Mr Sam Malangwe a vegetable farmer in Bbaale, Kayunga district stands near solar panels that power his solar irrigation system
Environmental, Social, and Governance (ESG) finance is creeping into Uganda’s grassroots financial sector, but instead of sparking transformation, it's mostly drawing blank stares and cautious nods.
A few ESG-linked loans like those for solar energy, clean cookstoves, or climate-smart agriculture have been introduced, but they haven’t taken off.
At the heart of the struggle is a lack of direction. There’s no clear national ESG policy for Uganda’s Tier 4 institutions. So, Saccos and microfinance providers are left feeling their way in the dark. And it's not like these institutions are operating from a position of strength. They already deal with limited capital since they take no deposits from clients while grappling with high costs and risky lending environments.
What is ESG in finance?
To many, ESG sounds like a donor buzzword—more compliance headache than business opportunity. Yet the global tide is turning. ESG is no longer optional in the financial world—it’s becoming central to how banks assess risk, serve clients, and plan for the future.
In Uganda, commercial banks are slowly aligning their products and operations with ESG principles. They see it as a way to stay resilient and profitable while creating a positive impact. But for Tier 4 players, the ESG wave barely causes a ripple—more like a drizzle in the desert than a game-changing storm.
Most ESG activity in Saccos and microfinance groups is happening in isolation. Many of them still think ESG is just Corporate Social Responsibility (CSR)—throwing a donation here, hosting a community event there. But ESG is much more than that. But while CSR is voluntary and often short-term, ESG is about integrating environmental, social, and governance concerns into everyday business decisions and long-term planning.
The irony? Many Tier 4 institutions are already doing ESG—they just don’t call it that. They support farmers to adopt climate-smart practices, offer fair loans to women and youth, and help clients bounce back from floods and droughts. They also promote transparency, ethical leadership, and accountability. That’s ESG in action, even if no one’s labelling it as such.
Mr Cassius Musasira, a senior financial risk expert with experience at Centenary, dfcu, and DTB banks, however, insists that for ESG practices to be effective, they need to be organised and intentional. “CSR is not ESG,” he says. “If you’re still doing CSR, you need to add a sustainability lens. Focus on long-term resilience, not just one-off handouts. If CSR is a coat of paint, ESG is rewiring the entire house.”
How can Tier 4 institutions embed ESG the right way?
Mr Musasira outlines five pillars as a roadmap which include policy alignment—bake ESG into your mission, board charters, and institutional policies; standards and frameworks—align with global best practices like IFRS S1/S2 sustainability standards, which guide how companies disclose climate and social risks or the Task Force on Climate-related Financial Disclosures (TCFD); ESG-aligned products—design products like green loans and sustainable finance tools; staff capacity—train everyone from board members to field officers on ESG principles; and impact measurement and reporting—track progress, report results, and build trust.
“Many of these institutions are already doing parts of this,” Mr Musasira says. “Now it’s about pulling it all together in a structured, reportable way.”
Are there any local success stories?
With more than Shs1.1 trillion in assets, Wazalendo is Uganda’s largest Sacco. In 2023, it made ESG one of its top six strategic priorities. At its 2024 annual general meeting, members approved setting aside 0.5 percent of its surplus—about Shs480 million—for ESG programmes. Management is now developing green products, though they’re still in early stages. “Whether you’re a village savings group or a multinational lender, your clients expect fairness, support, and resilience. ESG isn’t a luxury. It’s a necessity,” Mr Musasirsa tells Monitor.
But for every Wazalendo, there are dozens of smaller Saccos fumbling in the dark. A recurring bottleneck is the lack of partnerships. A Sacco may want to plant 3,000 trees but has no idea which organisations to work with. Others design decent green loan products but struggle to find collaborators who can support the roll-out or share the risk.
Mr Bridge Atukunda, Franciscan Investment Cooperative Society’s credit manager, says the society has a solar loan product that ticks all the boxes—clear repayment terms, transparent disclosures, and user-friendly documentation—but adoption isn’t biting.
It’s something ASA Microfinance Uganda Ltd can relate to, with an executive telling Saturday Monitor “a single loan default could wipe out the cost of an entire motorcycle.”
Experts agree that green technologies like solar systems and electric mobility come with hefty upfront costs. But with the right structure and mindset, they say, these solutions are not only viable—they’re profitable. “Yes, cost is a deterrent,” says Mr Musasira.
“But once you sit with the client and break it down—the savings on fuel or kerosene, the 10-year lifespan of a solar system, the depreciation—it becomes clear. You can break even in five years. After that, the savings are yours.” He argues that this is where real opportunity lies, especially if “smart financial decisions with long-term payoff” are made. Still, the barriers go beyond product design.
Mr Moses Bwire, the investments manager at aBi Finance, an impact investment company that provides financial support to smallholder farmers and agribusinesses in Uganda, believes the problem is two-fold: financial institutions are still learning how to supply ESG-aligned products, while customers don’t fully understand them. “Awareness is a major gap,” he says. “We’re supporting the supply side—banks and Saccos—but the demand side is still lagging.”
So what’s the missing link?
In Mr Bwire’s book, collaboration is conspicuous by its absence. “Regulators, green financiers, apex bodies, government—they all need to work together. If we equip clients with knowledge, uptake will grow.” His call is clear: balance both sides. Build the capacity of institutions to offer ESG products, and empower customers to understand and use them.
Mr Emmanuel Desi Pachoto, the transformation manager at Uganda Microcredit Foundation, reckons: “If governments or development partners created clear incentives—be it grace periods, concessional funding, or even non-financial support—more institutions would align with ESG standards.”
It’s hard to preach green finance while pumping billions into oil. That contradiction wasn’t lost on Sacco executives attending a recent aBi Finance training in Kampala.
While financial institutions and businesses are being urged to decarbonise, green their portfolios, and embrace environmental accountability, the state’s heavy investment in fossil fuel extraction tells a conflicting story. The result? A growing cloud of scepticism. Many firms now view ESG not much as a shared national agenda as a one-sided expectation.
Short-term business pressures also pose a problem. Many Saccos set goals around quarters and half-year results—while ESG is a long-term game.
Globally, there’s no one-size-fits-all ESG standard. Frameworks like the European Union (EU) taxonomy are, however, setting the tone. Uganda isn’t standing idle either.
The Ministry of Finance is currently crafting a national ESG framework designed to reflect local economic, environmental, and social realities.
“We need a Ugandan ESG standard that mirrors our context,” says Mr Musasira. “Borrowing from the EU is fine, but we have to localise.” Localisation particularly matters, especially for Tier 4 institutions that serve as the financial lifeline for farmers, women, youth, and rural communities. When done right, ESG is good business. It can unlock donor and investor funding, lower operational costs (like switching office power to solar), and strengthen institutional resilience. Ultimately, ESG is about good governance, anticipating risk, staying relevant, and earning trust. “On the governance side, it helps institutions manage risk. On the social side, it deepens client engagement. And overall, it’s how you survive long-term while doing what’s right,” Mr Musasira says.
ESG compliance: How are Tier 1 to 3 institutions faring?
The Tier 1 to Tier 3 institutions enjoy structured regulation and growing ESG integration. Tier 1 to 3 players fall under the Bank of Uganda’s regulatory scope –they benefit from structured frameworks like the Uganda Bankers Association’s ESG blueprint. But Tier 4s? They’re largely unregulated, a gap breeds scepticism and weak adoption.
Consequently, aBi Finance has taken a proactive role in skilling Tier 4 institutions ahead of an anticipated national ESG framework. But Mr Bwire admits progress is sluggish.
“Tier 4s run on razor-thin margins. Their planning cycles are short-term, yet ESG demands a long-term commitment. It’s a fundamental misalignment.” That misalignment is further amplified by hurdles in accessing green finance.
Even with funding available from local and international sources, compliance thresholds—such as maintaining a minimum loan book of Shs500m, allocating, for instance, a minimum of three percent to agribusiness, and operating in rural regions—remain out of reach for many.
“We started working on our ESG policy in 2023, and the gap between Tier 1 and Tier 4 institutions is glaring. Tier 1s are accelerating—pushed by competitive pressures and robust systems—while Tier 4s are stuck in survival mode,” Mr Pachoto says. Leadership mindset is part of the problem.
Many Tier 4 institutions are helmed by founders or ex-bankers who built their operations from scratch. While experienced, some remain hesitant to adopt ESG—citing cost concerns, cultural resistance, or a belief that it’s a luxury, not a necessity. In contrast, Tier 1 institutions treat ESG as operational hygiene. “Diversity, equity, and inclusion aren’t up for debate,” says Mr Pachoto.
“Some offer women-focused products or halal-compliant loans. That level of innovation just isn’t happening in Tier 4s—they lack the investment capacity.”
What role can government and regulators play in streamlining things?
A big one, per Mr Emmanuel Desi Pachoto, the transformation manager at Uganda Microcredit Foundation. “Tier 1s are under Bank of Uganda, which is under the Ministry of Finance. But Tier 4s? Many operate unchecked, save for loose affiliations with the Uganda Microfinance Regulatory Authority or the Association of Microfinance Institutions of Uganda,” he says.
He argues for stricter and more uniform oversight: “Interest rates in some Tier 4s reach 12 percent per month, while the Ministry of Finance is enforcing a 2.8 percent cap among Tier 4 microfinance Institutions and moneylenders. This disparity not only promotes exploitation but undermines sustainability. A uniform lending framework would balance the financial ecosystem and protect borrowers.”
The inconsistency also creates friction with funders. “If a funder like aBi says loans must be issued below 3 percent, but a Tier 4 institution lends at 10 percent, that’s exploitation—and a breach of trust,” he concludes.
