The month of November 2021 focused us on a topic that is not only immediate but critical for the survival of future generations. If challenges around climate change are not acknowledged and embraced, the consequences will for sure be a multiple of what Covid-19 has dealt the world over the last two years. Climate or the environment is like blood to our immune system that requires consistent nourishment. As such, there is no surprise that strategic countries’ environmental budgets will soon be more or less equal to those for security, health and infrastructure to enable them meet net zero targets by 2050. Rwanda has been the region’s leading environmentalist for decades and amongst the countries to have signed up to be net zero by 2050. Rwanda has backed this up by launching the Green Growth and Climate Resilience Strategy. The strategy led to the establishment of the Rwanda Green Fund (FONERWA) an instrumental body that has gained traction by mobilizing investments to the tune of $217million. Furthermore, FONERWA is working with the Rwanda Development Bank (BRD) to set up a facility to spur the country’s ability to meet the growing opportunities for climate finance in the private sector. The immediate focus sectors are biomass replacement, green cities, sustainable transport and waste management for which several partners are fully ready to provide required capital to businesses that venture into these sectors. Another initiative that is underway is to ‘green rate’ Small and Medium Sized Enterprises (SMEs). This initiative will enable SMEs to identify areas where they can make quick wins and reduce their emissions (from transport and energy consumption), boosting not only their green credentials but also their bottom line. The automation of this process will also allow banks to assess the ‘greenness’ of their current portfolio and make future lending decisions based on accurate information on the green credentials of SMEs seeking investment. In addition to these steps initiated by the government, corporate businesses, particularly, financial institutions are challenged to take a ‘driver’s seat’ in their intermediary role by demanding that their customers invest in sustainable businesses and if not, even price the loans at a premium. Based on the recent World Bank Treasury Survey, nearly one in six central banks have included ESG in their investment policies. Central Banks can do better in furthering countries’ ESG agenda. There are increasing expectations from the regulators as investors and other business stakeholders need to see how climate change and sustainability concerns can affect the economy in whole, and its potential threat to price and financial stabilities. While some global business leaders are embracing the opportunity to help drive the new economic agenda, this seems to stop within the marketing materials. The pledges are less promising than they seem. The investors are still not convinced with companies’ emission plans. A PwC global ESG Investor Survey records that 82 per cent of leading companies still need to embed ESG directly into their corporate strategy. There is a lack of climate change awareness and this must now start from the top leadership led by the CEOs. No clear reporting standards have been set and this affects the measurement towards how companies abide by their countries and the global carbon emission plans. The impact of climate change in FY21 reporting cycle At COP 26, The International Financial Reporting Standards (IFRS) Foundation Trustees announced the creation of the International Sustainability Standards Board (ISSB). The ISSB standards will provide the foundation for consistent and global – environmental, social and governance (ESG) reporting standards that will enable companies to report on ESG factors affecting their businesses. The ESG reporting standards will bring consistency and harmony in reporting enabling investors to have a better understanding of a company’s long-term performance and value creation prospects. To meet these expectations, Professional Accountants have a critical role to play in aligning and integrating climate-related information and disclosures with company climate commitments, targets, and strategic decisions; quantifying, wherever appropriate, financial impacts of climate issues; ensuring climate-related reporting complies with reporting requirements without material omissions or misstatements, based on a company-specific materiality determination; and supporting global initiatives to enhance climate and broader sustainability-related reporting through standards set by the new International Sustainability Standards Board (ISSB) that will address material impacts on a company’s enterprise value. Moses Nyabanda, PwC Rwanda Country Senior Partner commented that as evidenced by 75 per cent of the respondents in the latest PwC global ESG Investor Survey, reporting and disclosures should now show a link between ESG risks and opportunities and the financial performance of each company. In his view, this would require that the Boards of Directors and Executive Management strategically plan on ESG matters to enable them not to fall short of investor expectations. The writer is a Risk Manager at Bank of Kigali Plc. The views expressed in this article are of the writer.
