Bankers association calls for more investment in climate change fight

Bankers Association of Malawi (BAM) has called for more investment and concerted efforts to address effects of climate change in the country.

Speaking at the eighth edition of Green Finance Conference in Lilongwe, BAM Chief Executive Officer Lyness Tamandani Nkungula cited lack of financial and organizational resources, limited capacity for innovation and lack of access to cleaner technologies as some of the challenges frustrating the fight against climate change.

The conference was held under the theme “the Contribution of Africa’s Private Sector to the Achievement of the 2015 Parts Climate Agreement”.

The event was aimed at analyzing the possible opportunities and also propose necessary solutions to meet the financing needs of Green SMEs, which is the main challenge.

Nkungula said African countries need to invest more in innovative activities, which will help the nations mitigate the negative effects of climate change.

Minister Matola addressing journalists while flanked by Jules, Nkungula and an official from Reserve Bank of Malawi

“We need to see firms developing new products, services, and technologies that have lower carbon emissions and greater sustainability. From the previous conferences, we have seen that SMEs have a critical role not just in job creation and economic development, but also in fighting climate change. It is estimated that Malawi has more than 1.6 million SMEs and more than 1.8 million people have found employment through them,” she said.

Nkungula also called for the transitioning of SMEs into green economy, observing that they make a huge contribution to job creation and economic development of any country.

“Nevertheless, we need also to remember that transitions do not happen overnight. They need more time to take shape, and also need exceptional expertise and substantial investment. The unfortunate thing is that most of our SMEs do not have all these. But looking at the stakeholders that are in attendance, I am very confident that by the end of this conference, latent solutions to issues of capital will be found and our SMES will easily go green and become more sustainable.

“So, the Issue of green finance is more critical for developing countries, Malawi being one of them. The low physical and financial capacity for most of the developing countries seems to have increased the cost of capital. This is why there is an urgent need for a deliberate action to cut the situation.

“As a matter of fact, the effects of dimate change have seen the credit ratings of many developing countries deteriorate due to the increased clarate risks that directly increase the cost of domestic and international capital, resulting in higher interest payments. This trend ought to be checked, and one of the ways in which this can be handled is by addressing the challenges being faced by the SMES.

“But for us to achieve this, it requires an active and collective participation of the private sector, particularly Small and Medium Enterprises (SMEs), African Guarantee Fund, The Nordic Development Fund, and our financial institutions. These are considered as key stakeholders that are very instrumental in achieving the desired goal,” she said

Group Chief Executive Officer for African Guarantee Fund (AGF), Jules Ngankam said as some stakeholders are willing to invest more into green transition, their efforts should be compensated with climate and social returns.

“The green transition is defining a new way of living, a new way of doing business, a new way of exchanging goods and services. At the core of this green transition, we have the commercial banks, we have the financial institutions. AGF is part of the financial institutions.

“One question come to our mind: Us in the financial sector, are we ready? When discussing our readiness, there are 3 areas that are critical: Capital, regulation and business. An increasing number of investors are looking to invest in new asset classes that are aligned to the green transition.

“These investors are even willing to take a lower financial return but it has to be compensated with climate return and social return. It is no longer just about maximizing the financial return but maximizing all returns together. Some research shows that more 100 trillions of green capital will flow in the world economy by 2050.

“We are seeing more and more green bonds getting issued. In 2014, the total volume of green bonds issued worldwide was 15 billion USD. And in 2022, 600 billion USD. Are our financial institutions ready to tap into this huge growing capital market where they can raise long term capital at a lower cost?

“To mitigate the negative impacts of climate change, central banks, financial regulators and policymakers have started undertaking various initiatives. They are analyzing the climate challenges from a financial risk and stability point of view.

“They are developing tools to monitor the Climate-related financial risks in the banking sector. And these Climate-related financial risks are becoming an important part of financial disclosures.

“In western countries, Central banks are discussing ways to ease capital requirements for green lending because of the fact that commercial banks can participate in reducing the climate risk. So we expect to have in Africa, some regulatory changes related to climate risk,” she said.

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