“Amidst the COVID-19 outbreak, we are seeing banks and corporations now expanding their sustainability teams. We all want robust economies that serve public policy purposes and are inclusive,” according to Mark Halle, Senior Advisor of the International Network of Financial Centres for Sustainability (FC4S) at a webinar organised by the Inclusive Green Finance (IGF) Working Group yesterday.
“This represents a fundamental system shift because if they want to come out of this outbreak successfully, then they need to come out of it capable of addressing sustainable finance solutions to our current problem.”
Halle also underscored the reality that in many countries, especially in the developing economies, those at the bottom of the economic pyramid will feel the impacts of the pandemic most. However, opportunities lie in how we roll out immediate and long-term recovery solutions, as well as build resilience for future events.
“While a climate disaster and a global pandemic is very different by nature, some of the policy response and instruments that can be used are similar and applicable, and can even can overlap,” said Johanna Nyman, Head of Inclusive Green Finance at AFI.
AFI Network’s new kid on the block, the IGF Working Group, has increased its numbers to 40 from 29 member institutions when it was launched at the 11th Global Policy Forum in Kigali, Rwanda last year.
Established to bring together policymakers from a range of technical experiences and knowledge on IGF policies and initiatives from AFI institutions, the Working Group, which now represents 37 countries has already published three knowledge products and achieved one policy change despite being less than a year old.
AFI Deputy Executive Director Norbert Mumba attributes this growing interest in IGF to the realization that an invaluable business case can be made in incorporating financial inclusion into policies that addresses the climate emergency.
“Taking effective action against the dramatic impact of climate change is in everyone’s interest and as AFI, we are part of the growing momentum for green finance globally,” said Mumba at the first of three IGF webinars.
“This calls for policies that will provide for sustainable alternatives. This working group is therefore unique and comes with a big potential impact.”
A series of webinars organised by the AFI IGF team has seen participants from all AFI member regions, with 40 attendees in its first webinar on 2 April, and 46 attendees in its second webinar on 8 April. The webinars revolved around broad topics related to integrating financial inclusion in resilience building and adaptation solutions in the face of increasingly unpredictable climatic changes.
In accelerating progress to uphold the Sharm El Sheikh Accord on Financial Inclusion, Climate Change, and Green Finance, as well as each member institution’s respective Maya Declaration Commitments, the network has been able to chart and expand its contribution in all areas of the 4P framework with many bright sparks to highlight.
In the Promotion pillar of the 4Ps, the Royal Monetary Authority of Bhutan organized a national stakeholder capacity building and awareness raising workshop in collaboration with AFI in January this year. The objective of the workshop was to create its own national IGF Roadmap.
Since 2013, Bangladesh Bank has been collecting and sharing data on green finance with the publication of the Sustainable Finance Department’s Quarterly Review Report on Green Banking Activities of Banks & Financial Institutions and Green Refinance Activities.
Reflecting on the Provision pillar, the Central Bank of Egypt has enacted policies to support the MSME sector with climate change. From 2016 to 2020, the CBE has mandated that banks allocate at least 20 percent of their total credit portfolio to finance MSMEs. Renewable energy and climate-resilient irrigation are among sectors covered by this policy.
Elsewhere, the Central Bank of Seychelles, in collaboration with the Ministry of Finance, provides lower interest loans to MSMEs and to households through the Seychelles Energy Efficiency and Renewable Energy Program (SEEREP) SME loan scheme.
When Cyclone Pam hit Vanuatu in 2015, the Reserve Bank of Vanuatu lowered their reserve requirement for commercial banks by two percentage points to incentivize banks to lend to affected low-income people. The central bank also designed a Natural Disaster Reconstruction Credit Facility to assist businesses affected by the cyclone through concessional lending to commercial banks. The fund was initially created with USD4.5 million and offered individual loans of up to USD270,000 that could be rolled over for five years. The fund remained open for six months after Cyclone Pam with an understanding that it could be reopened following other natural disasters.
Some of the exciting measures that fall within the Protection pillar include a system of agriculture climate insurance initiated by the Central Bank of Armenia. The Agricultural Insurers’ National Agency (AINA) is a public-private partnership responsible for market development of agriculture insurance. The program is subsidizing insurance premiums, and for 2020 the subsidy rate is 50 to 60 percent depending on the product.
This Protection initiative is echoed in West Africa. Under the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), the Central Bank of Nigeria guarantees 50 percent of the loss if a smallholder farmer cannot repay a loan. NIRSAL includes a USD300 million risk-sharing facility through which 30 to 75 percent of a commercial bank’s risk on agricultural loans is shared with the Central Bank.
As part of efforts to address social and environmental externalities and risks to a financial institution’s activities, central banks have been designing and implementing environmental and social risk management (ESRM) guidelines, which fall under the Prevention pillar. These include the Green Banking Guidelines by State Bank of Pakistan, Guidelines on Environmental and Social Risk Management for Banks and Financial Institutions by Nepal Rastra Bank and Guide for the Management of Environmental and Social Risks by Banco Central de Paraguay.
Way forward for financial regulators in advancing the green agenda must include financial inclusion in spite of the a current turbulent period for financial regulators worldwide, both IGF Working Group webinars acknowledged , This means both building resilience of vulnerable communities, and championing innovation in green technology and renewable energy.
AFI’s IGF workstream is part of the International Climate Initiative (IKI), which is supported by the German Federal Ministry of the Environment, Nature Conservation and Nuclear Safety (BMU) based on a decision of the German Bundestag.