Introduction

In recent years, Ghana’s financial sector has witnessed significant reforms and initiatives aimed at promoting sustainability and aligning with global climate goals. These efforts intensified in 2024 with the introduction of three major frameworks that address green finance taxonomy, climate-related financial risks, and the issuance of green bonds. These frameworks – the Ghana Green Finance Taxonomy, Securities Industry (Green Bonds) Guidelines, and the Climate-Related Financial Risk Directive serve to strengthen the nation’s financial architecture, ensuring that both public and private institutions are well-equipped to mitigate climate risks and drive green investment. Additionally, developments in carbon markets and the restructuring of key institutions within Ghana’s energy sector signal a broader shift towards a sustainable and climate-resilient economy.

The sections below highlight the emerging trends, implications for Ghana’s financial system and the country’s strategic efforts to achieve its climate objectives.

Emerging Trends Within Ghana’s Financial Sector

The following frameworks outlined below emerged in 2024 to strengthen Ghana’s financial system against climate-related financial risks.

The Ghana Green Finance Taxonomy (Phase 1)

In October 2024, the Ministry of Finance released the Ghana Green Finance Taxonomy (Phase 1) (GFT), to identify and classify environmentally sustainable economic activities. The GFT addresses concerns from the business community about the lack of clarity and guidance in translating government policies into concrete commercial actions.

The GFT serves as a screening tool for stakeholders such as financial institutions, project promoters, investors, and policymakers, helping to direct capital towards green projects and initiatives. It also aims to align the country’s national policies with international best practices, ensuring that Ghana not only fulfils its global environmental commitments but also capitalises on green investments for economic growth. The classification criteria include: 

• climate mitigation; 
• climate adaptation; 
• environmental protection; 
• resource efficiency; and 
• pollution prevention.

Over the next four years, the implementation of the GFT will prioritise key sectors such as energy and transportation, agriculture, forestry, water and waste management, the blue economy, and building and construction. These sectors have been identified as critical for green investment, based on emissions data from Ghana’s greenhouse gas (GHG) inventory by source.

The GFT principles, identified sectors, classification methods, and eligible projects align with established green growth frameworks and financing guidelines beyond the financial sector. These include the Carbon Market Framework, the Energy Transition and Investment Plan (which prioritises transportation within the energy sector for emission reduction), the Green Bond Guidelines, and the Climate-related Financial Risk Directive. 

Chapter 5 of the GFT document outlines the governance framework designed to ensure the ongoing implementation and refinement of the Green Finance Taxonomy. A multi-stakeholder oversight committee has been established with a mandate to provide strategic oversight, conduct technical reviews, align policies, and support monitoring, reporting, and risk management. Additionally, a GFT Secretariat has been established to provide administrative and operational support to the committee and its subcommittees.

As the implementation of GFT progresses, a second phase is anticipated to be launched in May 2025. The second phase will likely introduce quantitative thresholds, tax exemptions, and sector-based incentives. Subsequently, a transitional taxonomy will be developed in Phase 3 to incorporate carbon-intensive sectors such as the extractive industries.

The Climate-Related Financial Risk Directive, May 2024

In May 2024, the Bank of Ghana (BoG) issued the Climate-Related Financial Risk Directive (the “Directive”) to guide regulated financial institutions (RFIs) to adopt measures that avert climate-related financial risks and a system for quarterly reporting by 31 December 2024. The Directive aligns with international standards, such as the Basel Committee on Banking Supervision and the International Financial Reporting Standards (IFRS). It is also anchored in the principle of proportionality, which ensures that RFIs’ climate risk management processes match their risk profile and business model complexity, without imposing undue regulatory burdens. The affected RFIs include banks, specialised deposit-taking institutions, financial holding companies, mortgage finance companies, leasing companies and development finance institutions.

The BoG recognises that RFIs in Ghana are exposed to climate-related financial risks which can affect traditional financial areas such as credit, market, liquidity, and operations. The Directive focuses on governance, internal controls, capital adequacy, risk management, and reporting. The goal is to enhance risk management and ensure a more resilient financial system in Ghana that supports sustainable growth. To achieve this goal, RFIs must disclose how climate risks affect their strategy, governance, and capital, promoting transparency and market discipline. RFIs must also integrate advancements in climate risk data and methodologies into their governance and risk management frameworks.

Some key features of the Directive are discussed below:

Corporate governance

The board of directors and senior management of RFIs must develop strategies and policies to manage climate-related financial risks. They are responsible for assessing the impacts of both physical and transition risks on operations and integrating these risks into business goals. This includes setting clear roles, monitoring progress toward climate targets, and ensuring adequate resources for risk management. Continuous training for staff at all levels and regular review of strategies are essential to keep the organisation aligned with climate commitments and effectively manage climate-related financial risks.

Internal control framework

RFIs are required to integrate climate-related financial risks into their internal control systems to ensure effective identification, measurement, and mitigation. The internal control framework must clearly define roles and responsibilities while ensuring that staff understand the potential impacts of these risks. An independent review by the internal audit function is necessary to evaluate the overall control framework and data quality. By embedding climate risks into their controls, RFIs can improve their ability to manage these risks comprehensively and maintain financial stability.

Internal capital and liquidity adequacy

RFIs need to identify and quantify climate-related financial risks over a minimum three-year timeframe to assess vulnerabilities. These risks should be included in internal capital and liquidity assessments, along with stress testing as appropriate. RFIs can use scenarios developed by the Network for Greening the Financial System (NGFS) to tailor climate stress testing. The Internal Capital Adequacy Assessment Process (ICAAP) should also provide insights into how these risks impact capital positions. Such ICAAP insights include the assessment methodologies and underlying assumptions, as well as any human judgement applied in the evaluation process. It should also address the use of proxies where data gaps exist, acknowledging any resulting uncertainties. Additionally, details regarding the climate risk stress testing calculations and the methodologies used must be provided.

Risk management process

RFIs must establish processes to identify, measure, and manage material climate-related financial risks over appropriate time horizons. These risks should be integrated into the risk appetite statement and overall risk management frameworks. Collecting reliable data on climate risks, implementing appropriate assessment tools, and developing specific indicators related to climate risk are essential. Additionally, RFIs should consider climate impacts on business continuity and adapt their stress testing accordingly. Engaging counterparties and outlining responsibilities at all levels in their risk management policy will strengthen their approach to climate risk management.

Management monitoring and reporting

RFIs should create internal reporting systems to monitor climate-related financial risks, ensuring timely information for decision-making. Accurate data collection on climate risks and engagement with clients about their transition strategies are vital. Developing risk indicators to categorise entities by climate risk exposure and implementing metrics for internal assessments and reporting will enhance understanding. The reporting systems should provide reliable information on risk concentrations, which supports strategic planning and helps the institution effectively manage climate-related financial risks in their operations.

Comprehensive management of climate-related financial risk

RFIs must evaluate how climate-related risk factors influence their credit, market, and liquidity profiles, ensuring that risk management systems adequately address these aspects. Clear credit policies should be established to tackle climate-related credit risks, with continuous monitoring throughout the credit lifecycle. A comprehensive approach is essential for RFIs to understand and manage climate-related financial risks across their operations, thereby enhancing overall resilience and stability.

Reporting requirements and compliance

RFIs must use standardised climate-related disclosure templates developed by the BoG in consultation with the Institute of Chartered Accountants, Ghana (ICAG) to enhance transparency. Additionally, RFIs must regularly review and update their climate disclosures, considering international standards and best practices to ensure they remain clear, comprehensive, and relevant. In addition, RFIs must submit annual climate-related transition plans to BoG. The plan must address any significant data gaps or updates in their disclosure tools and management reporting processes.

These requirements enhance the stability, transparency, and sustainability of Ghana’s bank-based financial system by promoting robust risk management, fostering sustainable investment, and ensuring alignment with global standards and national climate goals.

The Securities Industry (Green Bonds) Guidelines, 2024

In March 2024, the Securities and Exchange Commission of Ghana (SEC) issued the Securities Industry (Green Bonds) Guidelines (the “Green Bonds Guidelines” or the “Guidelines”), 2024, which align with the Green Bond Principles set by the International Capital Market Association (ICMA). Green bonds are a recent development in Ghana. The Green Bonds Guidelines were established in line with the SEC’s 2021 commitment to support the Ghana Stock Exchange’s plan to introduce green bonds and diversify investment options, enhancing market liquidity for investors. The Green Bonds Guidelines seek to uphold the integrity of the green bond market through transparency, adequate reporting, and the prevention of “greenwashing”. They also support the development of a domestic green securities market, ensuring credibility and compliance for issuers such as public companies, external entities, and local authorities. 

The Green Bonds Guidelines apply to issuers of green bonds, including public companies, external companies, supra-national institutions, local government authorities and statutory corporations. With the objectives of supporting the growth of a domestic green securities market, ensuring the credibility of green securities through transparency, disclosure, and integrity, and preventing the issuance of and investment in misleading “greenwashed” bonds, the Green Bonds Guidelines are a timely intervention to ensure Ghana achieves her climate targets.

Some of the key highlights of the basic rules governing the issuance of green bonds in the Guidelines are described below.

Eligible and ineligible projects for green bond financing in Ghana

The Green Bond Guidelines specify eligible projects for the issuance of green bonds which support the climate adaptation and mitigation strategy of Ghana’s updated Nationally Determined Contribution, as well as the Energy Transition and Investment Plan. Eligible projects include, but are not limited to:

• renewable energy;
• energy efficiency;
• pollution prevention and control;
• environmentally sustainable management of living natural resources;
• environmentally sustainable land use;
• terrestrial and aquatic biodiversity conservation;
• clean transportation;
• sustainable water and wastewater management;
• climate change adaptation;
• circular economy-adapted products, production technologies and processes; and
• green buildings.

The Guidelines prohibit production or trade in any product or activity deemed illegal under Ghanaian law, international conventions, or bans, including pharmaceuticals, pesticides, ozone-depleting substances, PCBs, and wildlife regulated under CITES. Restrictions also apply to weapons, alcoholic beverages (excluding beer and wine), tobacco, gambling, radioactive materials (with exceptions for medical equipment), unbonded asbestos fibres, drift net fishing with nets over 2.5 km, exploitative labour practices, logging in tropical forests, non-sustainable forestry, coal, oil, and gas power generation, fossil fuel industrial processes, and landfills.

Disclosure requirements in the issuance of green bonds

The project evaluation and selection process must be clear and transparent, focusing on project objectives, environmental impact, eligibility criteria, and environmental risk management. Green bond proceeds must be allocated to specific projects or sub-projects and tracked internally, with periodic adjustments made to ensure proper allocation. Issuers must disclose unallocated proceeds and undergo external audits to verify fund tracking. Performance of eligible projects must be measured using relevant indicators, and any changes in measurement methods must be disclosed to bondholders. Additionally, independent external reviews conducted by qualified experts are necessary to validate the green nature of projects and confirm compliance with green bond principles, covering project impact, risk management, and overall alignment with environmental goals.

The approval process for green bond issuance

The approval process includes submission of a draft prospectus or pricing supplement to the SEC in compliance with relevant legal and regulatory frameworks, including the Companies Act, 2019 (Act 992) and the Green Bond Guidelines. Additionally, the issuer must meet the requirements for the issuance of bonds, including obtaining approval from the appropriate sector/industry authorities, obtaining credit ratings for the bond where necessary, and structuring the bond issuance with advisory support.

The issuer must also comply with mandatory declarations in relation to responsibility for the document’s accuracy, a statement from the promoters and directors on their intent regarding interest transfers, a confirmation from the manager that all material facts are disclosed, and cautionary statements approved by relevant authorities for investor guidance.

Reporting obligations

Green bond issuers have continuous reporting obligations to stakeholders and must comply with standard bond disclosure obligations and additional commitments outlined in the Green Bond Guidelines. The reporting obligations include the use of raised funds, specifying funded projects, allocated amounts, issuance schedules, and environmental impacts.

Impacts must be measurable and aligned with predetermined indicators, compared to expected results and eligibility criteria. Issuers must also immediately disclose significant events to the SEC, bondholders, and stock exchanges. Such events include delays in fund usage, discrepancies between expected and actual environmental impacts, changes in external reviewers, or any changes affecting the environmental performance or commitments made at issuance.

Developments in Ghana’s Carbon Markets

Ghana-Singapore Implementation Agreement

On 27 May 2024, Ghana and Singapore signed an Implementation Agreement for carbon credits co-operation under Article 6 of the Paris Agreement. Following this, both countries have commenced operationalisation by setting out the processes for authorising carbon credit projects under the Implementation Agreement. As of 30 September 2024, Ghana’s Carbon Market Office (CMO) within the Environmental Protection Agency’s (EPA) Climate Change Unit and the National Climate Change Secretariat (NCCS) of Singapore have called for carbon market project applications under the Implementation Agreement.

Project developers seeking authorisation under the Implementation Agreement are expected to undertake eligible emissions reduction or removal projects in Ghana that generate high-integrity carbon credits. These projects must also deliver sustainable development benefits to local communities, such as job creation, improved public health, clean water access, enhanced forest and soil management, energy security, and reduced pollution. The carbon credits must align with Article 6 of the Paris Agreement and Ghana’s international carbon markets framework.

Ghana-Sweden co-operative approach under Article 6.2 of the Paris Agreement

Ghana and Sweden signed a bilateral agreement on 27 May 2024 to engage in co-operative approaches involving internationally transferred mitigation outcomes (ITMOS). While the adoption of an implementation roadmap is still pending, a technical committee has been established to set out the processes for operationalising the agreement in line with Article 6. Currently, no projects are under development, but it is anticipated that this agreement will create opportunities for project development, supporting the achievement of both countries’ Nationally Determined Contributions targets.

Institutional arrangements, systems and processes for carbon market development and management

Ghana’s Carbon Market Framework, which provides the policy and technical context for Ghana’s engagement in carbon markets, outlines the responsibilities of the Carbon Market Office (CMO), the implementation of the Ghana Carbon Registry, and the processes and standards for operationalising the carbon market, from activity conception to carbon credit issuance and retirement. In 2023, the operational CMO, along with relevant state agencies, worked on a bill to amend the Environmental Protection Agency Act, 1994 (Act 490) (the “Bill”). The Bill introduced a Chapter 5 amendment to the Act 490 focused on climate change, which incorporates new institutional arrangements, systems, and processes detailed in the Carbon Market Framework.

The Bill passed its third parliamentary reading, positioning it for passage into law by the end of 2024. Key provisions in the Bill include the establishment and functions of the CMO, the Carbon Market Committee, and the Carbon Market Technical Advisory Committee, which work together to enhance the development and management of Ghana’s carbon market. Additionally, the Bill creates the Greenhouse Gas Emission Mitigation Ambition Fund to facilitate bilateral co-operative approaches for authorised Internationally Transferred Mitigation Outcomes (ITMOS) and to finance supplementary climate mitigation activities. This fund will be financed through fees paid to the EPA by mitigation activity developers or acquiring participating parties. A committee has been established to oversee and ensure that funds are disbursed to attain the objects of the fund.

Other milestones chalked by the carbon market office

The following are notable milestones of the CMO since its establishment in 2020:

• The CMO has developed four pipeline projects in e-mobility, green cooling, and sustainable artisanal oil palm processing, which are awaiting authorisation by the end of the year.
• The CMO also intends to issue carbon credits on the Ghana Carbon Registry by year’s end for clean cookstove projects developed by ACT Commodities and Envirofit.
• The CMO has been working on guidelines that offer a comprehensive resource for key stakeholders, outlining the requirements and standards for developing eligible projects across various sectors. The guidelines for clean cooking biomass stoves are well advanced and are set to be launched before the end of the year.

Institutional Restructuring of the Power Sector

In 2024, a significant number of draft bills have been proposed as part of the restructuring of Ghana’s power sector. The bills include:

• the Hydro Authority Bill, 2024;
• the Thermal Authority Bill, 2024;
• the Power Distribution Authority Bill, 2024;
• the Energy Regulatory Bill, 2024; and
• the Nuclear Power Corporation Bill, 2024.

The purpose of the new bills is to realign institutions within the sector in order to improve efficiency in the sector. The realignment includes the consolidation of hydro assets, including renewable assets, the separation of thermal power generation and the merger of institutions within the energy sector.

The passage of the Ghana Hydro Authority Bill and the Ghana Thermal Authority Bill will merge the Volta River Authority (VRA) and the Bui Power Authority (BPA), each of which currently manages separate state-owned hydro, thermal, and renewable power generation assets. These bills, if passed into law, will streamline operations and optimise the management of the country’s diverse energy resources. Following the merger of VRA and BPA, two separate authorities will be created – the Ghana Thermal Authority, which will be responsible for developing and operating state-owned thermal power generation, and the Ghana Hydro Authority, which will be responsible for developing and operating state-owned hydro-power and renewable energy assets.

Also, the Power Distribution Authority Bill will result in the merger of the Electricity Company of Ghana (ECG), and Northern Electricity Distribution Company (NEDCo), which together are responsible for the distribution and sale of more than 98% of power in Ghana, and the creation of the Ghana Power Distribution Authority.

The passage of the Energy Regulatory Bill will merge the Public Utilities Regulatory Commission (PURC), which is responsible for regulating and overseeing the provision of utility services by public utilities to consumers and the Energy Commission (EC), which is responsible for regulating the utilisation of energy resources in Ghana and co-ordinating policies in relation to them. The objective of this merger is to streamline regulatory functions, eliminate overlapping oversight, align economic and technical regulation and optimise investor participation.

The Ghana Nuclear Power Corporation Bill is also expected to lead to the establishment of the Ghana Nuclear Power Corporation, which will be responsible for developing and operating nuclear power plants for the purpose of providing base load electricity for social and economic development and industrial transformation. This is in line with the National Energy Transition Framework (2022‒2070), which provides for the incorporation of nuclear energy in Ghana’s power mix.

Concerns have been raised by staff of the affected institutions and some civil society organisations, such as the Institute for Energy Security (IES) and the Africa Sustainable Energy Centre (ASEC), about the intended restructuring. It has been argued that although the restructuring is well intended, it may have dire effects on the operational and financial position of these institutions, which will greatly impact the country’s energy security, affordability and long-term sustainability. Also, stakeholders have called for more extensive and transparent dialogue to avoid potential pitfalls and ensure that the national interest is prioritised. 

Conclusion

Ghana’s financial sector is undergoing significant reforms driven by a global emphasis on climate resilience, green growth, and sustainable development. The Ghana Green Projects Taxonomy, the Bank of Ghana’s Climate-Related Financial Risk Directive, and the Securities Industry (Green Bonds) Guidelines demonstrate the country’s commitment to international standards on green financing. These frameworks enhance investor confidence in the green project investments in Ghana, financial sector governance and risk management. Additionally, advancements in carbon markets and energy sector restructuring reflect Ghana’s proactive stance in aligning with global trends while addressing local climate and energy needs, positioning the country as a leader in Africa’s green transition.