The European Commission defines sustainable finance as “the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions in the financial sector, leading to more long-term investments in sustainable economic activities and projects”.
For a greater part of our existence on earth, especially since the industrial revolution, we have primarily focused on extraction and growth, paying little attention to the well-being of the environment and society.
We cannot deny the importance of the environment and society, as these are aspects that determine the modality and functionality of any economy across the globe.
The focus on sustainability has progressed immensely over the years, particularly the push for a collective call to action through the ratification of numerous global agreements, notably the United Nation’s Sustainable Development Goals and the Paris Agreement.
The advocacy for sustainable economic development has become central to ensuring sustained and, most importantly, inclusive growth in the face of rampant poverty worldwide.
Threatening this drive for prosperity is climate change, which will and has already exerted significant pressures on many emerging economies, exposing the inherent vulnerabilities in our economies, particularly in the emerging world, which lacks the buffering capacity that our developed counterparts already have.
The threat posed by climate change has paved the way for a global transition to a carbon-neutral global economy to limit global temperature and avert catastrophic weather events or complete climatic shifts.
This notion has gained more importance in recent decades, particularly with the increased extreme weather occurrences resulting in devastating consequences.
According to the Stockholm International Peace Research Institute, in 2021 and 2022, the SADC region experienced six cyclones, impacting over 2,5 million people.
Namibia is no exception to the realities currently facing neighbouring emerging markets.
One of the driest countries in the world with a highly erratic climate, Namibia is quite vulnerable to the negative impacts of climate change.
Numerous communities depend heavily on the land to make ends meet, and the country received poor rainfall in 2023. Linked to the rain is our water supply, the backbone of our local economy.
Our primary water sources are rain-fed dams and finite groundwater resources, which cannot meet our water demand indefinitely. Ensuring we incorporate environmental and societal considerations into financial decisions is pivotal to integrating resilience into our economy, creating the buffering capacity we need to absorb climatic shocks.
Financing for the future should be about creating impact and ensuring that each project brings about transformational change by equally benefiting the environment and surrounding communities.
This approach is especially the case for emerging markets like Namibia, where there are inherent socio-economic and environmental challenges, particularly regarding climate change.
This makes channeling finance towards solutions addressing environmental and social issues paramount, and this is a trend that has increased, particularly in emerging markets.
According to Sustainable Fitch, Africa expanded by 14% compared to the 6% achieved by the global markets regarding thematic and sustainability-linked bonds in 2022.
Locally, Bank Windhoek issued Namibia’s and the region’s first Green and Sustainability Bonds by a commercial bank, showcasing that through innovation, private sector capital be raised and earmarked for projects with environmental and social benefits.
This move has had a catalytic impact on the local economy, which has led to other similar issuances.
Bank Windhoek also recently introduced a Sustainability Loan product, which aims to make financing available to financially feasible projects with environmental and social benefits such as renewable energy and sustainable agriculture.
To ensure accessibility, the bank assigned a few benefits within defined thresholds targeting individuals and businesses. The approach is to ensure that all Namibians are allowed to contribute to building a sustainable nation.
As we look to the future, sustainable finance will be crucial in building a resilient economy for Namibia, especially as we gear up for green hydrogen and oil projects. These initiatives can transform Namibia’s economy directly through foreign direct investments and indirectly by establishing supportive economic activities.
Bank Windhoek believes that sustainable finance will play a crucial role in ensuring the benefits of these projects enhance environmental and social integrity to fully maximise the opportunities to propel the country’s sustainable economic development in a positive direction.
- Joachim Komeheke is Bank Windhoek’s Sustainable Finance and ESG Analyst.