Prioritization

PRIORITIZATION

Any IGF framework must ensure that concerns are prioritized within financial institutions and regulators at large. And while regulators can rely on dialogue and advocate for IGF, experience shows that in addition to an IGF strategy, the attention of management is needed.

Simultaneously, the private sector needs to understand how IGF considerations can be integrated with financial services provision, insurance, and investment activities, and how the private sector can effectively align with sustainable goals.

This attention is critical to ensuring adequate funding of IGF implementation projects among regulators and financial institutions as regulatory resources are always limited. Sustainability adds entirely new dimensions to the knowledge regulators need, the rules they need to enforce, and both come with costs. Sustainability requires knowledge on a wide range of issues from greenhouse gas emissions to biodiversity, and from rising sea levels to weather issues such as floods and droughts. Many countries may lack extensive human expertise on these issues, especially when it comes to how they intersect with the various population groupings within a country.

Useful tools to achieve the former include (binding or non-binding) IGF policy releases in the form of sustainable banking principles (see the box below) or a regulator-specific policy agenda (see the EU and UK key regulators examples in Annex 1 and 2); in some cases, broadly framed ESG-related risk frameworks may also serve the same purpose.

BANK OF GHANA’S SUSTAINABLE BANKING PRINCIPLES

The Bank of Ghana’s Sustainable Banking Principles, which provide guidance on Environmental and Social Risk Management (ESRM) policies for banks under its supervision, are made up of seven principles (pillars):

> Environmental and Social Risk Management (ESRM) > Internal Environment Social and Governance (ESG) in bank operations > Corporate governance and ethical standards > Gender equality > Financial inclusion > Resource efficiency, sustainable production, and consumption > Reporting on the five most sensitive environmental and social sectors to which banks are widely exposed: 1. Agriculture and forestry; 2. Construction and real estate; 3. Manufacturing; 4. Oil, gas, and mining; 5.

Power and energy. Sustainable Banking Principles, while covering all dimensions of sustainable finance, addresses sustainability risks with its ESRM and related reporting on sensitive sectors. As to externalities, the principles focus on governance, gender equality, and financial inclusion. In turn, these matters receive the attention of financial institution.

So far, the Bank of Ghana has not modified the capital requirements of banks. Yet, as a general principle, a banking regulator can require risk cushions for risks uncovered by the respective bank’s ESRM. The Bank of Ghana may require additional capital provisioning should ESRM elements contradict the risk reporting. The Bank of Ghana’s current work focuses on the second principle (ESG operations).

Source: Bank of Ghana.