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To guide and accelerate the standardised adoption of Environmental Social Governance (ESG) best practices, the Uganda banking industry, under the Uganda Bankers’ Association (UBA), has launched and committed to jointly implementing an industry-wide ESG framework.
The framework is also in line with a Bank of Uganda-led move to champion the process of integrating ESG and sustainability principles into the operations of supervised financial institutions.
The launch which took place on the 4th of June 2024, at Katonga Hall, Serena Hotel, was presided over by Dr. Michael Atingi-Ego, the Deputy Governor, Bank of Uganda. Also in attendance were representatives from the Ministry of Finance, the CEO of aBi Finance, Mrs. Mona Ssebuliba Muguma as well as several CEOs from UBA member financial institutions.
Uganda Bankers’ Association is an umbrella organisation for all financial institutions supervised by the Bank of Uganda.
“This ESG framework is vital for banks and financial institutions because it fosters responsible investments, mitigates risks, meets regulatory standards and helps financial institutions thrive in a changing financial landscape while contributing positively to the environment and society,” Julius Kakeeto, UBA’s newly-elected Chairperson, told stakeholders at the breakfast launch.
“The purpose of this framework is therefore to help guide UBA members through the process including getting buy-in across all institutional levels, securing & allocating resources (human, financial, technical etc); building capacity to implement ESG activities (policies, the existence of processes and procedures, training/skilling, configuring systems, measuring, reporting, creating awareness); as well as risk avoidance or mitigation (operational, reputational or other),” he added.
Kakeeto further said the industry ESG framework, coupled with regulations, guidelines and other oversight functions will help supervised financial institutions in effectively addressing sustainability issues and promoting environmentally responsible practices.
“Today is therefore the beginning of an important milestone in the ESG journey and the real progress will be measured by how much we put it into action collectively,” Kakeeto urged other UBA member leaders.
Speaking at the launch, Dr. Michael Atingi-Ego applauded the industry ESG framework and said that 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. The financial sector, a cornerstone of our economy, must lead the charge in addressing these pressing issues. By integrating ESG considerations into our strategies and operations, we can mitigate risks, unlock new opportunities, and drive positive societal impact,” said Dr. Atingi-Ego.
“The Ugandan banking sector is uniquely positioned to 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. This contributes to long-term financial stability and fosters positive societal impacts,” he reiterated.
ESG is a powerful tool for financial sector transformation and an engine for growth and inclusivity
Dr. Atingi-Ego said that the Central Bank in October 2022 carried out a study to understand the financial sector’s approach to ESG sustainability and that while a strong interest in ESG was evident, there was a visible lack of consistency. The findings also indicated that the different member financial institutions were at different levels, with some having walked a bit of the journey while others had very little, if any idea, about ESG.
Subsequently, in March 2023, the Bank of Uganda (BoU) officially launched its sustainability certification process under the Sustainability Standards and Certification Initiative (SSCI) by the European Organization for Sustainable Development. A meeting was the held between Uganda Bankers’ Association (UBA) and BOU about the need for institutionalising the ESG agenda and a roadmap was adopted that among others included developing an industry framework to support & guide member financial institutions through the process.
“To achieve measurable progress and assess the industry’s impact, a unified approach with policy guidance and capacity building is crucial. The Industry ESG Framework directly addresses this need. It promotes a holistic and harmonized approach, ensuring measurable benefits for the sector and, ultimately, economic transformation. This framework signifies our commitment to embedding ESG principles within the financial sector, driving positive change,” Atingi-Ego said in his speech.
“The ESG framework will guide our SFis in embedding ESG principles into their governance structures, risk management processes, product offerings, and reporting practices. It will foster transparency, accountability, and a shared understanding of our sustainability commitments. The framework offers a unified approach for ESG integration across the banking sector,” the Deputy Governor further explained.
He however clarified that the ESG framework doesn’t take away the need for individual SFIs to seek international sustainability certification. He also underlined the fact that the successful implementation of the ESG Framework required the industry’s collective commitment and collaboration.
He also stressed that by embracing the ESG framework, the financial sector can unlock its true potential and drive national socio economic transformation.
“This framework should not just be a guideline, but a call to action- a call to bridge the gap between where we are and where we can be. Currently, the ratio of domestic credit to the private sector in Uganda stands at a mere 14% of GDP. In contrast, Kenya boasts 32%, and the sub-Saharan Africa average is around 30%. This disparity highlights a significant opportunity for us to improve. I urge the UBA to take the lead in addressing this gap,” he reiterated, adding: “Together, through the diligent application of the ESG framework, we can transform our financial sector into a powerful engine for growth and inclusivity. Let us commit to this journey, unlocking the full potential of our domestic savings and investments, and driving Uganda towards a prosperous and sustainable future”.
Mrs. Mona Ssebuliba Muguma, whose aBi Finance has been a technical assistance partner in the process of developing the ESG framework, said that adopting sustainable environmental, social inclusion and governance principles, was a smarter way of doing business and urged the financial institutions to adopt a partnership model, even though they were competitors.
“This framework is one that enables us to all move together, and ensure that we understand it and implement it. The sustainability war; the social inclusion or the environmental management frontier is not one where we are looking to compete. I believe you agree with me that this is a frontier that requires more collaboration; that requires more partnership than it does competition. There’ll be other spaces in which to compete. This is more of a space for us to link arms and partner,” she urged the bankers.
Kakeeto, concluded by urging the industry to prioritise the institutionalisation of ESG and sustainability practices in all aspects of their operations.
“Sustainability is swiftly becoming a crucial global concern, heightening awareness of issues like climate change, social inequality, and corporate misconduct, which issues are significantly altering the market landscape. The reputation and business success of financial institutions are now influenced by their sustainability practices and corporate behaviour. Consequently, the shift toward sustainability holds the potential to profoundly reshape the global financial sector. Inaction and delay are not viable options,” he said, adding: “Financial institutions occupy a pivotal position in addressing ESG risks because they can direct capital towards transformative investments and projects that are sustainable”.