Assessing Environmental Social Governance in Zambia's Banking Sector

Abstract

Environmental Social Governance (ESG) has taken centre stage in the global financial sector due to pressing global challenges such as natural disasters and climate change, governance failures and human rights abuses. These challenges have brought to the fore, opportunities that lie in financial institutions strategically implementing ESG (Chen et al., 2023). Thus, the purpose of this study was to assess ESG in Zambia’s banking sector and extend ESG knowledge by evaluating the level of ESG awareness, identify current ESG practices and analyze the relationship between ESG awareness and the implementation of ESG practices and the impact of ESG implementation of banks financial standing within Zambia's financial sector. This contributes to the body of knowledge on ESG practices by highlighting any informational, implementational and policy gaps that exist in the Zambian banking sector, aiding donors, investors, businesses and government to foster an environment that supports sustainable development. Literature reviewed showed that countries in the global north have made significant progress in implementing ESG considerations (Burianova and Paulik, 2014; Chen et al., 2023), unfortunately, this is not the case for sub-Saharan African countries, Zambia included. Most of the research on ESG in Zambia, has focused on the mining sector (Ndemena, 2024; Phiri and Mantzari, 2018) with very little written about the financial sector. The little being done is uncoordinated and mainly undocumented (BIOFIN, 2024) resulting in an evidence and knowledge gap on ESG awareness and practices in the banking sector. The methodology was based on Saunders Onion Philosophy using positivism and deductive approaches. The study collected both quantitative and qualitative data from a sample of four banks drawn from a population of 15 commercial banks. The findings and associated interpretation under objective one showed that the level of ESG in Zambia’s banking sector can be considered high, highlighting the fact that despite, ESG still emerging, it is an important topic of conversation and strategic decision for banks. Common practices included board ESG supervision, tree planting initiatives, waste management ventures, ESG public disclosures, community engagements and volunteerism, climate smart building, sustainability policies and water re-use and management. The study found that ESG awareness leads to better ESG implementation among Zambian banks. This relationship between awareness and implementation was found to be positive. A self-assigned positive relationship between ESG awareness and implementation and ROA was recorded, however, due to the infancy of the ESG practices and implementation in the banking sector in Zambia, this study was unable to ascertain if the impact on finances is neutral, positive or negative through regression analysis. This paper concluded that ESG is a concept well known in Zambia, however, measurement metrics must be agreed on for banks to implement and monitor ESG appropriately, especially to measure ESG impact on financial performance. ESG practices among banks are improving to include environmental and social considerations. This paper summarily recommends that ESG metrics be agreed on nationally, the regulatory framework be reviewed to include mandatory ESG reporting and banks dedicate more resources to staff ESG trainings and activities.