Financial services firm Absa has concluded further agreements with the Multilateral Investment Guarantee Agency (MIGA), which is a member of the World Bank Group, freeing up additional financial capacity for investments in pan-African climate finance projects.
In 2019, MIGA issued capital guarantees of $497-million to Absa in support of managing certain risks in countries including Ghana, Kenya, Mauritius, Mozambique, Seychelles, Uganda and Zambia.
The guarantees help Absa to provide additional financing to its subsidiaries in the participating markets, supporting lending and growth.
The June 24 Absa and MIGA agreement will expand on the initial transactions, increasing additional cash reserves cover to about $1-billion in the participating markets.
The additional guarantees are expected to result in an incremental reduction of about R11.5-billion in risk-weighted assets for Absa Group. A reduction in risk-weighted assets reflects lower risk, which improves the bank's risk profile and is equivalent to securing additional capital resources.
Absa’s intention is to deploy the additional risk-weighted asset capacity generated through the agreement for climate finance over the duration of the guarantees.
As part of the agreement, Absa has committed to increasing climate finance business growth in the markets covered in the original and expanded agreements.
In addition, Absa has agreed to not fund any additional coal projects with a tenor of three years or more in the participating markets and to reduce coal exposure in these markets to zero by 2030.
The commitments are aligned to Absa’s strategic priority of being an active force for good in everything we do, which supports a just transition in Africa and commits the group to reducing fossil fuel financing, the bank says.
“The expanded agreement builds on a market-leading transaction between Absa and MIGA. It strengthens our partnership and advances our common goal of financing climate projects across Africa that enhance economic activity as well as sustainability,” comments Absa Group FD Deon Raju.
“MIGA's expanded partnership with Absa will facilitate greater investment in climate projects across Africa. The agreement underscores our commitment to supporting sustainable economic growth in the region during these turbulent global crises,” adds MIGA executive VP Hiroshi Matano.