDI MOYO tells BOTSWANA GUARDIAN that they are more than ready to support companies who want to be ESG compliant.
BOTSWANA GUARDIAN: Kindly, as comprehensive as possible, explain the origin of the principles of Environmental, Social and Governance (ESG)
MOEDMEDI MOYO: ESG in modern day has come down to investing and reporting and this took shape in the 2000s. But that’s not to say ESG principles only took prominence in 2000s, they have been there much-more earlier. The famous story around ESG principles came about in 2005 when the then Secretary General of the United Nation, Kofi Annan wrote a letter to 50 institutional investors (some leading pension funds across 16 countries ) to join an initiative
to incorporate environmental, social and governance issues in investment decisions. This event culminated into the launch of the six principles of responsible investing.
- There has been major factors which drive these principles, resulting in a large ESG conscious market over the years.
First and foremost, there has been increased adoption and development of regulations, locally and elsewhere. All these new regulations in one way or the other, centres around how companies should be ESG conscious going forward. For example, in Botswana, you would note the introduction of the Sugar Tax in 2021. In addition, government is currently reviewing the Minerals Act which will also ensure players in the sectors are even more ESG cognisant. Across the border, South Africa has introduced Carbon Tax. The tax, introduced in 2019, gives effect to the polluter-pays-principle for large emitters and helps to ensure that firms and consumers take the negative adverse costs (externalities) into account in their future production, consumption and investment.
Secondly, there has been the introduction of European Union Emissions Trading System (EU ETS) which is a cornerstone of the EU's policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. It works more similar to International Financial Reporting Standards (IFRS) and is essentially a way of comparing apples with apples from ESG and climate change perspective allowing investors to compare companies with regards to their climate risks.
We have seen most banks and large corporate publishing their Task Force on Climate-related Financial Disclosures (TCFD) reports. We anticipate to see more of this in the coming years. We are seeing consumers putting money where their mouth is. There is a lot on information available and this allows for them to effectively make a decision on where they would like to spend their money on. Typically, consumers would not spend their money on a product that has issues in its value chain either being child labour issues or human right abuses.
Consumers are now more aware and products are aligning to their expectations. For example, if you buy a product and turn to the back side there is information on the fat content and other ingredients. The world over, asset managers are now incorporating ESG in their decision making process. This also helps to ensure they generate a measurable and positive social or environmental impact alongside financial or investment returns.
GUARDIAN: What is the basic definition of ESG from RMB Botswana standpoint?
MOYO: One of the interesting things about ESG is that it is quite broad. It is particularly important to understand where the interest really lies. From an RMB perspective ESG is a corporate strategy. We don’t believe it’s a standalone that supports tenets of the corporate strategy. It is a function of the strategy and all encompassing.
First Rand group, which we are part of, has been Party to the United Nations Environment Programme Finance Initiative (UNEP FI). In October the group became a signatory to the United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Responsible Banking (the Principles). The Principles, launched in September 2019, are designed to provide a universal framework for sustainable banking practices and encourage the sector to demonstrate how it makes a positive contribution to society.
The group believes the intended application of the Principles provides an important underpin to the way financial services can deliver better and more sustainable outcomes for the broader society. The Principles reinforce FirstRand’s approach to delivering both societal and financial value using core activities. As an emerging market bank and one of the largest, systemic financial institutions in Africa, FirstRand can contribute meaningfully to and learn from this global coalition of more than 300 signatory banks.
The Principles require signatory banks to align business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the United Nations Sustainable Development Goals (SDGs), the Paris Climate Agreement and relevant national and regional frameworks. This is not a zero-based exercise for the group, as aspects of its core business (looking after savings, delivering appropriate customer outcomes, paying taxes, creating employment and promoting inclusive growth and financial inclusion) are already contributing to positive societal outcomes. The adoption of the reporting requirements of the Principles will assist the group to better demonstrate progress against a globally recognised framework.
GUARDIAN: We understand RMB has a dedicated ESG team. What is the function of this unit within the broader commercial bank?
MOYO: Our main focus within ESG space as RMB is coming up with innovation around green social climate related products and services. How we do that is by partnering with our clients to formulate their ESG strategies and drive implementation and tracking for ease of reporting. Our strong regional presence provides a perfect opportunity to share ideas and best practices in advising our client across multiple jurisdictions.
GUARDIAN: What is the importance of ESG to sustainable finance?
MOYO: The overall objective of the sustainable finance offering at RMB is geared towards creating an ecosystems of solutions to meet each clients’ needs. As a corporate and investment bank, we also understands that, each company we support has a distinct transition journey. What we offer is ESG advisory, pathway to net zero emissions target and we even extend the offering to provide sustainable corporate strategy support to our clients. The bank also offers green, social sustainability linked loans and bonds, renewable energy procurement, green deposits, sustainable supply chain finance to our clients in need of net zero banking solutions.
GUARDIAN: More than ever before, governments, companies, regulators, among others, are interested in dialogue more on issues surrounding ESG principles. From where you are sitting, what is the importance of deliberating on ESG now?
MOYO: The Task Force on Climate Related Financial Disclosure (TCFD) has now become a key metric in company valuation as opposed to traditional valuation models that only focused on balance sheet and no view of the impact that the company makes on communities they operate on. We have noticed an increased litigation around ESG issues and this has necessitated regulators, companies and interested parties to talk more about ESG as a subject.
GUARDIAN: Innovation, across all sectors of the economy is taking centre stage. Having said that, how has the evolution of innovation impacted ESG implementation?
MOYO: Corporate innovation affects ESG in a positive way according to various studies. Companies that invest more in Research and Development (R&D) and patents tend to have better environmental, social and governance practices. In addition, ESG performance also promotes the quality and quantity of corporate innovation by alleviating the financial constraints and agency cost Innovation input also mediates the relationship between ESG performance and enterprise high quality development. Lastly, savvy investors would suggest that ESG innovation is just the next phase in our technological transformation
GUARDIAN: As a major player in the economy, what would will be the importance of government in facilitating the drive towards building a more sustainable and ESG-friendly economy?
MOYO: Botswana is a semi-arid country, highly vulnerable to the impacts of climate change. Droughts are most common in northern Botswana, and severe droughts are most common in eastern Botswana. High rainfall events and flooding are most likely in the north-east of Botswana. Current climate change impacts include constrained agricultural production, increasing food insecurity and water stress. There is a need to align our country approach towards global frameworks such as the green taxonomies. South Africa has a taxonomy that is linked to the EU taxonomy that borrows from other taxonomies.
Low-carbon green economy will require the range of economic actors each act strategically and decidedly towards this in a coordinated manner. A taxonomy provides a common language and agreed methodologies for determining eligibility, which enables different economic actors to identify and respond to investment opportunities and needs that contribute positively to specified objectives - such as the transition to a green economy - and which can support these actors to coordinate their actions.
Therefore, the taxonomy can be used as a risk management tool as well as a tool that helps direct and redirect finance to green activities by helping markets manage the impact of climate change. From an energy perspective, there is need to modify Botswana Power Corporation (BPC) to move from single buyer to a modified buyer that allows for IPP to sell power to the grid and liberate the role of BPC to focus on connection and transmission and allow generation to be handled by the private market.
GUARDIAN: As an investment bank, what kind of challenges do you encounter to support clients to be ESG complaint?
MOYO: In 2020 there was a survey that RMB undertook with the main aim of understanding various investor themes. We engaged with debt and equity investors in Africa and internationally and our findings are that there seems to be a disconnect between ESG reporting and main stream financial reporting and that speaks to the point that I made earlier around TCFD and there needs to be merging of the two functions and reporting on material aspects. Some first steps that can be taken to address these challenges.
With our offering to the market we provide clients with a one stop shop to drive the implementation of ESG and support companies in their own and value chain transition pathway to address issues their scope 1 2 and 3 emissions.
MOEDMEDI MOYO: ESG in modern day has come down to investing and reporting and this took shape in the 2000s. But that’s not to say ESG principles only took prominence in 2000s, they have been there much-more earlier. The famous story around ESG principles came about in 2005 when the then Secretary General of the United Nation, Kofi Annan wrote a letter to 50 institutional investors (some leading pension funds across 16 countries ) to join an initiative
to incorporate environmental, social and governance issues in investment decisions. This event culminated into the launch of the six principles of responsible investing.
- There has been major factors which drive these principles, resulting in a large ESG conscious market over the years.
First and foremost, there has been increased adoption and development of regulations, locally and elsewhere. All these new regulations in one way or the other, centres around how companies should be ESG conscious going forward. For example, in Botswana, you would note the introduction of the Sugar Tax in 2021. In addition, government is currently reviewing the Minerals Act which will also ensure players in the sectors are even more ESG cognisant. Across the border, South Africa has introduced Carbon Tax. The tax, introduced in 2019, gives effect to the polluter-pays-principle for large emitters and helps to ensure that firms and consumers take the negative adverse costs (externalities) into account in their future production, consumption and investment.
Secondly, there has been the introduction of European Union Emissions Trading System (EU ETS) which is a cornerstone of the EU's policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. It works more similar to International Financial Reporting Standards (IFRS) and is essentially a way of comparing apples with apples from ESG and climate change perspective allowing investors to compare companies with regards to their climate risks.
We have seen most banks and large corporate publishing their Task Force on Climate-related Financial Disclosures (TCFD) reports. We anticipate to see more of this in the coming years. We are seeing consumers putting money where their mouth is. There is a lot on information available and this allows for them to effectively make a decision on where they would like to spend their money on. Typically, consumers would not spend their money on a product that has issues in its value chain either being child labour issues or human right abuses.
Consumers are now more aware and products are aligning to their expectations. For example, if you buy a product and turn to the back side there is information on the fat content and other ingredients. The world over, asset managers are now incorporating ESG in their decision making process. This also helps to ensure they generate a measurable and positive social or environmental impact alongside financial or investment returns.
GUARDIAN: What is the basic definition of ESG from RMB Botswana standpoint?
MOYO: One of the interesting things about ESG is that it is quite broad. It is particularly important to understand where the interest really lies. From an RMB perspective ESG is a corporate strategy. We don’t believe it’s a standalone that supports tenets of the corporate strategy. It is a function of the strategy and all encompassing.
First Rand group, which we are part of, has been Party to the United Nations Environment Programme Finance Initiative (UNEP FI). In October the group became a signatory to the United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Responsible Banking (the Principles). The Principles, launched in September 2019, are designed to provide a universal framework for sustainable banking practices and encourage the sector to demonstrate how it makes a positive contribution to society.
The group believes the intended application of the Principles provides an important underpin to the way financial services can deliver better and more sustainable outcomes for the broader society. The Principles reinforce FirstRand’s approach to delivering both societal and financial value using core activities. As an emerging market bank and one of the largest, systemic financial institutions in Africa, FirstRand can contribute meaningfully to and learn from this global coalition of more than 300 signatory banks.
The Principles require signatory banks to align business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the United Nations Sustainable Development Goals (SDGs), the Paris Climate Agreement and relevant national and regional frameworks. This is not a zero-based exercise for the group, as aspects of its core business (looking after savings, delivering appropriate customer outcomes, paying taxes, creating employment and promoting inclusive growth and financial inclusion) are already contributing to positive societal outcomes. The adoption of the reporting requirements of the Principles will assist the group to better demonstrate progress against a globally recognised framework.
GUARDIAN: We understand RMB has a dedicated ESG team. What is the function of this unit within the broader commercial bank?
MOYO: Our main focus within ESG space as RMB is coming up with innovation around green social climate related products and services. How we do that is by partnering with our clients to formulate their ESG strategies and drive implementation and tracking for ease of reporting. Our strong regional presence provides a perfect opportunity to share ideas and best practices in advising our client across multiple jurisdictions.
GUARDIAN: What is the importance of ESG to sustainable finance?
MOYO: The overall objective of the sustainable finance offering at RMB is geared towards creating an ecosystems of solutions to meet each clients’ needs. As a corporate and investment bank, we also understands that, each company we support has a distinct transition journey. What we offer is ESG advisory, pathway to net zero emissions target and we even extend the offering to provide sustainable corporate strategy support to our clients. The bank also offers green, social sustainability linked loans and bonds, renewable energy procurement, green deposits, sustainable supply chain finance to our clients in need of net zero banking solutions.
GUARDIAN: More than ever before, governments, companies, regulators, among others, are interested in dialogue more on issues surrounding ESG principles. From where you are sitting, what is the importance of deliberating on ESG now?
MOYO: The Task Force on Climate Related Financial Disclosure (TCFD) has now become a key metric in company valuation as opposed to traditional valuation models that only focused on balance sheet and no view of the impact that the company makes on communities they operate on. We have noticed an increased litigation around ESG issues and this has necessitated regulators, companies and interested parties to talk more about ESG as a subject.
GUARDIAN: Innovation, across all sectors of the economy is taking centre stage. Having said that, how has the evolution of innovation impacted ESG implementation?
MOYO: Corporate innovation affects ESG in a positive way according to various studies. Companies that invest more in Research and Development (R&D) and patents tend to have better environmental, social and governance practices. In addition, ESG performance also promotes the quality and quantity of corporate innovation by alleviating the financial constraints and agency cost Innovation input also mediates the relationship between ESG performance and enterprise high quality development. Lastly, savvy investors would suggest that ESG innovation is just the next phase in our technological transformation
GUARDIAN: As a major player in the economy, what would will be the importance of government in facilitating the drive towards building a more sustainable and ESG-friendly economy?
MOYO: Botswana is a semi-arid country, highly vulnerable to the impacts of climate change. Droughts are most common in northern Botswana, and severe droughts are most common in eastern Botswana. High rainfall events and flooding are most likely in the north-east of Botswana. Current climate change impacts include constrained agricultural production, increasing food insecurity and water stress. There is a need to align our country approach towards global frameworks such as the green taxonomies. South Africa has a taxonomy that is linked to the EU taxonomy that borrows from other taxonomies.
Low-carbon green economy will require the range of economic actors each act strategically and decidedly towards this in a coordinated manner. A taxonomy provides a common language and agreed methodologies for determining eligibility, which enables different economic actors to identify and respond to investment opportunities and needs that contribute positively to specified objectives - such as the transition to a green economy - and which can support these actors to coordinate their actions.
Therefore, the taxonomy can be used as a risk management tool as well as a tool that helps direct and redirect finance to green activities by helping markets manage the impact of climate change. From an energy perspective, there is need to modify Botswana Power Corporation (BPC) to move from single buyer to a modified buyer that allows for IPP to sell power to the grid and liberate the role of BPC to focus on connection and transmission and allow generation to be handled by the private market.
GUARDIAN: As an investment bank, what kind of challenges do you encounter to support clients to be ESG complaint?
MOYO: In 2020 there was a survey that RMB undertook with the main aim of understanding various investor themes. We engaged with debt and equity investors in Africa and internationally and our findings are that there seems to be a disconnect between ESG reporting and main stream financial reporting and that speaks to the point that I made earlier around TCFD and there needs to be merging of the two functions and reporting on material aspects. Some first steps that can be taken to address these challenges.
With our offering to the market we provide clients with a one stop shop to drive the implementation of ESG and support companies in their own and value chain transition pathway to address issues their scope 1 2 and 3 emissions.
