The Ugandan economy largely depends on natural environmental resources. Key sectors like energy, tourism, transport, recreation, food and agriculture are all dependent on how well the country manages its environment. According to the Uganda Bureau of Statistics (URBOS), over 70 percent of the working population is employed in agriculture alone. Yet environmental destruction continues unabated, resulting in climate change and its related effects.

Just like other sectors, the financial services sector suffers the effects of environmental destruction and climate change. As environment-dependent sectors like agriculture suffer losses due to climate change, so does the financial services sector. For example, faced with climate change effects like floods and drought, agricultural businesses will turn to financial services like banks and SACCOS for a monetary loan or loaned equipment for their businesses to remain afloat. However, owing to the wider climate change crisis at hand, loan recovery may not be guaranteed. In the long run, if businesses are unable to pay the loans, they’re rendered bankrupt and eventually crumble.

When businesses collapse due to climate change effects, operations of financial service institutions are also affected. Jobs cease, denying a lifeline to other financial services actors like SACCOs, retirement benefits schemes, insurance companies. Before long, the cost of credit will escalate and citizens will not be able to access affordable loans. Banking institutions may close shop; citizens may start looking for alternative livelihoods which may be more rewarding than agriculture. In the search for more rewarding employment, formerly agricultural hubs will be left as ghost towns that are a shell of their former selves. The communities that receive economic migrants will also face a range of challenges.

“Generally, one climate-related event can have a knock-on effect throughout the economy. Thus, the correlation between the environment and the economy is real to us in Uganda, as an environment dependent country”.

In that respect, financial services institutions are changing their approach towards the environment as the public demands more accountability and environmentally sustainable practices from the institutions they deal with. Recent research shows that the public is inclined to support businesses that are environment-conscious in operations and this in turn improves their performance. The New York University (NYU) Stern Center for Sustainable Business found that implementing sustainable practices often increases financial performance. Additionally, in 58% of their studies, there was a positive correlation between ESG (Environmental, Social and corporate Governance) and financial performance.

Marking World Savings Day 2022, key institutions in Uganda’s financial services sector chose “be green smart” as a subtheme, to draw attention to environmental protection as key to the survival of financial services institutions. Since October 31^st 2022, financial services institutions and regulators have carried out a campaign to raise funds through institutional saving. The funds will be allocated to support green smart businesses. URBRA has been part of the coalition, and on May 2nd collected over two million shillings towards the cause.

Spearheading the campaign, Ms Goretti Masadde, the Executive Director of Uganda institute of Banking and Financial Services acknowledged the economic potential of climate smart business. “We are all currently experiencing climate change. But we can conduct climate-sensitive businesses and still make money.”

Recent developments in the construction of the world’s longest crude oil pipeline proposed by French Oil company Total and China National Offshore Oil Corporation (CNOOC), the East African Crude Oil pipeline (EACOP) is a keen testament to the world’s changing stance towards ESG, the world is eager to hold big financial institutions to ESG standards, case in point, the withdrawal of Banking giant Standard Chartered Bank from the project on Environmental degradation grounds owing to mounting pressure for their stakeholders.

Thus, the financial services sector can no longer distance itself from the realities of climate change. All actors in the bank and non-bank financial services should therefore integrate environmental considerations in their programmes.