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“We should have the wherewithal to accept apocalyptic scenarios as a fact of everyday life”

Harvesh Seegolam, Governor of the Bank of Mauritius
Harvesh Seegolam, Governor of the Bank of Mauritius

The collaboration between the Stock Exchange of Mauritius and Risk Insights has come at an opportune time to elevate the sustainability agenda of our jurisdiction to new heights, explains the Governor of the Bank of Mauritius. He stated that both listed and unlisted companies will now be able to access a comprehensive set of ESG rating tools, disclosure insights, analytics and ESG intelligence impact reports. “We must reduce our environmental footprint or else risk another global crisis that could sprawl beyond control. Remember that no vaccines can ever be developed as immunization strategies against climate change, unlike the pandemic!” Harvesh Seegolam warns.

A study by Standard Chartered Bank in June 2021 concluded that by 2025, 78 per cent of multinational corporations (MNCs) will remove suppliers that endanger their carbon transition plan. This information was underscored by Harvesh Seegolam, Governor of the Bank of Mauritius, in a keynote address delivered at The Stock Exchange of Mauritius and Risk Insights ESG GPS Partnership Launch. He added that these MNCs are expected to exclude 35 per cent of their current suppliers as they transition away from carbon. Any company that deals with these MNCs, either directly or indirectly, run the risk of being excluded from future business opportunities if they do not start to adapt their businesses to ESG practices.

Addressing an audience at Hennessey Park, Ebene, Mauritius, Mr. Seegolam explained the urgency for businesses to adopt Environmental, Social, and Governance (ESG) practices in light of evolving global standards and investor demands. The Governor also emphasized the critical role of climate change considerations in the financial landscape.

While the public sector has a significant role to play in charting out the main contours and leading by example for accelerating the transition to a green economy, much of that transformation will, nevertheless, be investor driven. Mauritius requires funding of $6.5 billion to meet its Nationally Determined Contributions, which would entail a reduction in our greenhouse gas emissions by 40 per cent by 2030. The government and domestic private sector would fund an amount of $2.3billion while the remaining $4.2 billion would have to be financed externally. Tangible signs are already perceptible with an increasing demand for financial instruments and products that are ESG compliant,” Mr Seegolam stated.

 

The partnership between The Stock Exchange of Mauritius (SEM) and Risk Insights was hailed as a significant step towards elevating the sustainability agenda in Mauritius. Mr. Seegolam commended the initiative for providing companies with comprehensive ESG rating tools, disclosure insights, and analytics, thereby enhancing ESG reporting quality and showcasing Mauritius’s credentials on the global stage. The Governor acknowledged SEM’s role in spearheading climate finance mobilization, citing initiatives such as the SEM Sustainability Index (SEMSI) and the listing of the first Green Bond. He called upon SEM to adhere to international norms and best practices to ensure the development of sustainable finance in Mauritius.

The collaboration between the SEM and Risk Insights has come at an opportune time to elevate the sustainability agenda of our jurisdiction to new heights. Both listed and unlisted companies will now be able to access a comprehensive set of ESG rating tools, disclosure insights, analytics and ESG intelligence impact reports. This will indubitably improve the quality of ESG reporting within Mauritius while showcasing our ESG credentials on the global stage. The Stock Exchange of Mauritius (SEM) will have a critical role in spearheading the mobilisation of climate finance. The SEM, well before sustainability considerations became an over-arching priority in the financial world, introduced the SEMSI in September 2015, a sustainability index which evaluates the practices of listed companies based on ESG criteria. To date, there are eighteen companies participating in this index. The SEM has also proceeded with the listing of the first Green Bond in October 2023. The SEM remains a reference in the region. I am sanguine that it will continue to remain a pioneer in our region and position Mauritius as a hub for sustainable finance. I would make an appeal to the SEM to ensure that all international norms and best practices are being adhered to as they pursue the development of this important niche,” the Governor elaborated.

 

He further emphasized the importance of robust disclosure frameworks and adherence to global standards, particularly the International Sustainability Standards Board’s Sustainability Standards 1 and 2, and encouraged companies to integrate ESG considerations into their business strategies in anticipation of future disclosure requirements.

On the central banking front, Mr. Seegolam highlighted the establishment of the Bank of Mauritius’s Climate Change Centre and its initiatives to integrate climate-related risks into regulatory frameworks. He underscored the importance of sustainable finance and collaboration with stakeholders to address climate-related challenges. Mr. Seegolam emphasized the need for reliable climate data, green taxonomy, and disclosures to foster market confidence and safeguard financial stability. He acknowledged challenges in data availability, but stressed ongoing efforts to address gaps and develop a National Green Taxonomy.

Our Guideline requires banks to disclose, in their annual reports as from 31 December 2023, information on climate risks on four pillars, namely Governance, Strategy, Risk Management, and Metrics and Targets. Banks have also been advised to consider guidance provided by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. The Bank conducted a survey in September 2023 to assess the level of compliance of banks with respect to the provisions of the Guideline. It was noted that while banks have incorporated climate risks in their governance, strategy and risk management frameworks, they were facing challenges with respect to disclosures on Metrics and Targets due to the lack of reliable GHG emissions data from their clients’ portfolio. As a result, the Bank issued revised disclosure requirements on 08 December 2023 such that financial institutions would not be required to compulsorily disclose information on their climate-related metrics and targets for the time being. The Bank and the Ministry of Environment, Solid Waste Management and Climate Change have collaborated on the development of a comprehensive database comprising historical and projected data points for a set of pre-identified climate-related risk drivers. This database has been made available to financial institutions since July 2023. Collaborative efforts under the ambit of a goal congruence initiative are currently ongoing between the Bank of Mauritius, the Ministry of Environment, Solid Waste Management and Climate Change, the University of Mauritius, as well as the private sector, to address numerous aspects including the lack of granular climate data for use in stress testing and scenario analysis. In addition to data and disclosures, the development of a National Green Taxonomy is key to promoting investor confidence and catalysing climate investment in Mauritius and in the African region, while addressing greenwashing concerns. A green taxonomy is a classification system for identifying activities or investments that will move a country toward meeting specific targets related to priority environmental objectives. The Bank is actively following up on the matter,” he stated.

 

It was noted that while banks have incorporated climate risks in their governance, strategy and risk management frameworks, they were facing challenges with respect to disclosures on Metrics and Targets due to the lack of reliable GHG emissions data from their clients’ portfolio.”

 

Mr. Seegolam urged collective action to tackle the looming climate crisis, emphasizing the pivotal role of finance in building a more inclusive and environmentally sustainable nation. He underscored the interconnectedness of financial markets, climate change, and economic development, urging stakeholders to prioritize sustainability for future generations.

 

The World Economic Forum has estimated that around 50% of global GDP is highly or moderately dependent on nature. But this interpretation should be handled with utmost care. Let’s not remain impervious to the fact that countries are generally heterogeneous. Some are affected relatively more than others in the face of common shocks. 

 

The climate crisis represents an existential threat to humanity due to its manifold, long-lasting and far-reaching consequences that easily cut across various aspects of our lives. At a time when the COVID-19 pandemic still serves as a poignant reminder of what an enormous shock of unimaginable proportions can do, we need to stand ready to accept the fact that the climate crisis, if mishandled, can generate shocks of even greater magnitude than the pandemic. We, ostensibly, can do what we can do. Scientists and so-called climate change experts have attributed the bulk of the genesis behind weather-related disturbances to human action. And that’s where the lion’s share of efforts must be geared towards. We must reduce our environmental footprint or else risk another global crisis that could sprawl beyond control. Remember that no vaccines can ever be developed as immunization strategies against climate change, unlike the pandemic! 

 

The focus on ESG and sustainability is therefore timely, as both the economic and environmental landscapes are now marred, among others, by extreme weather conditions and biodiversity loss. In this respect, at the corporate level, ownership, accountability and responsibility for the issues at hand should be showcased at the very top level. Indeed, corporate boards and senior management are the cornerstones for responding with alacrity by activating a corporate culture built on strong ethical considerations that epitomises inclusiveness and sustainability. 

 

Our capital market will increasingly be called upon to play a prominent role in building a more inclusive and environmentally sustainable nation. Financial markets, climate change and economic development form a triumvirate, and are a recurrent rhetoric in the conclaves of policymakers. With buzzwords, leitmotivs and catchphrases such as ‘resilience’ and ‘sustainability’ obstinately percolating through the strata of decision-making processes, one cannot remain oblivious to the fact that there is now a well-concocted dichotomy between environmental considerations and macroeconomic outcomes. 

 

For central bankers, climate change considerations are not just random tail-event shocks. The increased frequency, likelihood and severity of weather-related disturbances create state-contingencies on macroeconomic outcomes, and we cannot but ensure that we build appropriate crisis-proof preventive mechanisms, whilst being fully poised to tackle any residual risks through targeted and robust mitigation measures. 

 

We cannot expect a resilient economy in the absence of policies that favour environmental considerations. In the case of Mauritius, our insular state, topographical features and geographic position in the Indian Ocean coalesce to make us highly vulnerable to weather-related hazards. I won’t be thrifty on the use of harsh verbiage here: but events that would, in the past, occur once every 1000 years can now materialise once every five years. Thus, we should be on our guard and have the wherewithal to accept apocalyptic scenarios as a fact of everyday life,” the Governor concluded.

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