Local representatives of the International Finance Corporation (IFC) have stated that preventing potential incidents of greenwashing and ensuring the long-term success of the emerging environmental, sustainability and governance (ESG) drive in the country hinges on two critical factors – robust regulation and timely enforcement.
While greenwashing may not pose an immediate threat, given that ESG initiatives are just beginning to gain traction locally, the IFC reps pointed out the importance of proactively addressing potential loopholes.
This proactive approach, they believe, will preemptively close gaps in oversight to prevent unscrupulous actors, particularly within the financial sector, from exploiting the burgeoning ESG market when it reaches its full potential.
They said this during an interaction with B&FT on the side-lines of the launch of an ESG training for directors jointly organised by the IFC, Ghana Stock Exchange (GSE) and Institute of Directors-Ghana (IoD-Gh).
“The first factor [in preventing greenwashing] is the way you set up regulations especially when you are talking about the banking sector – particularly how the central bank is laying out its regulations from an ESG perspective. The way that regulations are set up is one key factor that will prevent companies from doing greenwashing, because you have to be very specific in terms of regulation – not only the way they need to deal with ESG but also the way they report it, and that is extremely important. They report ESG because based on the report you receive, you can identify some issues,” said ESG Lead for North and West Africa at the IFC, Moez Miaoui.
“Second is the capacity that you have within the banking sector, and especially for regulators. That is why in our programmes we engage with the regulators and help them build their capacity, just to maximise and scale-up their enforcement capabilities – which is important to avoid greenwashing, because without comprehensive enforcement and without monitoring by regulators, you allow for greenwashing,” he added.
Greenwashing – when a company makes deceptive statements about its sustainability efforts, typically aimed at investors or consumers, to enhance its image and financial performance – has become an issue of concern for stakeholders as incidents continue to rise, which could have a dire effect on investor confidence.
A report published by an ESG data firm, RepRisk, last week revealed that, globally, instances of greenwashing by banks and financial firms have surged by 70 percent in the past year.
RepRisk recorded 148 instances of greenwashing in the global banking and financial sector during the 12 months ending September 2023 – up from 86 in the prior year, with European financial institutions responsible for most cases; particularly involving false claims about fossil fuels.
As regulators in these regions aim to combat greenwashing to boost consumer and investor trust and promote sustainable investments, those in places with nascent ESG frameworks have been tasked to take a cue.
The Corporation’s Senior Manager responsible for Ghana, Liberia and Sierra Leone, Kyle Kelhofer, was particularly enthusiastic about the steps taken by key financial stakeholders – the Bank of Ghana and GSE – regarding ESG compliance.
“We see excitement from the market and stakeholders, but most importantly from the regulators too; and this does not always happen. It is a real opportunity,” he added.
President of IoD-Ghana, Angela Carmen Appiah, stated that it is not enough for organisations to merely prescribe these standards; they must also ensure they are effectively applied by the businesses they interact with, including suppliers and partners
Managing Director-Ghana Stock Exchange, Abena Amoah, stated that ESG compliance transcends reporting requirements but has tangible financial benefits.
“Hopefully, beginning in 2024 we will encourage all listed companies to attempt doing some kind of reporting on ESG,” she said in a speech read on her behalf by her deputy, Frank Berle.
With ESG-focused portfolios anticipated to experience a compound annual growth rate (CAGR) of 12.9 percent by 2026, increasing from US$18.4trillion in 2021 to US$33.9trillion over the specified period, it comes as no surprise that local interest is on the rise.
The training programme for directors is part of the broader Integrated ESG (IESG) initiative launched by the IFC in April this year. The programme, developed through partnerships with entities like the Bank of Ghana (BoG), focuses on enhancing ESG standards in financial institutions…particularly banks and businesses. It employs a three-pronged approach involving regulatory, market and firm-level engagements.
This comes as all 23 universal banks in the country have taken steps to accelerate their ESG compliance journey, achieving a 53 percent compliance rate by September 2022.
Furthermore, in November 2022, the GSE launched a guidance manual for ESG-reporting by listed companies. This initiative complements the rules established for the listing of green bonds, which is expected to gain momentum this year.