Finance experts have projected that 2020 will likely be a turning point for sustainable finance in Africa’s mining sector.
Nigel Beck, Head, Sustainable Finance and Mark Buncombe, Head, Mining and Metals for Standard Bank Group in a report made available to the newsmen, explained that as corporate proactively implement measures to operate more responsibly and improve their Environmental, Social and Governance (ESG) performance, 2020 is shaping up to be a watershed year for sustainable finance in Africa.
They both believed that the continent’s mining sector is likely to be among the adopters of sustainable finance products, particularly as mining groups and their supply chains seek to demonstrate their positive societal and environmental impacts – and secure their social licenses to operate for the long-term.
In fact, they noted that pursuing ESG policies and responding to the challenges of climate change are both seen as more important priority areas than growth for the global mining and metals sector this year, according to law firm White & Case’s latest annual survey. Less than 9 per cent of respondents are pursuing growth as their leading goal for 2020.
According to them, while the sustainable finance market has started to gain serious traction in developed economies, it remains in its infancy in Africa, with only a few notable deals having been executed. Among those being East Africa’s first-ever green bond, issued in late 2019 by Acorn Group for the purposes of developing environmentally friendly student accommodation in Nairobi.
“But a step-change in activity in coming months is anticipated. Standard Bank’s sustainable finance unit has seen a surge in interest from all sectors, including mining, and that momentum is expected to continue as investors demand action and transparency and corporates globally take more responsibility for uplifting and safeguarding society. The sharp rise in interest points to pent-up demand for sustainable finance solutions in Africa.
“These unique funding solutions will play an important role in helping Africa’s mining industry to overcome common challenges – such as energy supply, water treatment, environmental protection and mine rehabilitation, impending carbon taxes, community development, health and safety, and resilient infrastructure development,”, they stated.
The experts noted that local miners are considering funding instruments such as social bonds to develop employee housing and infrastructure, or green bonds and loans to fund water treatment plants and renewable energy units.
According to EY’s 2020 report on the biggest risks and opportunities across the industry, ‘license to operate’ remains the most significant risk to the sector. Reducing the industry’s carbon footprint ranks fourth, while the need for innovation – to ensure access to energy and infrastructure and to improve water management, among other needs – also features as a prominent theme.
“There is a growing body of evidence that a stronger commitment to ESG issues is linked to a company’s outperformance over the long term, partly because operational risks are reduced.
As enablers of trade and investment, banks have an important role in encouraging the shift, which also needs to happen in the short-term supply and trade finance arena.
“This is why Standard Bank has been working with the International Chamber of Commerce’s Banking Commission to develop a framework that helps banks to develop sustainable trade finance practices,” they explained