Call to action for financial institutions without dedicated Environmental and Social staffs

On 22 September 2023 at 06:21

The absence of dedicated environmental and social specialists within financial institutions, equipped to implement their specific Environmental and Social Management Systems (ESMS) and evaluate the environmental impact of financed projects, stands as a critical challenge in addressing the ongoing global issue of climate change and unsustainable use of natural resources. This concern is not isolated to distant regions but holds relevance for Rwanda as well.

This concern came to light from 18th to 20th September, 2023, when members of the Rwanda Association of Professional Environmental Practitioners (RAPEP) received the first session of environmental protection training on Environmental and Social and Governance (ESG) from the International Finance Corporation (IFC).

The IFC, a firm dedicated to fostering business growth, recognizes the significance of addressing environmental concerns. The global community and organizations are increasingly united in their commitment to preventing human activities that exacerbate climate change and cause natural ecosystem degradation.

Leading institutions like the World Bank, in partnership with entities such as IFC, have pledged to prioritize sustainable practices when providing financial support to institutions worldwide. Under this framework, financial institutions will conduct thorough environmental and social analyses before granting loans. These assessments will gauge not only project feasibility but also their environmental impact and potential repercussions on local communities.

Moreover, given that both corporations and non-governmental organizations funnel their development assistance through the Development Bank of Rwanda (BRD), there is a growing consensus that this bank should serve as a role model.

BRD, since its cooperation with International Development entities, has been encouraged to demonstrate its project analysis techniques to ensure environmental and social integrity. In this pursuit, the adoption and effective implementation of a Environmental and Social Management Systems (ESMS) was achieved.

An ESMS empowers companies to conduct comprehensive environmental analyses for projects seeking loans and helps companies to integrate the rules and objectives promoting effective environmental and social management into core business operations, through a set of clearly defined, and repeatable processes.

In a forward-thinking move, even financial institutions seeking funding from BRD are now required to adopt and implement an ESMS, thereby extending the commitment to environmental and social protection across the financial sector.

Since the inception of this program in 2021, progress has been made, with seven banks, and 96 microfinance institutions having successfully adopted an ESMS into their operations. However, more efforts are needed to increase financial institutions ownership and full implementation of adopted Environmental and Social Management System.

BRD’s Environmental and Social Safeguard Specialist, Kanangire Ruti Rubis, highlights a critical issue: the lack of qualified personnel to effectively operate adopted ESMSs.

"We’ve assisted in establishing ESMSs, but the system itself requires skilled users to maximize its potential for environmental and social protection initiatives. This is a pressing challenge. While the system exists, our banks lack the trained personnel to wield it effectively," remarked Kanangire.

In response to this persistent issue, BRD is urging financial institutions to appoint dedicated staff responsible for environmental and social analysis and provide them with essential training. However, despite these efforts, productivity remains low, with an average compliance rate of less than 50%.

The way forward

Recognizing the urgency of this matter, in March 2023, the IFC forged agreements with several institutions, including the Rwanda Banking Association (RBA), the Rwanda Capital Market (CMA), and RAPEP. These agreements were made possible through generous funding from the Japanese Government, amounting to over Rwf400 million.

Beginning on September 18, 2023, IFC Rwanda and RAPEP jointly initiated specialized training for environmental experts. These experts will play a pivotal role in guiding financial institutions in the proper implementation of ESMS and associated environmental and social initiatives.

Rose Lumumba, Head of the Environmental Department at IFC Rwanda, emphasized the collaborative approach taken before signing these agreements.

She stated, "Climate change and Natural ecosystem protection is a global issue, and Rwanda has developed comprehensive plans to address it. Our collaboration with various companies aims to collectively combat this challenge."

Richard Ngendahayo, Chairman of RAPEP, reiterated the importance of RAPEP building capacity of its experts, playing its role and concerted efforts in environmental and social preservation. "From project inception to completion, multiple agencies must unite to ensure proper environmental and social management. Our current focus is on fostering collaboration among various institutions to safeguard the environment comprehensively."

Kanangire anticipates that following this training, banks will have two options for complying with key environmental and social requirements. They can either engage RAPEP members with expertise in environmental and social matters or hire permanent staffs with a professional background on Environmental and Social aspects to bridge the gap.

The training was held from 18th to 20th September, 2023.
Participants of the training following presentations.