INTRODUCTION

Africa is now the world’s fastest-growing continent1. On a regional level, economic growth in Africa has raised its GDP to a level similar to that of to Brazil or Russia. The World Bank estimates that by 2025, most African countries will have reached ‘middle income’ status2. While there are differences within and amongst countries on the continent, generally, social development indicators have improved, poverty has reduced, governance has improved and generally there is more stability.

The importance of efficient and well-regulated financial markets that mobilise capital, channel resources into productive investments, manage and diversify risks, mobilise savings and monitor the corporate sector, are all well documented3. Sustainable financial markets enable businesses to grow and are essential for nations’ macro-economic stability. Over the past decade, Africa’s financial markets have been experiencing enormous growth as a result of the efforts made by governments, the private sector and multilateral and bilateral donors. Despite the progress however, much remains to be achieved. The financial systems of most Sub-Saharan African markets are largely dominated by banks where credit is limited, assets are highly concentrated in a few banks and the overall volume of assets is low. Legal and regulatory structures, poorly defined property rights, weak contract enforcement and insufficient creditor protection have also been defined as some of the pertinent problems in the region4. At the same time, more and more questions have been raised in relation to the ways in which banks contribute to society and banks are now faced with challenges in restoring trust.

Environmental, Social and Governance (ESG) related issues are posing risks to companies in Africa and this in turn brings risks for their lenders. Poor governance, immature legal systems, social inequality, vulnerable ecosystems and political and social conflict all can pose serious problems to the continent’s businesses, and threaten their investors with material losses. Stakeholder expectations on the roles of financial institutions to manage sustainability issues are increasing. Banks around the world have had to deal with issues surrounding their reputations and rebuild public trust in banks as responsible corporate citizens. The financial crises of a few years ago elevated the importance of good corporate governance with clear connections between well governed companies and better performance and it is widely recognised that social and environmental responsibility can add value to businesses in emerging markets5. However, limited ESG disclosure by companies in the region also poses a challenge to effectively integrating sustainability issues into financing.

It is widely recognised that Small and Medium Enterprises (SMEs) are the engine of growth across countries. However, most banks have often remained wary of lending to SMEs. According to the OECD ‘a lack of innovative financial instruments geared towards SMEs’ is one of the main obstacles to more efficient and effective financial markets in the region6.

Sound, inclusive and sustainable financial markets are essential to building shared prosperity and ending poverty. With investments into Africa expected to significantly increase in the near future, encouraging sustainability will have multiplier effects for later investment. Financial institutions that take an integrated approach to lending and incorporate governance, environmental and social standards, as well as embed resource efficiency and inclusive lending will be more robust and competitive. Banks are recognising that to build trust they need to be seen to be a more responsible citizen within the communities in which they operate and can also make pro-active social investments aligned with their business objectives. Leading banks in Africa recognise that they must contribute to improving the business climate in the region and integrating and addressing corporate responsibility and sustainable business practices and develop inclusive banking approaches.

IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector in developing countries. The Sustainable Business Advisory (SBA) unit of the IFC works with companies to adopt environmental, social, and governance practices and technologies that create a competitive edge, which can help to transform markets and enhance benefits to communities. The SBA team in Africa is working with businesses and their stakeholders to create long term value for companies, communities and the environment. It is engaging with companies across industry sectors and helping to share and disseminate good practices for more sustainable business.

The SBA Financial Markets Business line, working together with other departments of IFC aims to address this problem focusing on: standards; resource efficiency; programmes in support of SMEs as well as community investment strategies for financial institutions. Through its Advisory Services, IFC has scaled up the sustainable provision of financial services in developing countries by addressing systemic issues such as corporate governance and the introduction of environmental and social standards.

4 Sustainable and Responsible Mining in Africa | A Getting Started Guide Sustainable and Responsible Mining in Africa | A Getting Started Guide 5 WHY THIS GUIDE?

This guide has been prepared to assist financial institutions in Sub-Saharan Africa (SSA)i in understanding sustainability issues and to share examples of good practice. This guide has been prepared based on a review of literature and a scan of practices in countries which were prioritised by IFC for the research and supplemented by a scan of disclosure of 15 banks, some interviews with companies, IFC and World Bank staff, and consultants in the industry. A focus group discussion took place in February 2013 which helped to shape and inform this report.

The banking sector is diverse and includes commercial and wholesale banking (provision of consumer banking, leasing, consumer banking products, venture capital for small and medium enterprises), investment banking (raising capital in capital markets and advising on mergers and acquisitions as well as private equity and project finance) and asset management (custody of assets for clients). The focus of this guide is geared towards commercial and wholesale banking but also touches on issues related to project finance and private equity.

It should be noted that any viewpoints expressed in the text are those of the consultant tasked with preparing this and may not necessarily reflect those of the IFC. This guide is not exhaustive but is intended to be introductory and will be more relevant to managers or companies who are new to working in sustainability and need a basic understanding of the issues in a Sub-Saharan African context. It includes SBA’s framework for working with companies and examples of practices which address sustainability through standards, resource efficiency, supply chains and community engagement.

i While ‘Africa’ is sometimes used in this report the focus is on Sub-Saharan Africa

6 Sustainable and Responsible Mining in Africa | A Getting Started Guide Sustainable and Responsible Mining in Africa | A Getting Started Guide 7

SUSTAINABLE AND RESPONSIBLE BANKING – WHAT ARE WE TALKING ABOUT?

Sustainable development is about ‘meeting the needs of current generations without compromising the needs of future generations to meet those needs’7. The financial sector plays a different role to other industry sectors in relation to sustainable development. First and foremost is a concern from stakeholders in relation to how financial institutions manage social and environmental risks and protect social and environmental capital in their own lending and, in addition, how they adapt products and services to those in need of banking and finally what additional actions can be taken to contribute positively to the communities in which they operate.

Sustainable and responsible banking is about balancing financial, social and environmental issues, to ensure the Box 1: Standard Bank’s Sustainability Report states: success of the company as well as the sustainable livelihoods of the communities. It involves integrating social and “We must contribute to improving the business climate in environmental criteria into lending decisions, ensuring good this region and increase our relevance in the communities we governance, building more inclusive lending which supports operate in. Increased trade and investment is an important small and medium enterprises (SMEs) and those at the base driver of economic growth and job creation on the continent, of the economic pyramidii, protecting the environment, being with Standard Bank being well positioned to take advantage transparent, and acting with integrity. Companies that are of the financing opportunities that stem from these trade better positioned to manage the social and environmental and investment flows. We also play a positive role through risks and challenges in business will be better able to deliver facilitating relationships between the public and private sectors sustainable growth and returns. Box 1 provides an excerpt and in providing services, capital and advice to governments. We from Standard Bank’s website on their contribution to socio- contribute to infrastructure development, capacity building and economic development in Africa8. the operation of government through sharing our knowledge and experience. In terms of project finance, IFC Performance Standards provide guidance on how to identify risks and impacts, and are We believe that partnerships are an effective means of designed to help avoid, mitigate, and manage risks and impacts addressing social challenges. We work with development as a way of doing business in a sustainable way. They integrate finance institutions and international organisations dedicated guidance on stakeholder engagement and the disclosure to facilitating the achievement of the Millennium Development obligations of the client in relation to project-level activities. Goals in Africa, including the distribution of donor funds.“ Similarly, 79 Financial Institutions across the globe have signed up to the Equator Principles, which are based on and aligned with the IFC Performance Standards. Equator Principle Financial Institutions (EPFIs) now finance over 70 percent of global project finance in emerging markets. Other standards such as those focussed on corporate governance and the UNPRI were cited as important by companies we looked at to understand the responsible business practices of companies in the banking industry.

Sustainable and responsible business practices can help banks: • Manage risk • Reduce negative impact • Build reputation • Obtain and maintain a social licence to operate • Build relationships with other investors and the wider financial community • Build relationships with government and the local community

ii The “base of the pyramid” concept has become a popular shorthand for describing individuals living below a given income or spending threshold. But many people debate where these income or spending lines are best drawn, and consequently the size of this population and its purchasing power. Some suggest below $1 or $2 a day for the poverty line. Others say below $5 or $8 a day for the working poor (IFC, Defining the Base of the Pyramid). Available online at: http://www.ifc.org/wps/wcm/connect/as_ext_ content/what+we+do/inclusive+business/news+and+highlights/defining+the+base+of+the+pyramid

Sustainable and Responsible Mining in Africa | A Getting Started Guide 9 For any company getting started on a journey to a more sustainable business, there are some key steps that can be taken to support continuous improvement.

• Understand the issues: Companies need to understand the important social and environmental and governance issues, which are relevant to their stakeholders and which can also impact their business. Briefings such as this one can provide businesses with a first step and a general overview of the issues of significance in the sector. • Engage with stakeholders: To understand the issues, companies need to engage with their stakeholders. There are various tools and resources to support companies to do this. The IFC’s ‘Stakeholder Engagement: A Good Practice Handbook’iii is a useful business tool. • Demonstrate leadership and accountability: Managing complex social and environmental issues starts from the top. Businesses can review how sustainability is reflected in their company values and principles and how they demonstrate leadership. For example, is there a Board Member appointed to oversee sustainable business practices? • Define policies, standards and objectives: Businesses need to ensure they have policies and codes of conduct, which define their company’s commitments and strategies regarding sustainability. Based on these, objectives and targets can be established. • Ensure resources and capacity in place: It is important to ensure that sustainability related initiatives are properly resourced (both human and financial) and that there is appropriate capacity as to fulfil commitments. • Measure, monitor, review and evaluate: Recognising the old paradigm that you cannot manage what you cannot measure, businesses should ensure that systems are in place to measure and monitor impacts and outcomes and integrate findings for continuous improvement. • Communicate and report: Being transparent about the business and its social and environmental impacts and ensuring strategies to address these are part of being a responsible company. By understanding the concerns and expectations of stakeholders, businesses can ensure that appropriate communication channels are in place. Numerous tools and guidelines exist for sustainability reporting at a company level.

Context is critical: Effectively managing and implementing sustainable business strategies requires that these fit within the local context and are appropriate to the size and scale of the business.

10 Sustainable and Responsible Mining in Africa | A Getting Started Guide

KEY SUSTAINABILITY ISSUES

Through their engagement with stakeholders, companies can identify and build understanding of the importance of sustainability issues, analyse their potential impact on the company, and prioritise. While there are numerous issues, key ones identified for this report include: state of financial markets; reporting and disclosure; SMEs, poverty and microfinance, climate change and water.

State of Financial Markets

First and foremost banks must be financially sound in order to be sustainable. Societies and economies depend heavily on stable financial institutions and play a crucial role in national development. Any analysis of sustainability issues for banks must start with an overview on the challenges and opportunities for financial markets.

Financial markets that are efficient, well-regulated and transparent play a critical role in fostering growth by helping mobilize capital and channeling resources into productive investments9. They also help to better manage risk, mobilize savings and monitor the corporate sector. Over the past decade, Africa’s financial markets have been experiencing enormous growth10.

One of the key indicators of the Africa’s financial sector growth is the sheer rise in the number of stock exchanges in the region – from a dozen in the early 90s to over 23 in 2010, including two regional stock exchanges11. Although these stock exchanges are relatively small as compared to the markets in the rest of the world, they signify the tremendous financial progress the region has achieved in the past decade. African stock exchanges have provided some of the best returns to investors in the last 10 years. For instance, between 2007 and 2009, USD 10 billion of equity capital was raised on local African Stock exchanges12. African markets are also gaining global recognition. The Nigerian stock exchange, for example, saw its market capitalization and volume rise by 50 percent and 12 percent respectively in 2012, beating even the Johannesburg Stock Exchange and the Shanghai Stock Exchange, which are one of the world’s most promising markets13.

However, a Conglomerate Group in Nigeria makes up about 30 percent of the Nigerian Stock Exchange. Furthermore, trading in shares is less frequent, and when it does happen, it is limited to a few firms14. Many also do not have reliable and up-to-date information technology and in some case trading is done manually. In Zimbabwe on the other hand, very few companies registered on the stock exchange are making huge returns and the volatility of the mining index and the industrial index is very low15.

Challenges for Africa’s financial markets include weak and inadequate regulatory markets, lack of access to the banking sector, under- developed capital markets, lack of innovative financial instruments notably those geared towards SMEs, who often remain confined in the informal sector due to inadequate financial services, and lack of inclusivity.

Although banks play a highly important role in helping to build sustainable and responsible financial markets across the continent, in much of Sub-Saharan Africa the banking sector does not yet have the capacity to play a catalytic role in promoting the development of a sound financial sector16. In countries like Sierra Leone, banks are small (assets averaging about USD 45 million), efficiency is low, there is a high banking concentration where the three largest banks (out of the thirteen operating commercial banks) hold about 54percent of total bank assets. In addition, the skill and experience level of bankers are deemed to be low, while the financial-sector associations, including the bankers association generally do not function well17.

Credit to the private sector in the region is limited, assets are highly concentrated in a small number of banks and the total volume of assets is also low18. Moreover, banks continue to have very high interest rates, which make credit expensive. Deposits are also poorly remunerated. The Liberian banking sector, for instance, only provides basic banking services. The system is weak in that it lacks effective capital market or options for portfolio investment. In addition, financial institutions have had historically high rates of non-performing loans which means that banks more willingly grant short-term (less than 18 months), high-interest loans (between 12-20percent) that constrain capital investment and limit new business development19.

Legal and regulatory structures in many African nations still remain insufficient, often combined with poor governance and institutional capacity, which means that there is poor investor protection and little or no protection of legal rights. The banking sector and capital market development in many countries in the region is also constrained by weak regimes, where corruption is rampant, along with low levels of transparency and accountability, all of which hamper the proper functioning of financial markets20. In the Democratic Republic of Congo for instance, years of war destroyed the country’s financial system. Although the country has established new institutions and a viable financial system, the confidence of the population in the financial sector has still not fully recovered after 15 years of civil war. Similarly, the financial sector in Zimbabwe is still recovering from the economic collapse of 2009. The banking system is still facing financial constraints, as the Reserve bank cannot perform its function as a lender of last resort due to the phasing out of the Zimba- bwean local currency. The country also struggles with high levels of corruption and poor governance. As a result there is a loss of trust in the banking system, causing people to withdraw their savings from their bank accounts, leaving nothing for the banks to do with their own investments21.

iii IFC ‘Stakeholder Engagement: A Good Practice Handbook’ available online at: http://www1.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ ifc+sustainability/publications/publications_handbook_stakeholderengagement__wci__1319577185063

12 Sustainable and Responsible Mining in Africa | A Getting Started Guide In the same manner, Rwanda’s financial sector remains highly concentrated even though competition is increasing owing to the entry of foreign-owned banking institutions and expansion in both domestic and foreign banks22. Although, the present banking system is stable and sound, penetration remains really low, particularly in rural areas. The Banking sector in the continent is undergoing crucial changes. Opening up of the markets has resulted in the entry of entry of several foreign / global banking institutions. There are also a few African banks expanding their presence in the region and capitalizing on the growing market. It is hoped that this will improve access to formal banking, improve remuneration on deposits and promote capital investment and enhance business development opportunities.

Reporting and Transparency

takeholders around the world and in Africa are calling for more transparency on sustainability issues related to companies which can help to ensure more accountability. For banks, having more disclosure on the potential social and environmental issues of Scompanies they lend to and do business with helps them to better manage risk.

Stock exchanges in the region have been helping to drive further disclosure and transparency in terms of disclosure requirement standards and governance as well as coordination and regulatory oversight. The Johannesburg Stock Exchange (JSE) is one of the leading stock exchanges in the world and one of the first to incorporate mandatory ESG reporting requirements for all the listed companies. The JSE upgraded its ESG reporting requirements to include integrated reporting on a ‘comply or explain’ basis, making South Africa the first country to mandate the disclosure of financial and non-financial performance in one integrated report for all listed companies23. Additionally, in South Africa, the King Report on Corporate Governance III (King III) requires integrated sustainability reporting and third party assurance. It applies to all South African companies and is a listing requirement for the JSE. It has been prescribed that entities follow an integrated reporting format, which means describing financial, social and environmental factors in a holistic manner within the report24.

Other recent developments in South Africa, such as changes to Regulation 28 of the South African Pension Fund Act and the launch of the Code for Responsible Investing in South Africa (CRISA) place a growing emphasis on ESG developments in the region.

In Nigeria, the Nigerian Stock Exchange (NSE) is another example which has been cited by analysts for indicating an interest and commitment to engaging with stakeholders to address issues linked to investment risk and it is hoped that this will open the door for further efforts on the integration of ESG reporting and data25.

In 2013, the Global Compact released the ‘Africa Sustainability Barometer’ which reviewed the reporting data of more than 1,000 companies listed on the continent. The finding was that data was scattered and availability was skewed to larger companies. The report noted that “outside of the continent’s established stock market – the Johannesburg Stock Exchange – there was a significant reporting drop-off”26. This did not include breakdown by sector and a quick scan for this report by 13 banks operating in Africa (3 international and 10 from the region), showed that 6 had separate corporate responsibility or sustainability reports; 4 included sustainability information in their annual reports while 3 banks did not have any information reported.

Banks can help to insure management of sustainability issues by working to integrate responsible lending criteria in their investments and pushing for improved reporting and disclosure of ESG issues. Companies can refer to the reporting guidelines of the ‘Global Reporting Initiative (GRI) for information on sustainability reporting.

SMEs and Access to Finance

SMEs are important drivers of growth in economies across Sub Saharan Africa, accounting for up to 90 percent of all businesses of which 70 to 80 percent are micro and very small enterprises27. Their contribution to employment opportunities in the region is unparalleled and constitutes the main source of jobs and income after subsistence agriculture28. In fragile and conflict affected states, SMEs can potentially provide the most promising and sustainable route out of poverty for millions of people. The sector is also characterized by the large involvement of women entrepreneurs who are active both in the formal and informal SME sectors.

In spite of their immense contribution to the economy, Africa’s SME sector remains underdeveloped. SMEs face a host of challenges to growth and development in the region. Key challenges include, lack of access to finance, inadequate capacity and skills development, lack of access to market and poor market information, and poor infrastructural facilities. In Rwanda, and in the region as a whole, SMEs struggle with poor management skills and limited technical, financial and technological knowledge.

Sustainable and Responsible Mining in Africa | A Getting Started Guide 13 There is also a large gap of skills in the area of ICT, technical, accounting industrial knowledge29. Another major constraint involves accessing and utilizing information regarding local, regional and international markets. SMEs also have limited knowledge about how to market their products both nationally and internationally. This stifles innovation and limits the ability of SMEs to broaden their scale and expand into value adding sectors. In Zimbabwe, access to markets is one of the biggest challenges faced by SMEs. Marketing costs are also exorbitant, leaving many at the mercy of middlemen and powerful large organisations that sometimes dictate unviable prices30. The majority of Micro and Small and Medium Enterprises (MSME) owners do not use sophisticated marketing strategies. A study done by FINMARK identified that many MSMEs reported challenges in identifying new clients, having too many competitors and not enough customers, which indicates a great need for support31.

SMEs are challenged with limited access to finance, particularly bank financing, primarily because they lack the scale, the collateral and the relationships which are necessary for obtaining formal financing from the financial sector32. Small businesses encounter difficulties accessing funding, particularly in fragile countries if they are too big for microfinance products, yet not positioned to compete for commercial bank’s products without collateral. Risk capital funds can cater to their needs, however this type of funding requires careful selectivity for funds as they identify and partner with SMEs that have the greatest potential for growth in jobs and revenues. Commercial banks recognize that the SMEs are a largely untapped market, yet remain wary of lending, citing reasons such as low skills, capacity and absence of sound business plans.

Financial institutions also typically see SMEs as a risk due to poor guarantees and lack of information about ability to repay loans. An under developed financial system provides few financial instruments with nascent capital markets and long term financing. In addition, most financial institutions also lack the proper tools to identify and mitigate risks associated with lending to SMEs33. A report by kfW on the challenges faced by entrepreneurs in the Democratic Republic of Congo highlights that financial institutions often reject loans applications by MSMEs because of the high transaction costs, lack of guarantees, limited management capacity, including planning and book keeping, and poor credit culture among SMEs34.

Microcredit institutions can help the smallest of SMEs but then cannot follow up when their customers expand35. This dilemma is often referred to as the ‘missing middle’ in finance. The lack of access often results in most SMEs having to rely on retained earnings and informal savings and loans from friends and family to finance their business. In Zimbabwe, the MSME sector is a major source of employment. A study conducted by the FINMARK Trust in 2012 found that nearly 5.7 million people in the country are working in the sector. Yet, 43 percent of MSME owners are financially excluded, which means that they do not use any financial products or services to manage their finances36. A meager 14 percent of the population uses products/services from commercial banks which are used mainly for cash related transactions37. The main source of support for most MSMEs is their own savings or support from friends and family for their business.

Addressing the challenges faced by SMEs and entrepreneurs is imperative for the creation of new jobs, stronger innovation and more sustainable growth. It is also critical for key stakeholders such as local governments, NGOs and other players to get involved and support entrepreneurs in particular women, to grow their enterprises. This could also help to improve attitudes towards women, and help develop their skills thereby generating more value from their economic activities.

Throughout the region, governments are taking steps to try to ensure financial services for those who have traditionally not been reached. In Liberia an MSME policy has been developed by the Government aimed at reducing poverty and promoting equitable income distribution by increasing the flow of capital to MSMEs, thus enhancing the skills of small business owners/managers, building the productivity of MSMEs, increasing the access to economic opportunities for underserved groups, and broadening the access of undeserved groups to resources needed to economic opportunities38. The country is also taking ample steps to promote the development of women entrepreneurs, particularly in terms of increasing their access to finance, skills development and training, and access to markets.

The Government of Kenya has introduced the Micro and Small Enterprises (MSE) Act, which paves the way for the formalization and segmentation of the sector, attracting private equity and venture capital investors. The aim of this act is to regulate the rapidly growing sector39. Additionally, to support the development of the private sector, generate wealth and alleviate poverty in Kenya, the Government through the Ministry of Trade and Industry, with the assistance of the World Bank, is implementing the Micro, Small and Medium Enterprises (MSME) Competitiveness Project through public and private sector partnerships40.

By targeting products and services to SMEs, banks can help to contribute to economic growth which will in turn help to create sustainable markets for their own businesses.

14

POVERTY AND MICROFINANCE Overall poverty in Africa has declined. The proportion of people living below the poverty line decreased to 40 percent in 2008 from 47 percent in 1990, making it the first ever reversal of the long term poverty trend. A UNDP report for the region notes that by 2008, about 32 million people moved out of extreme poverty (below $1.25 a day)41. The fall in poverty is related to a multitude of factors but widespread economic growth has been critical for this shift.

While poverty, health and education indicators across the region have increased, challenges still remain. High levels of illiteracy still exist across much of the region, particularly in rural areas and poverty has been exacerbated by low investments in health and education. Poverty reduction has still been slower in Africa than in other parts of the world and there are wide discrepancies between and among nations. HIV/ AIDS and malaria have taken huge tolls on the potential workforce.

African women still face high levels of adult illiteracy, low levels of enrolment in schools as well as completion of primary education, low levels of capital accumulation and fewer employment opportunities. Women in African countries continue to face high risk of mortality during pregnancy and childbirth42. While women are generally at a disadvantage, poor rural women are impacted even further, lacking access to even the most rudimentary care. As gender gaps widen, women all over the continent are facing the consequences of poverty, unequal opportunities for education and employment, and poor healthcare.

Women, although fairly well represented in formal and informal MSMEs, are still mainly restricted to the lower and less productive segments of the sector. Women entrepreneurs are particularly disadvantaged in Africa as a result of various laws and customs which discriminate against women. Generally across the region, a culture that recognises and rewards women’s entrepreneurship is limited and a lack of access to business training, networks and capital prevent women from scaling up their micro-enterprises43. In Cote d’Ivoire access to bank loans is difficult for women, because they are unable to meet the lending criteria established by banks, such as a title to a house or production of a profitable cash crop44. Some banks impose obstacles on women obtaining loans by requiring a husband’s permission for approval of loans45. Women also usually have inadequate levels of start-up capital46. A 2012 report on ‘The Challenges Facing Small-Scale Women Entrepreneurs: A case study of Kenya’ reports that even when women entrepreneurs approach banks for financing, they tend to face discrimination. Officials tend to ignore women during meetings and prefer speaking to their husbands or male business partners. This gender bias prevents many women from even approaching banks for loans. Some women get so discour- aged that they do not bother to seek bank financing and turn instead to informal savings groups47. Similarly, in 2007, the World Bank Group’s Doing Business project, found that 18 percent of women in the DRC needs their husband’s permission to start a business48.

xisting cultural bias along with limited experience and knowledge of women entrepreneurs in the preparation of business plans constrains them from obtaining the necessary finance to start a business49. Limiting the opportunities for women entrepreneurs to Eexpand and grow their business, also limits their capacity for growth and keeps them entrenched in a cycle of poverty. It is therefore critical for key stakeholders such as local governments, NGOs and other players to get involved and support entrepreneurs in particular women, to grow their enterprises. This could also help to improve attitudes towards women, and help develop their skills thereby generating more value from their economic activities. There have been numerous and innovative examples of inclusive business models which have worked to bring financial services to the ‘unbanked’. It is estimated that only 24 percent of adults living in Sub-Saharan Africa have a bank account with a formal financial institution50. Microfinance is an opportunity to provide access to financial services to the neediest and targeted Microfinance Institutions (MFIs) have been established as banks have not historically provided services to low income individuals and household due to risk and low profitability.

In the last 10 years, microfinance in Sub-Saharan Africa has gained momentum with drivers including improvements to the regulatory environments, increased operational efficiency of microfinance providers as well as continued interest from donors and development institutions in supporting the sector51. There are widespread debates over the availability of microfinance to effectively alleviate poverty as experience in some countries has found that poverty has been exacerbated but microfinance aims to bring financial services where it was previously lacking and other evidence points to its ability to help poor people increase income, build businesses and reduce vulnerability to external shocks.

Additionally, the rise in mobile technology has also helped to increase the spread of financial services offering “convenience, security and speed in the delivery and consolidation of financial services”52. It is estimated that mobile phone penetration in the region was 65 percent in 2011 and forecasted to reach 85 percent by 2015. The impressive growth of the mobile phone market in Africa is giving rise to significant changes and ushering unparalleled revolutions. Mobile banking services are flourishing across the continent and providing services to remote areas where conventional banks have been physically constrained. In Kenya for instance, a staggering 68 percent of adults use mobile money, which is by far the highest rate in the world, partly because regulation is extremely light53.

With the increasing access and availability of mobile phones, financial institutions as well as mobile phone service providers have looked to develop innovative services through applications which can deliver basic payment functions (M Payments) such as Safaricom’s M-Pesa service.

Mobile banking enables users to set up a bank account on their phones in a straightforward manner. All one is required to do is to register with an approved agent, provide phone details, along with an ID card, and then deposit some cash onto the account54. It can then be used to make payments and transfers, even those that are remote. It also makes sending and receiving remittances more

16 Sustainable and Responsible Mining in Africa | A Getting Started Guide convenient. Mobile banking also offers other advantages such as immediacy, security and efficiency and with its key strength lying in its capability to reach everywhere.

The rise in mobile banking is significantly contributing to improving access to financial markets in the continent. This in turn is enabling capital accumulation through savings and affordable credit and is playing a leading role in helping reduce poverty55.

Increasingly the retail banking sector has been identifying opportunities to provide microfinance services but regardless of the provider of the credit it will always be expensive56.

M-Pesa – A success story from Kenya

The M-Pesa mobile money transfer service was launched in 2007 in Kenya in partnership between Safaricom and Vodafone.

M-Pesa (“M” for mobile and “PESA” for money in Swahili) is an innovative electronic transfer solution that enables customers to transfer money using their mobile phones. It is aimed at mobile customers who do not have a bank account, either by choice, because they do not have access to conventional banking or because they do not have sufficient income to justify a bank ac- count. M-Pesa allows registered customers the ability to move money to other phone number based accounts. The M-PESA account can have as much or as little money as suited to the needs of the customer - between zero and Ksh50, 000 at any time.

Over 50 percent of Kenya’s adult population now uses M-Pesa to send money to far flung relatives, pay for goods and services and other day to day conveniences. According to the World Bank, as of late 2009, M-Pesa was already facilitating an average of $ 320 million per month in person to person transfers (roughly 10 percent of Kenya’s GDP on an annualized basis). In recent months, M-PESA has begun allowing institutional payments, enabling companies to pay salaries and collect bill payments.

M-Pesa demonstrates the value of leveraging mobile technology to extend financial services to large segments of unbanked population using a low transactional platform that meets the needs of even the low-income customers.

Sustainable and Responsible Mining in Africa | A Getting Started Guide 17 Climate Change

Sub-Saharan Africa is one of the most vulnerable regions in the world to climate change. While many countries are already prone to frequent droughts and/or floods and these events are cyclical, their increasing frequency and intensity are thought to be linked to cli- mate change. The impact of these shocks on already vulnerable populations is often severe, affecting both short-term food securities as crops fail or are destroyed, and long-term food security as households lose or are forced to draw down on their few assets. The World Bank’s 2013 Report ‘Turn Down the Heat’ warned the world would warm by 4 degrees Celsius (4°C or 7.2 degrees Fahrenheit) above pre-industrial levels by the end of this century if we did not take concerted action now, with dire consequences on agricultural produc- tion, water resources, coastal ecosystems and cities across Sub-Saharan Africa57.

Climate change is a critical business issue which brings both threats and opportunities across all sectors. The banking industry will pri- marily be affected indirectly through their own lending and how they anticipate the impact of climate change on their clients. In 2004, Innovest noted that with conservative and outdated data “up to 5 percent of market capitalisation could be at risk from the conse- quences of climate change”.

For commercial and wholesale banks risks could include client default risk due to underestimated costs of climate change mitigation as well as costs due to asset damages connected to extreme weather. In emerging markets such as Africa exposure to such costs and where insurance coverage is low is likely to be even higher. At the same time there may be increased opportunities for clean technol- ogy solutions. Banks can seize opportunities to develop solutions that address the challenges related to climate change.

For investment banking climate change could bring benefits brought on by economic change. Primary markets “would benefit from any rapid technological change and associated investments to address the impact” and “secondary markets would profit from new trading markets”. Regulatory risks for GHG emissions could arise where costs for carbon-intensive industries increase. Trading revenues could also be impacted by market volatility and new business opportunities will emerge (emissions trading, weather derivatives)58.

For asset management climate change can bring an “unpredictable impact” on global markets and “impair equity valuations or equity / bond issues due to climate change related effects or mitigation policies”. At the same time there can be opportunities for investors in climate leaders with demand for climate change related investments such as theme funds potentially rising59.

Water

ater is fundamental for life on Earth and the availability or lack of it will have a significant effect on the quality of life and well- Wbeing. Unlike gas or electricity water is a ‘must have’ commodity, a basic human need and recognised as a human right. About 66 percent of Africa is arid or semi-arid and more than 300 of the 800 million people in sub-Saharan Africa live in a water-scarce environment – meaning that they have less than 1,000 m3 per capita per year. Access to clean water is varied across Sub-Saharan Africa with only an estimated 61 percent of the population having access to clean water. There are significant differences across the region and within countries. While over 90 percent of the richest in urban areas are using improved water sources, and over 60 percent have piped water on premises, rural areas face a shortage where piped-in water is non-existent in the poorest 40 percent of households, and less than half of the population use any form of improved source of water60. The poorest often pay the most for clean drinking water particularly in urban areas.

Much of Africa has high water related risk due to the fact that many areas experience either flooding and drought, or both. Water related risks relevant to Africa include:

• Desertification; • Reduced freshwater availability; • Deforestation (leading to reduced soil water retention); • Water related health challenges; • Drought; and • Flooding.

Water is essential for business and banks would primarily be exposed to water related risks though the status and activities of their clients or more directly if they are owners or major shareholders. Lack of available financing for utility expansion has been a challenge in many countries in terms of increasing access to improved water services. Ensuring financing for water is also a business opportunity.

18 Sustainable and Responsible Mining in Africa | A Getting Started Guide

MANAGING ISSUES FOR MORE SUSTAINABLE BUSINESS

There are different ways of characterising and categorising the approaches that companies take to manage these complex issues. For the Sustainable Business Advisory (SBA) unit of the International Finance Corporation, interventions cut across 3 areas: standards; resource efficiency and SME and community engagement.

SBA Focus Area: Standards

In the past decade there has been an increase in standards and guidelines for financial institutions in managing sustainability issues61. Standards can help banks clarify their commitments, put management systems in place and demonstrate to others how they are managing social, environmental and governance issues in their business. Investors are drawn to companies which follow sound environmental, social and corporate governance standards as a determinant of its capacity to generate and preserve value over the long term.

IFC Performance Standards provide guidance on how to identify risks and impacts, and are designed to help avoid, mitigate, and manage risks and impacts as a way of doing business in a sustainable way. They integrate guidance on stakeholder engagement and the disclosure obligations of the client in relation to project-level activities. Together, the eight Performance Standards establish requirements for the client to meet throughout the life of an investment by the IFC. All IFC clients must adhere to the Performance Standards. Similarly 79 Banks across the globe and 9 from Africa have signed up to the Equator Principles which are based on aligned with the IFC Performance Standards. Equator Principle Financial Institutions (EPFIs) now finance over 70 percent of global project finance in emerging markets.

Good corporate governance is integral to the way a financial institution operates. It depicts the company’s commitment to conducting their operations in an ethical manner, with the highest level of transparency and accountability to their stakeholders and customers, resulting in superior financial benefits for shareholders.

Increasingly, there is a greater emphasis on the concept of ‘responsible investment’, which seeks to generate both financial and sustainable value in the long term. Responsible Investment integrates environmental, social and governance (ESG) and ethical issues into the company’s operations as well as investment decisions62. ESG issues are incorporated by companies into their investment decisions as an indication of the company’s sound performance against measureable ESG factors. The growing interest in ESG issues highlights that environmental, social, and governance issues can have a significant impact on the performance of investment portfolios, and should therefore be given appropriate consideration by investors63.

Standards help companies put management systems in place and help demonstrate to stakeholders how they are managing social, environmental and governance issues in their business. Standards are also essential for building investor and consumer confidence, and increase access to markets.

For companies in the financial sector, there are certain principles, guidance and standards which are considered important for the industry. For example:

• Equator Principles: The Equator Principles (EPs) is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making.

• UNPRI: The United Nations-supported Principles for Responsible Investment (PRI) Initiative is an international network of investors working together to put the six Principles for Responsible Investment into practice. Its goal is to understand the implications of sustainability for investors and support signatories to incorporate these issues into their investment decision making and ownership practices. In implementing the Principles, signatories contribute to the development of a more sustainable global financial system.

• Principles for Investors in Inclusive Finance (PIIF): The Principles for Investors in Inclusive Finance (PIIF) provide a framework for responsible investment in inclusive finance. The aim of the PIIF is to encourage greater adoption of responsible investment in inclusive finance by indirect and direct investors. The seven Principles provide a framework to enable signatories to share best practice and collaborate in order to achieve this objective.

• UNEP FI: UNEP FI is a global partnership between UNEP and the financial sector. Over 200 institutions, including banks, insurers and fund managers, work with UNEP to understand the impacts of environmental and social considerations on financial performance.

• Global Compact: The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti- corruption. The UNGC encourages businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation.

20 Sustainable and Responsible Mining in Africa | A Getting Started Guide • Global Reporting Initiative: GRI is an international not-for-profit organization, with a network-based structure. GRI promotes the use of sustainability reporting as a way for organizations to become more sustainable and contribute to sustainable development. This sustainability reporting system enables all companies and organizations to measure, understand and communicate this information.

• Code for Responsible Investing in South Africa (CRISA): The Code for Responsible Investing in South Africa (CRISA) gives guidance on how the institutional investor should execute investment analysis and investment activities and exercise rights so as to promote sound governance.

• Africa Carbon Asset Development Facility (ACAD): ACAD is a public-private partnership spearheaded by the United Nations Environment Programme and its Risoe Centre. ACAD is the first carbon project development support facility squarely focused on increasing deal-flow in Africa.

• Climate Markets and Investment Association (CMIA): The Climate Markets and Investment Association (CMIA) is the voice of the climate, sustainable finance and services community. CMIA incentivises low-carbon and resource efficient investment through market mechanism, pre-compliance markets, or climate and sustainable finance mechanisms.

Some examples of international standards adopted and being practiced by financial institutions in Sub-Saharan Africa include:

• Standard Bank Group is one of South Africa’s largest where appropriate. STANLIB’s investment decisions, as financial services groups. The bank currently operates in 18 well as those in other Liberty businesses, continue to take countries on the African continent, including South Africa, financial performance as a primary concern, with ESG issues as well as in other selected emerging markets. The Standard considered on a secondary basis. In the longer term, Liberty Bank Group’s (SBG) approach to governance is to keep hopes to develop its own responsible investment policy, track of developments nationally and internationally, and building on STANLIB’s new policy and the unique perspective adopt those practices that are most relevant to the group. of its businesses. The group is committed to continuously ensuring open and transparent disclosure and dialogue, which are fundamental • Access Bank Plc: In 2009, Access Bank commenced to creating, protecting, and sustaining shareholder value. the strategic integration of Environmental, Social and The group is working towards implementing a consistent Governance (ESG) considerations into its business operations. governance framework and standards across all operating The review takes all significant ESG issues into consideration subsidiaries, and has contributed to shaping the regulatory while ensuring that our business operations do not degrade environment through engagement with government the environment or cause social harm. The first step was the policymakers, legislators and regulators. signing onto the United Nations Global Compact (UNGC) and Equator Principles (EP) in June, 2009. Access bank also Standard Bank Group adheres to strict financial standards won the best ESG Asset Manager Award, Nigeria 2011. including the Equator Principles, IFC Performance Standards, The World Finance ESG awards recognize those companies UNPRI, Global Compact, CRISA, ACAD, CMIA and the King who are re-shaping the global SRI marketplace. Access Bank III Report on Governance (King Code). The bank also reports is recognized for having led the way in integrating ESG against the Global Reporting Initiative (GRI) G3 Sustainability strategies into its investment decision-making process and Reporting Guidelines and the GRI Financial Services Sector have fully embraced ESG principles into the bank’s ethos. Supplement, supported by its internally developed policies and procedures. In addition, the group also subscribes to • Standard Chartered: One of Standard Chartered’s key the Code of Banking Practice, a set of principles governing principles is ‘Being a Responsible Company’, which includes banking in South Africa and ensuring the highest standards practicing strong governance, looking after its people and of professionalism, integrity, and fairness. minimising their direct environmental impacts. The Bank has a number of key indicators to measure their impact in STANLIBiv includes investment and asset management building a sustainable business and helping communities. operations of the Standard Bank Group in Africa, including The bank has developed key policies and procedures, which South Africa. In 2012, STANLIB introduced a responsible together with the Equator Principles, form the bedrock of investment policy which outlines its approach, governance their sustainability risk management approach. and commitments to responsible investing. STANLIB has incorporated ESG issues into its research process which helps analysts and portfolio managers to consider issues such as remuneration, social and environmental responsibility, board independence and transparency as part of the evaluation of an investment’s attractiveness. As part of its due diligence reviews, LibFin ensures that ESG considerations are taken into account in investment decisions. In particular, the business monitors managers’ proxy voting and encourages engagement with boards and management

iv STANLIB: The Standard Bank Group’s principal asset management operation by size is STANLIB B, which is also based in Johannesburg. STANLIB is an international asset manager with over US$40 billion assets under management and it manages money on behalf of over 400,000 individual clients as well as substantial life assurance and third party retirement fund assets. STANLIB (a merger of seven Standard Bank and Liberty Life businesses) was launched in May 2002. Liberty and STANLIB are both signatories to the Code for Responsible Investing by Institutional Investors in South Africa (CRISA) which serves as the overarching framework for responsible investment across the Liberty group. STANLIB is a signatory to the United Nations Principles for Responsible Investment (UN PRI). Both frameworks encourage institutional investors to consider ESG issues when assessing potential companies to invest in. More information available online at: Standard Bank Economic Performance Report: http://sustainability.standardbank.com/downloads/segmented/economic-performance.pdf 21

Energy Efficiency

HSBC Group: Internally, the bank has a 10-point plan to make day and two direct PV to electricity systems on its head office HSBC a world leader in environmental efficiency by reducing buildings (one in the Johannesburg CBD and one in Durban). Its carbon emissions, developing new processes and technologies, new Rosebank building has achieved a 5-star design rating. The and changing the way we work. Their goal is to reduce annual group continues to strive for further improvement. employee carbon emissions from 3.5 tonnes to 2.5 tonnes by 2020. The company plans to reduce annual energy consumption Ecobank: Ecobank’s commitment to environmental sustainability per employee by 1MWh. In addition, in 2009, the collaboration of is evidenced in the revised Ecobank Environmental and Social Risk HSBC technology and sustainability experts led to the formation Policy and Procedure Manual (ESPPM), which guides business of the ‘energy team’. Its goal is to measure, manage and improve transactions in ensuring that they are financing business activities the energy usage and efficiency of the bank’s data centre that will not cause irreparable, irreversible and large scale portfolio. By working with suppliers and experts, the ‘energy destruction to the environment. At the same time, the bank works team’ helps reduce HSBC’s environmental footprint and improve with its clients to identify and implement mitigation and corrective operational performance. action plans to minimize any impact that acceptable transaction will cause on the environment. Apart from this, Ecobank promotes Standard Bank: Standard Bank Group is an Equator Principles green business financing - which involves promotion of green financial institution and screens all corporate and investment businesses and access to green technology by encouraging the banking lending for environmental and social risks, and any deals development and diffusion of environmental friendly technologies. in high-impact sectors are further screened using methodologies Ecobank has participated in business ventures aimed at optimizing custom-developed. They are also putting the necessary processes solar technology as well as promoting energy efficiency in in place to ensure that environmental and social screening is a household appliances including rural lighting and consumption, mandatory requirement in their pre-credit application system. and energy efficient refrigerator rebate and exchange scheme. In addition, the bank also invests in carbon finance and trading which reduces carbon dioxide (CO2) emissions while generating Kenya Commercial Bank: KCB Sustainable banking through revenue. Some examples include: KCB SEMS (Social and Environmental Management System) Social and Environmental Management System is a framework • Clean Energy and Energy Efficiency: Standard Bank that integrates social and environmental risk management into Group has a long history of funding clean development their business process and aids the Financial Institution to avoid mechanism projects in Africa and other emerging markets. and manage loans with potential social and environmental risks The Group applies a range of quality criteria to the by conducting social & environmental due diligence prior to loan emissions-reduction projects they finance or purchase carbon disbursement. credits from, to ensure they deliver real and permanent emissions reductions. In South Africa, SBG is committed to helping to establish a renewable energy sector, where they are active in advising, arranging finance for and funding renewable energy projects under the REIPPP Programme. Renewable energy projects currently represent a third of the company’s project finance energy portfolio and include wind, hydro and geothermal power stations. The Group is also actively involved in developing financing solutions for renewable energy projects in Angola, Ghana and Nigeria. • During 2012, Standard Bank launched the Corporate Energy Efficient Lighting Open Access Carbon Project, a Programmatic CDM registration that allows companies undertaking in-building energy efficient lighting retrofits to earn additional revenues from carbon credits. • The Standard Bank Low Pressure Solar Water Heater Programme for South Africa Extract: During 2012, Standard Bank registered a Programmatic CDM that will facilitate the supply‚ installation and financing of solar water heaters for low-income households in South Africa.

Within the organization, managing and reducing Standard Bank Group’s (SBG) energy consumption is essential to being an environmentally responsible business. To reduce its energy consumption the Group considers energy efficiency programmes and alternative energy sources. During 2012, Standard Bank spent approximately R15 million on energy efficiency projects in its South African operations. The company head office in Johannesburg, where around 15 000 employees work, has been benchmarked against national standards, and the buildings are considered to be energy efficient. At the bank, this has included replacing almost 27000 downlighters, installing a hybrid solar water heating system which heats 48 000 litres of water a

24 Sustainable and Responsible Mining in Africa | A Getting Started Guide SBA Focus Area: SMEs and Community Investment

SUPPORTING THE DEVELOPMENT OF SMEs

SMEs are important drivers of growth in economies across Sub Saharan Africa, accounting for up to 90 percent of all businesses. Nonetheless, the SME sector is characterized by its limited access to finance because they lack the scale, the collateral and the relationships which are necessary for obtaining formal financing from the financial sector. Financial institutions also typically see SMEs as a risk due to poor guarantees and lack of information about ability to repay loans. The financial sector’s lack of capacity to effectively supply financial resources and other products needed by the private sector also hampers the growth of Small and Medium Enterprises (SMEs). Some financial institutions in Sub-Saharan Africa are taking the lead in SME lending and promoting the growth of small businesses in the region.

Examples of banks strategies in relation to SMEs:

• Union Trust Bank: The Bank has designed some products to support small and medium scale enterprises financing. The products are divided into Small and Medium scale business. The ‘Helping Others Promote Enterprises’ (HOPE) programme is specifically designed to capture the presently unbanked sector of the economy; bringing HOPE to this sector for its inclusion into the formal banking and financial system through Credit and Retail Financial Services to Small- and Medium-scale Enterprise (SME) develop- ment. The objective for this programme is to provide financial and banking solutions for Small and Medium Scale Enterprises. Project Hope’s target groups include: Individuals doing petty trading (Garri, Rice, Palm Oil, Used Clothing, Fish Mongers, etc.), Shop Owners, Community Based Development and Trading Organizations, Registered Small Businesses, Transport Operators, Petroleum Dealers, Medium-Sized Enterprises, Organizations and Cooperatives. In addition, in June 2013, the bank has signed up with the African Guarantee Fund (AGF) to provide loans for Small and Medium Enterprises (SMEs) in the agro-business sectors. The guarantee is for a maximum amount of USD2 million with an initial utilisation limit of USD500, 000.

• Equity Bank: Equity bank provides two different types of loans to SMEs. One is the SME-Business Loan, which is available to SMEs operating in the Transport, Trade and Commerce, Construction, Manufacturing, Education, Health & other services sector. The other loan for SMEs is the Development Loan which is available to SMEs to finance expansion of a business and acquisition of business assets. In 2012, the bank also revamped the product offering for the SME sector, including, opening of 7 Supreme Branches, recruitment and training of additional relationship managers and officers and refocusing of Equity Investment Bank to SME advisory services. Consequently, lending to Small and Medium Sized enterprises (SMEs) increased by 45percent to Kshs 63.69 billion during the year. To date, the SME sector accounts for about 45.5 percent of the bank’s loan book.

• Exim Bank: The Bank has special programmes such as the ‘Women Entrepreneurs Financing (WEF) programme, whose objec- tives are to promote development of women entrepreneurship in business through the enhancement of existing micro enterprises managed by women, and the encouragement of new ventures with a potential to grow. This program also promotes productive employment within the focus of poverty alleviation and sustainable livelihood. In 2012, over 326 women entrepreneurs in different sectors of the economy have benefitted from the program where TZS 21.07 billion has been disbursed as of 31st December.

• Kenya Commercial Bank: KCB provides varied lending support to SMEs to suit their needs. In the past financial year, lending to SMEs was increased substantially. The bank launched new products and services, tailored specifically to meet the needs of these vital companies. Microfinance remains important in our aim of extending basic banking services to more people. In 2011 we provided Kshs 6.6 billion to microfinance institutions reflecting a 6percent loan exposure by sector. During the year, KCB and IFC signed a credit facility for USD 100 million to enable the Bank increase its lending support to small and medium enterprises (SMEs), micro enterprises and the mortgage market. In addition, one the main focus of the KCB foundation is to support Enterprise Devel- opment. 60 percent of the foundation’s budget supports programmes in this area. This includes supporting projects that reduce poverty and increase income for communities and individuals; supporting training programmes, mentorship and provision of busi- ness development grants for entrepreneurs. To date 3000 farmers and youth have benefitted from these programmes. KCB’s focus is in agribusiness development.

Creating a profitable and efficient SME sector in Africa is central to the needs of most of IFCs key stakeholders. For business, including IFC, the growth and profitability of investments is dependent on a vibrant SME sector. From a development perspective, SMEs are seen as the engine of growth that generates wealth and employment.

• IFC has supported the development of the SME sector in the region through initiatives such as SMS, Ventures, Rwanda Program, Mining Linkages Programs, and agribusiness small holder engagement. Through Business Edge and SME Toolkit, thousands of SMEs have been trained and supported to become more competitive.

• IFC’s Access to Finance program in Sub-Saharan Africa provides advisory services to financial institutions and other clients in order to increase access to financial services for households and small and medium enterprises and to strengthen the functioning of financial systems across the continent.

• IFC Ventures is designed to establish the incentives and advisory structure to enable the creation of risk capital platforms that invest in small businesses – focus on FCAS countries. Investments are managed by independent professionals selected on a com- petitive basis. IFC provides managers with training and technical assistance. Risk financing coupled with advisory services should provide opportunities for small business growth, generating increased local incomes and new job creation.

Sustainable and Responsible Mining in Africa | A Getting Started Guide 25 In the recent years, there has been a considerable rise in support for the SME sector by multilateral and bilateral donors. Some of these include:

• The African Development Bank (AfDB) has launched the African Guarantee Fund (AGF), a market-friendly guarantee scheme designed to ease access to finance for African Small and Medium Enterprises (SMEs). The AGF, designed and funded by the AfDB in partnership with the governments of Denmark and Spain, will provide financial guarantees to financial institutions to stimulate financing to SMEs and unlock their potential to deliver inclusive growth in the region65.

• International Fund for Agricultural Development (IFAD) has also been involved through various projects which have been operational over the last five years and have directly contributed to the development of agricultural and non-agricultural rural SMEs66.

• The European Investment Bank (EIB) has entered into a €8 million (approx. Rwf6.4bn) agreement with the Rwanda Development Bank (BRD) that will be channelled towards medium and long-term financing for small businesses in Rwanda.

COMMUNITY INVESTMENT STRATEGIES

anks, like other companies, recognise that strategic community investment strategies can help to manage risk and add value to the business and the community. Community investment is generally defined as voluntary contributions or actions by companies Bto help communities. Such strategies should help communities address their development priorities, and take advantage of opportunities created by private investment—in ways that are sustainable while at the same time support business objectives. Using the language of ‘investment’, it implies that we are seeking returns – both for the community and for the business.

Community investment as part of overall sustainability strategy can support the gaining and maintaining of a social licence to operate, reducing reputational risks, meeting government requirements or global standards and/or successfully competing for new business opportunities. Social investment is only one aspect of corporate activities that shape how communities perceive a company. Good practice in this area is continuing to evolve but leading companies have moved away from philanthropic donations and ad hoc practices to more strategic approaches to delivering social investment programmes which are linked to the business case and help the company create long term value.

Some examples of community investment strategies undertaken by banks in the region are listed below:

• Equity Group has a Foundation which is the institutional home for the Group’s social initiatives and interventions. Since its inception, the Foundation has significantly enhanced the coordination of CSR interventions for Equity Group. The group focuses on 6 social areas of importance: Education & Leadership, Financial Literacy & Access, Agribusiness, Environment & Sustainability, Health, and Innovation & Entrepreneurship. • Access Bank: The Bank focuses on Health, the Arts, Education, Environment, and Sports. It engages with relevant Stakeholders to address community issues while encouraging employees to contribute ideas, skills and resources through its Employee Volunteering scheme. Some of the key areas of engagement for Access Bank include: The fight against AIDS, TB, and Malaria in Sub-Saharan Africa, Health Education in the workplace, Community engagement with deforestation, employee volunteering. • Ecobank: Through the Ecobank Foundation the Bank provides assistance to African communities in education, health, environment, entrepreneurship, culture and research. Over the past five years, the Ecobank Foundation has provided in excess of USD 900,000 funding for 28 projects across Africa. • Standard Chartered: works with communities to deliver programmes that promote social and economic development focusing on health, youth and financial education. This includes employee volunteering, the ‘Seeing is Believing Global campaign’ which tackles avoidable blindness, HIV/AIDS awareness programmes and empowering women through sport. • Standard Bank: Through corporate social investment (CSI) social issues which can be a barrier to doing business are targeted. Using a research-based approach to understand the socioeconomic needs of communities, the bank collaborates with government, other businesses and community organisations when making investment decisions. Through merging business and CSI goals the bank aims to create meaningful and lasting mutual benefits for communities and for Standard Bank Group. • HSBC Africa’s community investment activity is focused on education and the environment - the fundamental building blocks for the development of societies. The Bank partners with world class charities that are making a difference, and remain involved in the decisions about how the money is spent. HSBC actively encourages staff participation and in 2008 volunteered over 400,000 hours of company time to charity. • The Kenya Commercial Bank (KCB) Foundation was established in 2007 to implement the Bank’s Corporate Social Responsibility programmes. In 2011, the KCB Group Board allocated KShs.157 million to the KCB Foundation to invest in community development projects within the region in the areas of: Enterprise Development, Education, Environment, Health and Humanitarian aid. The KCB staff are also engaged in the Foundation’s activities by volunteering their skills, time and funds towards community projects.

26 Sustainable and Responsible Mining in Africa | A Getting Started Guide

MEASURING THE IMPACT

Measuring the impact of sustainable business strategies – including adherence to standards, resource efficiency, SME and community investment strategies, is important to understand the benefits for companies and for affected communities.

• For companies, the impact can be in risk management, better relationships with stakeholders including governments, employees and communities, as well as more efficient operations. • For communities, the impact can be in areas such as access to jobs and income generating activities, better health, better education.

Companies are starting to see the benefits of ensuring that they understand their community impacts and transition from measuring their inputs and activities (what they provide and what they do), to really understanding the differences that their sustainability strategies can make. There is emerging evidence of the impact of standards, resource efficiency and supply chain and community investment both in terms of business benefits as well as for affected communities and a few examples have been included below.

Sustainable Business and Sustainable Communities

Companies need to ensure that there are shared benefits (and shared value) which can help to manage potential risk and ensure a social licence to operate. In measuring impacts to business and to communities, it can be beneficial to consider the various types of capitals important for both business and for sustainable livelihoods. Sustainable livelihoods is a concept that has been used by many development agencies recognising the interconnectedness of poverty alleviation with environmental sustainability, capacity of institutions, and social networks and the vulnerability to shocks, seasonality and changesv. A sustainable livelihood framework can support companies in thinking widely about the different benefits and includes notions of the following types of capitals:

• Human Capital: including local community health, education, knowledge and skills • Natural Capital: such as access to water, land, and other resources • Physical Capital: access to energy, communications, transportation, tools and technology • Social Capital: decision making structures, participation and engagement mechanisms • Financial Capital: such as money, wages, savings, credit and debt

Businesses also depend on various forms of capital for their success and sustainable business strategies can help to build and maintain necessary capital for long term success. This idea is underpinning the International Integrated Reporting Frameworkvi and the current draft framework emphasises the importance of:

• Financial Capital: includes availability of funds to use for production of goods and services • Manufactured Capital: includes buildings, equipment and infrastructure available for the business • Intellectual Capital: intellectual property, knowledge, systems and procedures as well as brand value • Human Capital: people’s competencies and capabilities • Social and Relationship Capital: institutional and community relationships • Natural capital: renewable and non-renewable environmental resources and processes

Companies will need to determine the specific indicators that are most relevant for their operations. However, combining these two concepts can provide a framework for business to consider the long-term impact of its work and its sustainability – both for the business and for the community. Activities undertaken in relation to standards, resource efficiency and smallholder engagement should ultimately be bringing shared benefits and helping to ensure the long term capital for both the business and for the community.

FIGURE 2: SUSTAINABLE MINING FOR SHARED VALUE AND BENEFITS

COMMUNITY BENEFITS (as per a Sustainable Livelihoods Framework*) BUSINESS BENEFITS (as per the Integrated Reporting Framework*)

• Human Capital: What is the impact on the health of the local community? • Financial Capital: Does the strategy help further accesses to financing and What are the impacts on the standard of child education in the local funding? community? Is there evidence of development of skills and transfer of knowledge in the local community? • Manufactured Capital: As a result of the sustainability strategy does the company benefit from better access or improved buildings, equipment and infrastructure? • Financial Capital: Are farmers and workers able to meet basic needs? What income does the business bring to the wider community? What credit facilities • Intellectual Capital: Is the sustainable business strategy helping to develop and are available? retain intellectual property, and knowledge? Are there improved systems and procedures as well as brand value? • Natural Capital: What impact does the site have on the local environment? • Human Capital: Is the strategy supporting recruitment and retention of workers • Physical Capital: How has the business helped or hindered local and staff and furthering the development of people’s competencies and capabilities? infrastructure? What tools and technology are available? • Social and Relationship Capital: Are institutional and community relationships • Social Capital: Are there mechanisms to enable workers and the local being strengthened and helping to achieve and retain a social licence to operate and community to engage with the business on matters that affect them? market access?

*See www.ifad.org/sla • Natural capital: Will the strategy help protect renewable and non-renewable environmental resources?

*See www.theiirc.org

v For more information on a Sustainable Livelihoods framework see resources from IFAD online at http://www.ifad.org/sla/ 28 x i For more information on the IIRC see the draft framework for consultation online at http://www.theiirc.org/

CONCLUSION

Financial markets that are inclusive and sustainable are essential to building shared prosperity and ending poverty in the region. Financial institutions that take an integrated approach to lending and incorporate governance, environmental and social standards, as well as embed resource efficiency and inclusive lending will be more robust and competitive. The relative nascence of African markets presents tremendous opportunities in the near future for the financial sector67. Encouraging sustainable investment while strengthening legal frameworks and tackling the various economic, social and regulatory barriers can help in developing strong and stable financial markets in Sub-Saharan Africa.

Banks are also increasingly recognising that to build trust they need to be seen to be a more responsible citizen within the communities in which they operate and can also make pro-active social investments aligned with their business objectives. Leading banks in Africa recognise that they must contribute to improving business climate in the region and integrating and addressing corporate responsibility and sustainable business practices and develop inclusive banking approaches. As noted in this briefing, banking sector in the region are faced with a multitude of different pressures and are increasingly recognising that long term success will mean effectively tackling regulatory and financial constraints, lack of access and the scarcity of investments.

Efforts are also being taken by banks as well as governments and donor agencies to make financial markets more inclusive and accessible to the majority of the population rather than benefitting only a handful. This requires providing greater attention to small and medium businesses, women entrepreneurs and closing the knowledge gap and access to resources which dominate the sector. Greater attention must also be paid to increasing the number of stock exchanges and regional integration which will provide an effective solution to the narrowness of African markets68.

Financial markets are not just drivers, but also the result of economic growth. Consequently, “financial markets must not be seen as a panacea – they are instead powerful tools that can support economic growth”69. Since the scale and efficiency of financial markets go hand in hand with that of the banking sector, the development of sound financial markets requires a well-developed banking sector. Promoting the development of an inclusive and robust banking sector will help promote the expansion of stable financial markets.

We recognise that the issues covered as well as the examples of good practices in this briefing are by no means complete and that different companies, at different stages in the exploration and production and in different country contexts will have diverse risks to manage and opportunities to seize. Nonetheless, it is our hope that this briefing will further support companies, to better manage the risks and identify those opportunities, which are both good for business and good for communities.

30 Sustainable and Responsible Mining in Africa | A Getting Started Guide

Our company has appointed a Board Director to oversee Director Our company has appointed a Board business practices. responsible our The vision and values of our company reflect commitment to sustainable development. business models which create working to create are We value – benefits for the business and local shared communities. a signatory or involved in global sustainability are We networks. partnerships or other local regional have identified internal We leaders or ‘champions’ on sustainability issues. and practices in place. have specific programmes We engage stakeholders in all these practices and take a We lead within the industry. We have identified not only the risks and impacts from our have identified not only the risks and impacts from We operations and activities but opportunities for contributing to community development. closely aligned with the local development Our priorities are challenges and issues identified by the local community. have a strategy for contributing to community We with our business development which is linked directly value – for the business and shared activities and creates the community. with other work in partnership, as appropriate, We organisations to achieve our goals. • • • • • • • • • • • Leader Health and Safety Security Human Rights Social and community issues and biodiversity Environment • • • • • We have a designated person in charge of sustainability We both the risks and opportunities sustainability recognise We brings. In addition to national compliance, we strive respect international embedded in norms of behaviour that are international and declarations. conventions, treaties examining our corporate visions and mission to are We incorporate sustainable development. we achieve sustainability to ensure have programmes We objectives in a few areas. and have begun to integrate policies, programmes We practices into our supply chains. try to avoid being complicit in another organisations We activities that fail to meet international norms of behaviour. risks and have a good understanding of our company’s We to: impacts in relation We have carried out structured impact assessments (EIA/ have carried out structured We SIA/HIA) to understand the impacts and determine our management approach. carried out by suitably qualified professionals. Assessments are Assessments have been carried out in a participatory manner which engages stakeholders and, in particular potentially communities. affected have plans established for managing impacts. We have a strategy for contributing to community We development. • • • • • • • • • • • • • Achiever Our senior management has committed to some aspects of sustainable business which integrate financial, environmental and social aspects. This is primarily focused on avoidance of risk. our CEO. commitment from increased working towards are We that we need a team of people to engage with recognise We sustainability issues. and activities fall that our relationships work to ensure We within the legal framework. clarifying what compliance means to working toward are We areas. us in any identified ‘grey’ in at least one area have begun developing a programme We of sustainability. have some general information about the significant We impacts of our activities. • • • • • • • Beginner SELF ASSESSMENT TOOL – To help companies on their journey towards more sustainable business help companies on their journeymore towards SELF ASSESSMENT TOOL – To Issue Leadership & Accountability Identification of Risks and Opportunities

Sustainable and Responsible Mining in Africa | A Getting Started Guide 33 Good labour practices Health and safety protection Environmental Human rights Anti-corruption Community involvement and development • • • • • • We have detailed policies and codes of conduct in place We that outline our commitment and strategy for: a system of economic and non-economic have created We to performance social responsibility. incentives related to our social take a systems based approach We responsibility. industry network to promote part of a broader are We broadly. sustainable development, more have a system in place to identify and analyse the We long term community benefits in opportunities for creating our value chains. periodically, have detailed aims and objectives, revisited We and practices. that guide our sustainability programmes have developed a sustainable development strategy for We for our organisation that clearly sets out who is responsible delivering specific aims and objectives. linked to the performance Our aims and objectives are assessment of senior management and those tasked with implementing them. We have a long term resource commitment from our senior commitment from have a long term resource We that we can continuously improve management to ensure on our sustainability impacts over time. of the importance social responsibility aware are Our staff aware that they are on-going training to ensure and receive of all the issues, our own aims and objectives means by which we aims to meet our commitments. working with business partners and other stakehold - are We ers to build capacity meet our own sustainability objec - strategies to contribute the tives and develop broader sustainable development. have on-going two-way communications with our key We stakeholders. to stakeholder engagement. have a systematic approach We have a stakeholder engagement strategy. We have grievance mechanisms in place so that stakeholders We can raise issues and make complaints. in place and have joint partnerships and programmes We both can demonstrate the impact of these programmes internally and externally. part of networks businesses and other stake - are We sustainability principles and sustainable holders prompting broadly. development, more • • • • • • • • • • • • • • • • We have specific policies and codes of conduct for managers We health safety and governance social, environmental, addressing issues. related the have made a public commitment to working towards We full integration of sustainability issues within our business have started work on developing the systems that will be We to deliver this required risk management system in place have a comprehensive We our impacts. and systematically measure have specific aims and objectives covering some aspects of We most important/material to business. sustainability that are have published those aims and objectives will review We periodically. than and communicate on progress industry standards. comply with recognised We to support a designated manager resources have sufficient We and programmes. allocated that the resources Our senior management recognise part of an investment in our long terms to our initiatives are brand and reputation. carrying out training and capacity building activities are We internally with our staff. have identified specific champions and leaders internally We to manage - lead work in terms of labour issues, environmental or anti-corruption. ment, health and safety, beginning to identify possible external are partners with We suitable capacity who we can work with to deliver on our objectives. have started engaging with our prioritised stakeholders on We sustainability issues. understand our stakeholders concerns We and the issues that important to them. are with key stake - have started interviews and focus groups We to the sustainability issues. holders relating with have established a two-way communication process We key stakeholder groups. to involve them have begun to engage partners in order We on they can help us make progress where in our programmes goals and the development of communi - sustainability related us. ties around • • • • • • • • • • • • • • • • • We have general workplace policies on labour, health and have general workplace policies on labour, We management, human rights and environmental safety, community involvement. the need to internalise recognise these policies through We raising, training, capacity building and monitoring. awareness issues bring that social and environmental recognise We working to begin assess and risks to our business and are most important / understand the risks and impacts that are material to our business. beginning to develop objectives that go beyond are We compliance and which can demonstrate our commitment to sustainable development. most focused on the issues that are Our aims and objectives are important/ material to our business. that we need (time, money, resources have identified the We consultancy and technical services) to begin implement to sustainability topics. in relation systems and programmes have undertaken an internalwe need to We gap analysis where develop capacity. to out training programme putting plans in place to roll are We key personnel within the organisation. have identified possible external We expertise and consultants that can help us with capacity building. We know who they are. have identified our stakeholders. We and needs of our the interests conscious of and respect are We stakeholders. engage with regulators. We have identified potential partners to work with on CSR We issues. • • • • • • • • • • • • • Policies, and Standards Objectives Organisation, and Resources Capacity Stakeholder Engagement

34 Sustainable and Responsible Mining in Africa | A Getting Started Guide

We have developed a communications strategy for our We that demonstrates our on-going socially responsibility commitment to sustainable development. of our most significant social have complete disclosure We on this. reporting impacts and are and environmental communicate internally We and externally about our performance and involve our stakeholders in that process in Vietnam and appropriately communicate regularly We about our own activities with the aim to raise awareness and the importance of sustainable development more broadly. We have begun systematic (quantitative and qualitative) We of our impacts. measurement strategy is based on key performance Our measurement to our aims and objectives. indicators in place relation have a system for measuring the impact of programmes We and longer term strategies to understand the value for business and the value for society. party assurance for our social, have formal third We governance performance. and environmental

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We have identified the most material impacts of our activities We our own assessments and those of stakeholders. through some aspects of our social and starting to measure are We footprint. environmental seek externalinitiatives and We assurance for our programmes, of our stakeholders and the provision communications through party opinions. third We are aware of the need to communicate balanced and timely aware are We information about of social responsibility. or social performance. communicate on environmental We

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We have some public information about the significant impacts We of our activities and some policies linked to those. We are aware of the most significant impacts our business aware are We and we have in place plans on society and the environment those impacts (positive and negative) in a to begin measure systematic way in the future. more the benefits that outside assurance of our CSR recognise We once we have developed meaningful can bring us in the future and strategies. policies, programmes

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Reporting Measuring and Monitoring Communications

Sustainable and Responsible Mining in Africa | A Getting Started Guide 35