Q: Please explain Green Financing for us
A: Green financing is any type of financing where the proceeds will be exclusively applied to finance or re-finance projects with clear environmental benefits such as renewable energy, energy efficiency, wastewater management, climate change adaptation and green buildings. Green financing is not an asset class but investors can support green initiatives across different asset classes and within an asset class.
Q: Is green financing present as a reality in Botswana?
A: There are limited assets available in the market specifically targeted at green financing at present. As climate change conversations continue to grow locally, opportunities present themselves for green financing and we see increased renewables playing a material part in our energy story. So, to answer your question, green financing is not significantly developed but it is a reality.
Q: What has necessitated the need for it?
A: Green financing popularity has increased over the past years mainly on the back of demand from universal asset owners such as pension funds as well as increased regulatory focus. Sustainable development goals have also fuelled demand for green financing, and these goals are gaining traction globally with some countries including them in their national policies. Countries are competing globally for investments and the sustainability of a jurisdiction is a much more critical investment criterion.
Locally, Botswana has committed to energy supply consisting of 15 percent renewables by 2030. This is part of our commitment as a country under the United Nations Framework Convention on Climate Change. Equally, pension funds and other providers of capital/funding are increasingly looking for impact.
Pension funds, institutional investors and lenders such as FNBB are alive to the fact that the decisions we take can have negative externalities and such we are seeing the duty of care “to act in an environmentally-responsible manner” coming to the fore with an increased realisation that issues such as climate change and global warming can only be met by collective efforts that go beyond government and regulation.
Q: At your bank, do you partake in Green Financing?
A: Green financing is an area of interest for the bank and the opportunity for green financing is significant. We have a healthy pipeline and appetite to support structured and bankable transactions. We are perfectly positioned to engage, guide and assist with the development of green bonds and green financing market.
Q: Are there any business opportunities in green financing? Kindly share the examples.
A: As already indicated, opportunities are significant and some deals are already in the public domain. The Government of Botswana, through Botswana Power Corporation, is driving the development of solar energy projects and we have seen several requests for proposals issued. We have also seen the planned refurbishment of Glen Valley Water Treatment Plant. There are other opportunities, but what is important is for the deal to be properly structured so that it is bankable.
Q: A key part of green financing is to better manage environmental and social risks, take up opportunities that bring both a decent rate of return and environmental benefit and deliver greater accountability. How do you ensure that while pushing for reductions in carbon emission, you get a return on your investments?
A: As you have rightly pointed out, green financing is for the betterment of the environment and society, which means it is for the improvement of “public goods” and essentially is a benefit consumed by all and not just those involved in the projects. It is essential that as the financial sector and a key component of the private sector, we are able to incentivise the uptake of green projects through provision of sustainable and/or green financing.
However, we do recognise our responsibility to our shareholders and depositors, thus it is a balancing act of finding the right combination of socio-environmental benefits and sustainable returns for our business and shareholders. This is typically done through taking a long-term view on the benefits and sustainability of the projects, coupled with careful selection of projects to ensure returns that, while they may be slightly less rich than those without a green element to them, still provide positive returns to our shareholders. This is a trade-off that the bank is willing to make in making its contribution to the creation of a more sustainable society, environment and economy.
Q: But inspite of the established reality of global warming resulting from carbon emissions, green financing in Botswana and most of sub-Saharan Africa does not seem to be where it should be. Why do you think this is the case and what can we do as a nation to promote it?
A: There are some structural issues in Botswana and the broader sub-Saharan Africa that hinder green financing. They include bankability of projects, regulatory guidelines, certification and monitoring, limited demonstration of cost-benefit analysis, lack of transparency and green washing, and lack of required technology and skills.
The biggest challenge with transitioning from coal to cleaner energy sources is energy security. Coal is an essential fuel source for most countries, and it will continue to be for the forceable future as countries haven’t developed to the required scale alternative sources that can guarantee energy security.
Q: What do you think developing policy instruments to guide or even compel financiers to prioritise green financing?
A: I don’t think we need a policy that compels financiers to prioritise green financing. What we need is regulatory guidance. Globally one of the issues that hinder green financing is greenwashing. Regulatory guidelines or policies are needed to help with transparency. You also need independent parties who can assist as third parties with certification and monitoring.
In Botswana, it is a welcome development that the BSE is a member of the Sustainable Stock Exchanges initiative and they are pushing a lot of ESG disclosures. They are also a member and chair of CoSSE which is very active in this area. They are developing guidelines and a framework around green financing which they will soon take to the public. A lot can be learned from some of these initiatives and we can quickly scale up.
Q: Do you think multi-stakeholder partnerships which include major financiers in Botswana can be promoted to drive forward green financing?
A: Yes, 100 percent. Issues such as climate change, global warming and funding of those initiatives require multi-stakeholder partnerships. I have already talked about the regulatory framework, which is important. You also need patient capital from pension funds and other institutional investors to be mobilised for green financing. Then you need to work with market players such as RMB, who will then do project assessments and deployment of capital. We can only come up with innovative but practical solutions if all of us partner for a common goal, which is to drive forward green financing.
Q: There seems to be less information or education around green financing for the benefit of the public. What do you think should be done to accelerate public awareness on green financing and its benefits?
A: The first step is what you are already doing as The Business Weekly & Review, which is giving this topic publicity. The other part is the importance of partnerships across the different stakeholders. We need seminars and conferences targeted at demystifying green financing as well as technical assistance in driving this agenda.
Q: Kindly share with us what FNBB and its sister companies have achieved in terms of green financing and/or awareness campaigns in that area.
A: Just borrowing from our policy on energy financing, we recognise that there is an urgent global need for the world to transition to lower environment impact energy source and so we have assisted with issuance of green bonds and supported clients around water usage reduction and electricity reduction. We have also advised clients on their sustainability strategies and to support their transition.
Green financing suffers from the same bottlenecks as normal funding or bond issuance, but they have additional challenges in that they need to comply with additional regulation requirements. As clients transition, one needs to work with a trusted advisor with a credible track record in arranging this type of funding.