Introduction
As the world increasingly confronts the pressing challenges of climate change, resource depletion, and social inequality, sustainable finance has emerged as a vital strategy for fostering a resilient and equitable future. By integrating environmental, social, and governance (ESG) factors into financial decision-making, sustainable finance seeks to direct capital toward projects that not only yield economic returns but also contribute positively to society and the environment. In this context, Ghana is actively working to strengthen its sustainable finance framework by aligning its financial systems with global sustainability goals. This article explores the current landscape of sustainable finance in Ghana, highlighting key initiatives and frameworks established by regulatory bodies such as the Ministry of Finance, Securities and Exchange Commission (SEC), the Ghana Stock Exchange (GSE), and the Bank of Ghana (BoG).
Reasons Why Financial System Stakeholders Would Care About Sustainability
Financial system stakeholders have several compelling reasons to care about sustainability.
- Risk Management: Sustainability issues, such as climate change and resource depletion, can pose significant risks to financial stability by disrupting supply chains, reductions in the productivity of both human labour and physical assets, or leading to asset devaluation.1 Stakeholders are increasingly aware that environmental and social risks can impact asset values, leading to potential losses.2
- Regulatory Compliance: As governments and regulatory bodies introduce stricter sustainability regulations, stakeholders must adapt their practices to avoid penalties and ensure compliance, making sustainability a crucial consideration in their operations. In Ghana for instance, some companies are required to submit environmental impact assessments to the Environmental Protection Agency (EPA), outlining how they will manage the adverse effects of their activities on the environment.3 The EPA may suspend or revoke permits if a company fails to comply, and penalties may include fines or imprisonment.4
- Investor Demand: There is a growing demand from investors for sustainable and responsible investment options.5 Stakeholders recognize that incorporating sustainability can attract more capital and enhance their market competitiveness.6
The Role of Regulators and Policy Makers
While sustainability is increasingly integrated into financial policies, regulatory approaches remain inconsistent across different countries. This lack of uniformity hinders the effectiveness of sustainable finance initiatives;7 as financial markets continue to fund non-sustainable projects.
To address this, regulators and policymakers must design and enforce robust, consistent policies that encourage sustainable investments and redirect capital flows away from industries that harm the environment or social well-being.8 This includes setting clear guidelines for ESG disclosures, incentivizing green finance products like green bonds, and penalizing non-compliance. By providing a stable and predictable regulatory environment, they can help financial institutions manage risks associated with sustainability and promote long-term economic growth that is both inclusive and environmentally friendly.
Moreover, policymakers can influence behavior by integrating sustainability into fiscal policies, such as offering tax breaks for sustainable investments and imposing higher taxes on activities with negative environmental impacts.9 Through strategic regulation, they can ensure that finance becomes a powerful tool for driving positive change and supporting the transition to a low-carbon, resilient global economy.
Sustainable Finance Strategies
The World Bank and the Principles for Responsible Investment have identified five key elements of sustainable finance policy and regulation.10
- Corporate ESG disclosures:11 This includes the Task Force on Climate-related Financial Disclosures (TCFD) reporting. Policies and regulations relating to corporate ESG disclosures focus on defining the obligations of companies and issuers to publish current and forward-looking data and analysis on key ESG issues.12 These disclosures provide the finance sector actors with information on corporate performance on ESG issues that will be used when making financing and investment decisions and provide a basis for dialogue with the finance sector on the company's social and environmental performance. Mandatory and standardized corporate ESG disclosure regulations are important to ensure that the published information is complete and that companies can be compared with each other.
- Stewardship/Active Ownership:13 Policies and regulations relating to stewardship (or active ownership) focus on encouraging financial sector actors to use their influence to maximize the long-term value of the companies on which the interests of clients and beneficiaries depend. A particular focus is on strengthening the social and environmental performance of companies, thereby helping to address and manage systematic risks such as climate change and inequality.
- ESG duties of Financial Institutions:14 Regulations shaping the ESG responsibilities of financial institutions aim to drive meaningful integration of environmental, social, and governance considerations into their financing and investment practices. These measures also emphasize transparent and accountable reporting to clients, beneficiaries, and other stakeholders, fostering a more sustainable and responsible financial ecosystem.
- Taxonomies of Sustainable Economic Activities:15 Sustainability-related taxonomies are designed to create clear frameworks and guidelines that help financial sector stakeholders determine whether an economic activity qualifies as environmentally and socially sustainable. By establishing a shared language, these taxonomies enable finance professionals to evaluate whether companies, projects, or investments align with rigorous sustainability standards and objectives.
- National Sustainable Finance Strategies:16 National sustainable finance strategies are guided by policies and regulations that establish comprehensive frameworks to align the financial sector with the pursuit of sustainable and inclusive growth objectives.
THE LANDSCAPE OF SUSTAINABLE FINANCE IN GHANA
Sustainable finance in Ghana is gradually gaining momentum as the country seeks to balance economic growth with environmental preservation and social development. The country has made significant strides in establishing a robust framework and launching initiatives for sustainable finance, with key stakeholders like the Ghana Stock Exchange (GSE), the Bank of Ghana (BoG), and the Securities and Exchange Commission (SEC) playing crucial roles. These initiatives reflect the country's commitment to sustainability, environmental stewardship, and social responsibility in line with global trends and the United Nations Sustainable Development Goals (SDGs).
Current Framework and Initiatives
1. The Ghana Green Finance Taxonomy: The Ghana Green Finance Taxonomy ("the Framework") by the Ministry of Finance guides the classification of environmentally sustainable economic activities in Ghana.17 The Framework supports green finance by defining sectors and projects that contribute to environmental sustainability. The Framework outlines a three-phased approach to guide sustainable finance. Phase 1 focuses on developing qualitative criteria for selected sectors.18 The first phase was launched on Wednesday, 9th October 2024. By May 2025, Phase 2 will be introduced to guide quantitative thresholds, tax exemptions, and sector-based incentives.19 Thereafter, Phase 3 will be introduced to guide the development of a transitional taxonomy to include carbon-initiative sectors like oil, gas, and mining.20 Overall, the framework serves as a tool for financial institutions, investors, and policymakers to assess and direct capital towards environmentally sustainable initiatives.
2. GSE Initiatives: The GSE has taken proactive steps to encourage ESG (Environmental, Social, and Governance) disclosures and sustainability reporting among listed companies. This includes the issuance of an ESG Disclosures Guidance Manual,21 which provides a structured framework for companies to report on their ESG activities. This manual complements the Securities and Exchange Commission's Corporate Governance Code for Listed Companies, 2020, ensuring that ESG practices align with international standards for sustainability reporting. Additionally, the GSE is developing guidelines for the issuance of gender bonds, aimed at facilitating capital raising for women-led businesses. Gender bonds, which are part of a broader effort to promote gender equality and women's empowerment, are expected to bolster financial inclusion for women entrepreneurs and align with global gender-focused financial instruments.22
- Securities and Exchange Commission (SEC): In response to the growing demand for sustainable finance, the SEC has issued several regulations aimed at enhancing ESG disclosures and fostering the development of the green bond market. A landmark step was the issuance of the Securities Industry (Green Bond) Guidelines, 2024,23 which govern the issuance of green bonds in Ghana. These guidelines ensure transparency, integrity, and the credibility of green securities to prevent "greenwashing"—a practice where companies falsely claim environmentally friendly initiatives.24 The SEC also promotes sustainable finance by encouraging companies listed on the GSE to provide clear and accurate ESG-related information, thereby enhancing market transparency and investor confidence. This is in line with international trends where investors increasingly rely on ESG ratings and sustainability reports to make informed decisions.
- Bank of Ghana (BoG) and the Sustainable Banking Principles: The Bank of Ghana has introduced the Sustainable Banking Principles (SBPs)25, aimed at helping banks manage environmental and social risks effectively. These principles require banks to integrate environmental and social risk management (ESRM) policies into their operations, ensuring that financial decisions are made with sustainability in mind.26 In addition, the BoG issued the draft Climate-Related Financial Risk Directive in May 2024, which will apply to regulated financial institutions (RFIs) such as banks, mortgage finance companies, and leasing companies.27 This directive mandates these institutions to manage and disclose the impact of climate-related financial risks, further embedding sustainability into the banking sector's risk management and corporate governance frameworks. Banks in Ghana have already begun implementing green initiatives, such as transitioning to solar-powered ATMs and branches, promoting financial inclusion through mobile money services, and organizing financial education programs.28 These efforts not only reduce their carbon footprint but also support broader sustainability goals.
- The Climate Financing Division of the Ministry of Finance: On Friday, 19th October 2024, Dr. Mohammed Amin Adam, the Minister for Finance, officially launched the Climate Financing Division within the Ministry of Finance.29 This new division is tasked with leading and coordinating efforts to attract international funding, engage partner investors, and implement projects that drive green growth.30 The creation of this division underscores Ghana's commitment to building a sustainable and climate-resilient economy, recognizing that the country's economic future is closely tied to responsible environmental stewardship.
- Private Sector Engagement: Private companies in Ghana are increasingly aligning with sustainability efforts, though many still opt for informal ESG practices without formal reporting. However, some sectors are voluntarily adopting ESG-related guidelines, such as the Ghana Sustainable Banking Principles, to encourage better environmental and social risk management. Twelve (12) banks in Ghana have signed onto the Ghana SBP. Additionally, companies are addressing ESG concerns through initiatives focused on human and labor rights, energy and waste management, and community investment.31 These efforts are complemented by the growing issuance of green and gender bonds, which play a pivotal role in financing sustainable and socially inclusive projects.
Strengthening Ghana's Sustainable Finance Framework for Long-Term Impact
In recent years, Ghana has made significant progress in establishing a sustainable finance framework that aims to support its environmental and social goals. However, to ensure the framework's long-term impact, additional efforts are required to strengthen regulatory foundations, mobilize resources, and integrate sustainable finance more effectively across the financial and private sectors.
1. Enhancing Regulatory and Policy Frameworks
Ghana's Green Finance Taxonomy and Sustainable Banking Principles mark substantial strides toward regulating sustainable finance. However, broadening and deepening these frameworks is essential. The current taxonomy, for instance, could benefit from continuous updates to include emerging sectors and industries that support sustainability, such as renewable energy technology and eco-friendly manufacturing processes. Again, as Ghana's sustainable finance landscape evolves, the Green Finance Taxonomy should incorporate transitional activities, like sustainable practices in extractive industries, which are integral to Ghana's economy but often face sustainability challenges. Ensuring consistent updates to such frameworks will help Ghana's financial sector align with international standards and emerging global best practices.
Another crucial regulatory enhancement would involve mandating Environmental, Social, and Governance (ESG) disclosures for a broader range of companies, including unlisted firms. By extending ESG disclosure requirements, the Ghana Stock Exchange (GSE) and the Securities and Exchange Commission (SEC) can increase market transparency and make it easier for investors to identify sustainable investment opportunities. This approach aligns with practices in developed markets, where companies across all sectors are increasingly accountable for their sustainability practices through mandatory disclosure frameworks. Furthermore, harmonizing ESG regulations across various regulatory agencies would minimize duplication, improve compliance, and facilitate a streamlined approach to sustainable finance.
2. Strengthening the Role of Financial Institutions
The financial sector, particularly banks, plays a pivotal role in sustainable finance by determining how capital is allocated across sectors. The Bank of Ghana's Sustainable Banking Principles and its Climate-Related Financial Risk Directive demonstrate a proactive approach to guiding the banking industry toward sustainability. However, enforcing compliance with these principles and directives is key. Regular audits and assessments of banks' adherence to the Sustainable Banking Principles can create accountability, ensuring that financial institutions prioritize environmental and social risk management in their lending practices. Additionally, incentives such as lower capital reserve requirements for banks financing green projects could encourage more financial institutions to actively participate in sustainable financing.
The development of green financial products, including green bonds and sustainability-linked loans, would also support the sustainable finance agenda. For instance, the Securities Industry (Green Bond) Guidelines, 2024, has laid a foundation for the issuance of green bonds. To accelerate green bond issuance, Ghana's government could partner with financial institutions to provide guarantees or credit enhancements, making green bonds more attractive to investors. Furthermore, encouraging banks to issue sustainability-linked loans, where loan terms are tied to the borrower's achievement of specific ESG targets, could incentivize companies across sectors to adopt more sustainable practices.
3.Engaging the Private Sector and Expanding ESG Practices
Private sector engagement is essential for the success of Ghana's sustainable finance framework. Currently, many Ghanaian companies, especially small and medium-sized enterprises (SMEs), either lack awareness of ESG standards or consider them a voluntary practice rather than a necessity. Raising awareness and providing incentives for these companies to adopt formal ESG practices is critical. The SEC, in collaboration with the Ministry of Finance, could initiate programs that educate companies on the benefits of ESG practices and the long-term advantages of sustainable business models. Additionally, public-private partnerships (PPPs) could serve as platforms for disseminating knowledge about sustainable finance and facilitating access to the necessary resources and expertise.
To promote broader adoption of sustainable finance practices, Ghana could establish an ESG rating system tailored to its unique business climate, enabling companies to assess and improve their ESG practices. Companies with high ratings would not only gain access to incentives, such as tax breaks or lower borrowing costs, but also enhance their reputation, attracting local and international investors interested in responsible investment. Integrating such an ESG rating system with existing reporting frameworks would simplify the compliance process and enhance the credibility of Ghana's sustainable finance ecosystem.
4. Building Institutional Capacity and Knowledge
For Ghana's sustainable finance framework to succeed, it is crucial to develop the necessary institutional capacity. This includes training professionals in the financial sector on the principles of ESG investing, sustainable finance, and environmental risk management. Organizations like the Bank of Ghana, SEC, and GSE could collaborate with international institutions and universities to develop training programs and workshops for finance professionals. By building a knowledgeable workforce, Ghana can strengthen the capacity of its financial institutions to assess, manage, and mitigate ESG-related risks more effectively.
The creation of the Climate Finance Division within the Ministry of Finance is a positive step towards enhancing Ghana's ability to monitor and implement sustainable finance initiatives. To ensure its success, it is crucial that the division is adequately equipped with the necessary resources and expertise to effectively fulfill its mandate. Strengthening this division will enable it to drive research and develop tailored sustainable finance strategies that align with Ghana's economic needs and long-term sustainability goals.
Additionally, collaboration with international institutions like the World Bank or the International Finance Corporation (IFC) could provide technical assistance and share best practices in sustainable finance, enabling Ghana to adapt successful models to its own context.
5. Mobilizing Domestic and International Capital for Sustainable Projects
While Ghana has made strides in sustainable finance, funding remains a challenge. Mobilizing both domestic and international capital for sustainable projects is essential. The government could introduce incentives to attract more private investment into sustainable sectors, such as renewable energy, sustainable agriculture, and eco-tourism. Offering tax exemptions or reduced import duties for equipment used in green projects can encourage local businesses to adopt sustainable practices.
Internationally, Ghana could tap into funds from institutions like the Green Climate Fund and other climate-focused investors by aligning its projects with global sustainability goals.32 Partnerships with development finance institutions (DFIs) could help de-risk investments in sustainable projects, making them more appealing to private investors. Additionally, Ghana's government could explore the issuance of sovereign green bonds specifically dedicated to funding environmental and social projects, setting a precedent for sustainable finance in the region.
6. Promoting Public Awareness and Education on Sustainable Finance
Public understanding of sustainable finance is crucial for its success. Without widespread awareness, sustainable finance initiatives risk being underutilized or misunderstood. Ghana's government, along with financial institutions, could launch awareness campaigns to educate citizens about sustainable finance, explaining how it benefits the economy and the environment. Campaigns should target both businesses and the general public, highlighting how adopting sustainable practices can create jobs, improve environmental conditions, and support long-term economic stability.
Further, integrating sustainable finance concepts into Ghana's educational system, especially in business and finance programs, can help create a future workforce that values and understands the importance of sustainability in financial decision-making. By cultivating a culture of sustainability, Ghana can ensure that sustainable finance practices become an integral part of its economic landscape.
Conclusion
Ghana's sustainable finance framework has significant potential to align economic growth with environmental and social priorities, thereby making a lasting impact on the country's development. To maximize this potential, collaboration among governments, regulatory bodies, and private sector stakeholders is essential for creating robust policies that promote responsible investment, transparency, and effective risk management.
Despite the progress made through initiatives by the SEC, GSE, and BoG, Ghana requires more comprehensive policies to enhance mandatory disclosures and ensure consistency across sectors. Strengthening these elements will be crucial for advancing sustainable finance. A resilient and inclusive approach, supported by both domestic initiatives and international partnerships, will help Ghana achieve long-term sustainability goals and establish itself as a regional leader in sustainable finance.
Footnotes
1 Financial Stability Board, The Implications of Climate Change for Financial Stability (23 November 2020) https://www.fsb.org/uploads/P231120.pdf accessed 2 December 2024. p. 5, accessed 2 December 2024 .
2 World Economic Forum, The Global Risks Report 2024 (World Economic Forum 2024) https://www3.weforum.org/docs/WEF_The_Global_Risks_Report_2024.pdf accessed 9 October 2024, page 61.
3 Environmental Assessment Regulations, 1999 (As Amended) (LI 1652). Regulation 1.
4 ibid, Regulation 26
5 Gunung Capital, 'Sustainable Investment: Driving Growth Through Responsible Business Practices' (Gunung Capital, 2023) https://gunungcapital.com/sustainable-investment-driving-growth-through-responsible-business-practices/ accessed 9 October 2024.
6 Georgina H. C. L. Ho and H. L. Chan, 'Corporate Sustainability Reporting and Firm Performance: Evidence from the UK' (2020) 272 Journal of Cleaner Production 123110 https://www.sciencedirect.com/science/article/pii/S0959652620347594 accessed 9 October 2024.
7 International Finance Corporation, 'Challenges of Green Finance' (2023) https://www.ifc.org/content/dam/ifc/doc/2023/challenges-of-green-finance.pdf accessed 9 October 2024.
8 UNCTAD, World Investment Report 2023: Challenges of Green Finance (United Nations 2023) https://unctad.org/system/files/official-document/wir2023_ch03_en.pdf accessed 9 October 2024.
9 Rana Oumer, 'What Drives the Financing of Green Technologies? Insights from a Systematic Review' (2024) Journal of Cleaner Production https://www.sciencedirect.com/science/article/pii/S2405844024061760 accessed 9 October 2024.
10 UNCCT, Sustainable Finance: Policy and Regulation https://unccelearn.org/mod/scorm/player.php?a=669¤torg=L8_Sustainable_Finance:_Policy_and_Regulation_ORG&scoid=2513&sesskey=6ZLkRvFD7G&display=popup&mode=normal accessed 3 December 2024.
11 United Nations Principles for Responsible Investment (UNPRI), 'Making Better Allocations for the Long Term' (UNPRI, 2018) https://www.unpri.org/download?ac=17538 accessed 10 October 2024.
12 The Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to enhance climate-related disclosures, helping investors, insurers, and other stakeholders assess carbon asset concentration and climate risks in the financial sector. In 2017, the TCFD released recommendations focusing on governance, strategy, risk management, and metrics/targets, urging companies to disclose this information in public financial filings or similar reports, like annual accounts. These recommendations aim to support informed investment and capital allocation decisions by improving the quality of climate-related financial information.
13 United Nations Principles for Responsible Investment (UNPRI), 'Definitions for Responsible Investment Approaches: Stewardship' https://www.unpri.org/investment-tools/definitions-for-responsible-investment-approaches/11874.article accessed 10 October 2024; Supra (no.11).
14 Supra (no. 11).
15 ibid.
16 ibid.
17 Ministry of Finance Ghana, Green Taxonomy Framework for Ghana (Version 3, 2023) https://mofep.gov.gh/sites/default/files/reports/economic/Green-Taxonomy-Framework-for-Ghana_V3.pdf accessed 29 October 2024.
18 ibid.
19 ibid.
20 ibid.
21 Securities and Exchange Commission Ghana, Corporate Governance Code https://sec.gov.gh/wp-content/uploads/Final-Regulatory-Laws/Codes/Corporate_Governance_Code.pdf accessed 11 October 2024.
22 Ebenezer Sabutey, 'GSE Births "Gender Bond" to Attract Women-Led Businesses' (My Joyonline, 12 March 2024) https://www.myjoyonline.com/gse-births-gender-bond-to-attract-women-led-business/#google_vignette accessed 27 June 2024.
23 Securities and Exchange Commission Ghana, Green Bond Guidelines (2024) https://sec.gov.gh/wp-content/uploads/Final-Regulatory-Laws/Guidelines/Green_Bond_Guidelines_2024.pdf accessed 11 October 2024.
24 ibid, paragraph 1 (2)(c).
25 Bank of Ghana, Ghana Sustainable Banking Principles and Guidelines (Bank of Ghana, 2019) https://www.bog.gov.gh/wp-content/uploads/2019/12/Ghana-Sustainable-Banking-Principles-and-Guidelines-Book-1.pdf accessed 10 October 2024.
26 Ghana Stock Exchange, ESG Disclosures Guidance Manual (November 2022) https://gse.com.gh/wp-content/uploads/2022/11/GSE-ESG-DISCLOSURES-GUIDANCE-MANUAL-1-1.pdf accessed 11 October 2024.
27 Bank of Ghana, Exposure Draft: Climate-Related Financial Risks Directive (May 2024) https://www.bog.gov.gh/wp-content/uploads/2024/05/BOG-Exposure-Draft-Climate-Related-Financial-Risks-Directive.pdf accessed 11 October 2024.
28 Ecobank, Sustainability Award https://ecobank.com/sustainability-award accessed 11 October 2024.
29 Ministry of Finance, Climate Financing Division Established in the Ministry of Finance (22 October 2024) https://mofep.gov.gh/news-and-events/2024-10-22/climate-financing-division-established-in-the-ministry-of-finance#:~:text=Mohammed%20Amin%20Adam%2C%20Minister%20for,projects%20that%20promote%20green%20growth accessed 3 December 2024.
30 ibid.
31 GCB Bank, Ecobank Ghana, Stanbic Bank Ghana, Absa Bank Ghana, Fidelity Bank Ghana, Standard Chartered Bank Ghana, CAL Bank, Zenith Bank Ghana, Societe Generale Ghana, Access Bank Ghana, UBA Ghana, and Republic Bank Ghana.
32 The Green Climate Fund (GCF) is a global initiative established to support the efforts of developing countries in addressing climate change. It provides financial assistance for projects that reduce emissions and enhance climate resilience, particularly in sectors like renewable energy, agriculture, and infrastructure.
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