A recent report by Moody’s has revealed that some African banks are still financing companies that are highly exposed to carbon emission risks, despite growing calls to address climate change. These companies are mostly in the mining, oil, and gas sectors, and have a combined loan portfolio of around $106 billion, representing 22% of the total loan portfolio of these banks. This is a cause for concern given the continent’s vulnerability to climate change, which has led to the worst drought in decades, leaving over 22 million people exposed to severe hunger.
Moody’s report also highlighted that African banks are more exposed to governance and environmental risks than their global peers and that their risk exposure to climate change and carbon transition is intense. Thirteen banks across Nigeria and Angola are particularly high-risk, with the former having a loan book worth $51 billion, or 51%. In contrast, lenders in South Africa and Morocco are less exposed to these credit risks. In South Africa, carbon-intensive lending accounts for 19%, equivalent to $51 billion, while in Morocco, carbon-intensive loans account for 19% of the total loan book, equivalent to $16 billion.
However, there are some positive developments, such as the Kenya Commercial Bank Group’s (KCB) commitment to cut its carbon footprint by screening $2.6 billion worth of loans for social and environmental risks, and increasing its green portfolio to promote sustainable finance. KCB plans to translate a quarter of its total loan portfolio to green finance by 2025. In addition, Moody’s notes that leading South African banks have introduced sustainability and climate-related objectives, including measurable targets that support the transformation of the energy sector.
Overall, while there are still concerns about African banks’ exposure to carbon emission risks, concerted efforts by the African Union and other global leaders are lowering the risks. Moody’s has revised its risk estimate from $218 billion to $106 billion, a decrease of $112 billion, due to ongoing efforts to address climate change and the pressing drought on the continent.
