The Bank of Uganda, headed by Governor Dr. Michael Atingi-Ego, is taking a significant step towards promoting environmental sustainability by drafting a policy framework that will regulate the impact of banking institutions on the environment.
This move is expected to make access to loans for projects harmful to the environment, such as charcoal burning, more expensive. Instead, the framework will encourage green financing, which is critical in mitigating the adverse effects of climate change.
Edward Tenwya, the deputy director of strategy and innovation, said BoU, in partnership with the Uganda Bankers Association (UBA), recently launched an Environmental, Social and Governance (ESG) framework.
This curriculum is going to speak to the national green taxonomy that is being developed so that we have a common understanding of what sustainability is,” Tenwya said.
He added that the objective here is validating the draft Green Finance Curriculum that was drafted by the Uganda Institute of Banking and Financial Services (UIBFS), with the support of aBi Finance, Bank of Uganda and the National Curriculum Development Centre.
He noted that the curriculum is in line with the Central Bank’s agenda in driving the adoption of sustainability principles and ESG considerations into the banking space.
Why Green Financing Matters
Green financing is essential for Uganda’s economic growth and environmental sustainability. According to the United Nations Environment Programme (UNEP), green financing can promote environmentally conscious activities, resulting in improved welfare, social benefits, economic resilience, and climate goals.
In addition, the Uganda Green Growth Development Strategy (UGGDS) aims to lower emissions and achieve green growth, requiring an estimated 30% annual funding from environmental fiscal reforms and government.
Benefits of Green Financing
Green financing offers numerous benefits, including:
Job Creation
Green financing can create new job opportunities in sectors such as renewable energy, sustainable agriculture, and eco-tourism.
Economic Growth
Green financing can stimulate economic growth by investing in sustainable infrastructure, clean energy, and green technologies.
Environmental Protection
Green financing can help reduce greenhouse gas emissions, promote sustainable land use, and protect biodiversity.
Improved Health
Green financing can improve public health by reducing air and water pollution, plus promoting promoting sustainable agriculture practices.
Challenges and Opportunities
Despite the benefits of green financing, there are challenges to its adoption. These include:
Limited Awareness
There is a limited awareness of green financing among the public and financial institutions.
Limited Financial Products
There is a lack of green financial products and services, making it difficult for individuals and businesses to access green financing.
High Costs
Green financing can be more expensive than traditional financing options, making it less accessible to small and medium-sized enterprises.
To address these challenges, the Bank of Uganda, in partnership with the Uganda Bankers Association, has launched an Environmental, Social, and Governance (ESG) framework. This framework aims to promote sustainability principles and ESG considerations in the banking sector.
Green financing is critical in mitigating the adverse effects of climate change in Uganda.
By promoting environmentally conscious activities, green financing can stimulate economic growth, create new job opportunities, and protect the environment. While there are challenges to its adoption, the Bank of Uganda’s efforts to promote green financing are a step in the right direction.