By Walid Ali, General Manager of the Sustainability Department, Central Bank of Egypt, and Eliki Boletawa, Director, Policy Programs & Implementation, AFI
A historic decision was made five years ago in Sharm El Sheikh that ultimately proved to be momentous. A room full of central bankers, over 700 financial regulators from developing and emerging economies, endorsed the Sharm El Sheikh Accord on Inclusive Green Finance on a hot September day in 2017.
Financial regulators recognized that not only climate change poses risks to the financial system, but also that it disproportionately impacts the most vulnerable populations. Sharm El Sheikh Accord on Inclusive Green Finance (IGF) recognized that access to financial products and services increases climate resilience and enables small-scale mitigation amongst the most affected and vulnerable. This was the start of the inclusive green finance and since then several members in the AFI network have developed and are now in the process of implementing IGF policies and initiatives.
Five years later, we are back in Egypt for the upcoming 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change (UNFCCC). The Alliance for Financial Inclusion (AFI) and the Central Bank of Egypt (CBE) are bringing inclusive green finance to the climate action discussions. This year’s COP theme of “Delivering for people and the planet” is a chance for AFI member institutions to share how inclusive green finance can be used for its holistic approach to financial regulation.
AFI members have developed and implemented numerous policy solutions that help build resilience to the impacts of climate change and promote mitigation, from integrating inclusive green finance into financial inclusion strategies or other national financial sector strategies, to issuing distinct and specific IGF policies. Developing green taxonomy is on the rise along with the demand among national stakeholders to define and understand what is considered green in their countries.
While some countries, like Sao Tome and Principe and the Solomon Islands, have chosen to incorporate the IGF into their national financial inclusion strategies, others, like Ghana and the Philippines, have taken a more general approach and issued Sustainable Finance/Banking Guidelines or published Sustainable Finance Roadmap, as Rwanda recently did. Fiji completed its second Financial Services Demand-Side Survey, with a particular emphasis on women’s resilience to climate disasters.
Egypt, host of the COP27 in Sharm El Sheikh, introduced the Guiding Principles for Sustainable Finance in 2021 laying the foundation for sustainability and sustainable finance concepts among Egyptian banks. Just this month, the CBE issued binding sustainable finance regulations, a milestone in strengthening the banking sector’s role in accelerating the transition towards a green economy and responding to current and emerging environmental and social risks. The regulation includes the establishment of an independent department for sustainability and sustainable finance within each bank, as well as binding banks to integrate policies and procedures for sustainable finance within their credit and investment policies
AFI members recognize that considering low-income populations when addressing climate and environmental challenges helps avoid social tensions or further exacerbate social inequalities. This approach addresses financial stability concerns and paves the way for a genuine just transition to more resilient and sustainable economies. For example, while the carbon footprints of small households and micro, small and medium enterprises (MSMEs) are individually insignificant, but with access to financial resources and appropriate technologies, they too can contribute to the global efforts to reduce greenhouse gas emissions.
The changing climate is exposing and exacerbating the vulnerabilities in economies around the globe. The global COVID-19 pandemic has challenged the stability of our financial systems, something we will see more of unless we address the climate crisis. While we need to re-evaluate and strengthen our risk management mechanisms and safeguard our financial systems, we must include low-income groups and those excluded from our financial systems and reinforce financial inclusion efforts we have achieved over the years.
Join us to discuss the needs of the most vulnerable and inclusive green finance solutions at the inclusive green finance side event at COP27 in Sharm El Sheikh, on 16 November at the Benelux-EIB Pavilion.
AFI’s Inclusive Green Finance (IGF) workstream is part of the International Climate Initiative (IKI) supported by the German Federal Ministry for Economic Affairs and Climate Action (BMWK), based on a decision of the German Bundestag.