ABSA Corporate Investment Banking:

Driving Africa’s Inclusion and Sustainability Focused Growth

By Lorraine Kinnear

IT IS NO SECRET THAT WE ARE LIVING IN AN EVERCHANGING WORLD, WHICH IS REQUIRING INDIVIDUALS, CORPORATIONS, AND GOVERNMENTS TO CONSIDER A MORE HOLISTIC APPROACH IN SOLVING EXISTING AND EMERGING CHALLENGES. AS A MEANS TO DELIVER TRUE VALUE TO THE LIVES OF COLLEAGUES, CLIENTS AND COMMUNITIES, MANY CORPORATIONS ARE IMPLEMENTING ESG FRAMEWORKS TO PLAY THEIR PART IN TACKLING CHALLENGES SUCH AS CLIMATE CHANGE, INEQUALITY, AND POVERTY.

At Absa Corporate Investment Banking, a Sustainable Finance team has been established with the purpose of driving sustainable development across the African Continent. To unpack Absa Group’s sustainability approach, we had a discussion with the Head of Sustainable Finance at Absa Group, Heidi Barends.

Barends holds a bachelor’s degree, Industrial Engineering from the University of Pretoria, and a Master of Philosophy - MPhil, Engineering for Sustainable Development from the University of Cambridge. She has longstanding banking sector experience, having worked in retail as well as investment banking. The team Absa Group team mandated to deliver the organisation’s sustainability strategy, is dedicated to providing financial solutions that drive sustainable development throughout the African region.

TRC: Briefly tell us about Absa Group CIB’s Sustainable Finance?

HB: Absa Group's Sustainability Finance exists to finance and support clients' sustainability goals. One of Absa's key enablers, as a leading African financial institution, is shaping Africa's growth and sustainability.

The Bank is dedicated to assisting clients in their transition to low-carbon, inclusive, circular economies. Absa's strength as a financial institution lies in its strong connections to various stakeholders across sectors and the economy. The bank's vision is to capitalize on this.

TRC: Kindly unpack Absa Group’s Sustainable

Finance Issuance Framework

This framework outlines the criteria under which Absa Group and its subsidiaries (Absa or the Group) intend to issue thematic liability instruments such as green, social, and/or sustainable bonds and loans, referred to in this work as sustainable instruments. This framework's focus aligns with one of Absa Group's key strategic themes of being an active force for good in everything we do and leading with purpose to delivering shared value to a diverse range of stakeholders.

The proceeds of this venture will be used to finance or refinance activities or assets, loans, project financing, and project investments in accordance with international best practices and guidance issued by the International Capital Markets Association (ICMA) Green Bond Principles (GBP), Social Bond Principles (SBP), Sustainability Bond Guidelines (SBG), Loan Market Association (LMA) Green Loan Principles (GLP), and Social Loan Principles (SLP).

This framework stems from Absa's 2018 growth strategy which laid the groundwork for reimagining the company as a standalone entity. However, due to the COVID-19 pandemic, 2020 brought a significantly different operating context than the one in which the original growth strategy established. As a result, the Bank saw a refreshed Group strategy in 2021, re-anchoring it to 2018 while incorporating a new operating environment. The Bank's strategic direction builds on its past successes while recognising areas for improvement.

Environmental, social, and governance (ESG) priorities, as well as digitalisation, were elevated in this revised strategy.

TRC: What is the importance of the Sustainable Finance function within Absa Group?

HB: The private sector, particularly the finance sector, will now and in the future play a vital role in redefining business as usual in order to enable the region's just transition. The finance sector can play a unique role in the just transition by ensuring clients actively manage their ESG risks, and by providing financing for the capital investments required to realise the just transition.

Africa is currently confronted with the triple challenge of inequality, climate change, and post-pandemic economic recovery, and as a company, we are confident that sustainable finance can drive much-needed change. The region has experienced some dramatic climate events in recent years, including the 2019/2020 East African locust plague, cyclones in Mozambique, and drought in South Africa. Combating the continent's climate crisis is a complex challenge against a backdrop of large infrastructure gaps and social inequality. Sustainable finance is an important nexus between our current challenges and long-term solutions.

TRC: What are the Sustainable Finance team’s key focus areas?

HB: Recognising the immense challenges that affect businesses, ecosystems and communities in Africa, Absa has invested in banking that balances risk and opportunity. This means that by embedding Sustainable Finance into Corporate Investment Banking, we find ways to help enterprise reduce or better manage ESG risks, while providing financial solutions to infrastructure that drive sustainable development such as affordable housing and green energy.

TRC: What developmental investments have been put in place by Sustainable Finance?

HB: The African region requires large investments to combat climate change and promote inclusive growth. According to the African Development Bank, financing for the continent's infrastructure falls short by up to US$108 billion per year. This is where sustainable finance comes into play. Sustainable Finance looks to allocate capital to projects and businesses that promote environmental protection and inclusive growth.

Absa has actively invested in renewable energy solutions. Among these initiatives is South Africa's first utility-scale renewable energy captive power project. Absa functioned as joint mandated lead arranger and lender for this utility scale renewable energy captive power project, which will include 200MW of solar power and will be built in South Africa's Northwest province at a cost of R4.1 billion.

From a social perspective, Absa has invested in affordable housing. An example of this is Transcend, a JSE-listed REIT with an affordable housing portfolio of 22 properties totaling 4,012 units, mostly in Gauteng and the Western Cape that Absa provided financing to.

TRC: Are there any important highlights to note in the space of sustainability and social impact?

HB: In September 2019, Absa became a founding signatory of the United Nations Environment Programme (UNEP) Finance Initiative's Principles for Responsible Banking (PRBs), as a framework for implementing sustainability throughout the Group. In December 2019, the Board of Directors approved a Group Sustainability Policy based on these principles, as well as a Coal Financing Standard. Both were published in April 2020, following consultation with various stakeholders. In March 2020, Absa became the first JSE-listed South African company to voluntarily include a climate change resolution in its annual general meeting (AGM) resolutions. More than 99% of shareholders voted in favour of the resolution.

In July 2020, we established a Sustainable Finance Team within Corporate and Investment Bank (CIB). Our Sustainable

Finance Committee meets monthly, and is comprised of employees from risk, treasury, Group sustainability, and various CIB teams. In October 2020, our Board of Directors elevated sustainability risk to a principal risk in our Enterprise Risk Management Framework (ERMF). We provided an assessment of the exposure to climate change risk in our lending and the opportunities to finance climate change mitigation and adaptation in our first Task Force on Climate-Related Financial Disclosures (TCFD) report in March 2021 in response to our AGM climate change resolution. In addition, we released our first PRB report.

In March 2021, we were the first South African bank to announce Sustainable Finance targets. By 2025, CIB intends to finance R100 billion in ESG-related loans and debt. Relationship Banking also intends to finance R2.5 billion, or 250MW, in embedded power in South Africa by 2025. These are important milestones to note in South Africa only and coinciding efforts are being implemented in other markets based on market-to-market needs.