Alex Rose-Innes
With financial experts weighing in on future global green investments, governments on the African continent could also be forced, just as the rest of the first-world countries, to disclose climate risks by the end of next year.
In order to raise capital, higher levels of regulation to combat poor governance and corruption are now called for. Growing interest in environmental, social and governance (ESG) issues are seeing investors increasingly studying non-financial factors as part of an analysis process to identify material risks and growth opportunities.
The European Commission had already called for investment frameworks, working with 27 individual member states, to regulate corporate disclosures. With investments already totalling trillions of US Dollars in 2018, the call for information regarding governmental ESG footprints is growing on a daily basis.
It is expected that US President, Joe Biden, with climate adviser, Al Gore, during the World Climate Summit in November this year, would drive the establishment of a Well-Being of Future Generations Act providing various reasons for African governments to step up. With the big role the continent has to play in combating climate change, financial experts from the International Monetary Fund and the World Bank are urging African governments to get ahead of the curve.
Policies and procurement would be impacted by ESG’s as the market calls for increased gender diversity on private company boards and government as social and environmental governance are considered of utmost importance in the world of high finance. Certain experts are suggesting that investor appetite for ESG-related investments would eventually outstrip the availability of ESG-positive assets on the market.
Meanwhile, Moody’s ESG February 2021 Global Update reported that major economies are integrating their pandemic recovery efforts with carbon emissions reduction. This means the impact of ESG issues on financial markets would continue to accelerate during this year as the effect of governmental stimulus, decarbonisation policies and greater disclosure requirements overlap.
The increased interest in ESG from US and global investors would necessitate higher levels of regulation and due diligence for fund managers seeking to raise capital from investors. For African countries this could mean a huge boom in investing from global development finance institutions and private investors.
Research from ICBC Standard Bank, which had developed the Belt and Road Green Finance (BGRF) Investment Index to measure sustainable capacity and potential for engagement, showed a capacity deficit towards the sustainable agenda, but indicated that African countries in the Belt and Road Initiative (BRI) could be supported towards these goals by engagement with China.
Results of the BGRF show that there is a huge difference in green performance capacity between countries along the BRI with the lowest capacity in Sub-Saharan Africa. Pressure on the environment for resources and future growth is particularly significant.
In an in-depth review of economies in Africa, Business Day showed that Sub-Saharan countries scored lower on climate change and environmental efficiency sub-indicators of green economic performance. To successfully address this, African countries had been advised to individually establish development strategies with regards to resources and capacities for the future.
The push toward ESG is increasingly influencing capital allocation to African governments. The African Exchanges Linkage Project, an initiative between the African Securities Exchanges Association and the African Development Bank to unlock pan-African investment, found that most asset fund managers on the continent considered market regulation and transparency regarding correct market data and pricing to drive the future of green investment.
