On 30 April 2023, Absa Group Limited (Absa) released its third report aligned with the recommendations of the Task Force on Climate-related Financial Disclosures.
Just Share’s analysis of this report highlights that, like Standard Bank and Nedbank, Absa’s exposure to fossil fuels has increased over the past financial year. More worrying, however, is that while Absa purports to be making progress in setting short-, medium- and long-term limits for its financing of fossil fuels, these limits in fact allow Absa to significantly increase its lending to coal and gas.
- Absa’s total exposure limit to coal, oil and gas, has increased from R18.8 billion in 2021 to R23.2 billion in 2022, largely as a result of an increase in its exposure to oil, which the bank explains as being due to (1) increased usage of existing facilities and (2) the depreciation of the Rand.
- Absa’s exposure to fossil-fuel based electricity, gas and water supply (which it inexplicably groups together) nearly doubled from R7 billion in 2021 to R13 billion in 2022, and the bank provides no targets or strategies for the reduction of this exposure.
- Absa has included what it calls “sensitive sector financing limit caps” (SSFLC) for coal, oil and gas. However, the SSFLCs, which comprise the short-, medium- and long-term targets (excluding trading loan book exposure) for fossil fuel financing to 2050, are not aligned with climate science, and there is no explanation of how these sector caps will ensure that the bank achieves its net-zero target.
- The caps for coal and gas are set significantly higher than Absa’s current exposure, allowing it to increase financing to these sectors while remaining within its targets. It is hard to understand how the bank can claim that this approach “contributes to a sustainable and low-carbon future”.
For example, Absa can still more than double its exposure to coal by 2030, while remaining within the boundaries of its SSFLCs. The 2030 limit for gas financing allows Absa to increase its lending to gas by 83 times its current exposure, and even the 2050 limit allows gas exposure 32 times its current level.
Crucially, these multiples are calculated based on the bank’s current total loans and advances. Of course, in 2030 and 2050, that number will be far higher. As the group’s total loans and advances increase, so the limits – expressed as a % of total group loans and advances – allow for greater exposure to fossil fuels.
In Rand terms, taking the total size of Absa’s current group loans and advances as stated in the 2022 TCFD report (R1 369bn), current loans to gas are approximately R137mn. The 2030 limit – again assuming that total loans and advances remains the same – would allow the bank to lend approximately R11.3bn to gas projects, an increase of over R11bn.
For coal, current loans are approximately R547mn. By 2030, the caps allow this to increase to approximately R1.5bn. In addition, Absa explicitly excludes financing related to coal-fired power generation i.e., to Eskom, from its targets, without any explanation for this. In other words, Absa’s financing to Eskom is not required to fall within coal sector caps.
Absa positions itself as a pan-African bank with an understanding of the severe and crucial impact that climate change has had, and will continue to have, on the continent’s economies, infrastructure, water and food supplies, public health, agriculture, and livelihoods. Absa’s disclosures demonstrate that it does not, in fact, have this understanding.
The bank attempts to justify its continued financial support of fossil fuels by stating that “we need to calibrate the pace of just transition”, alleging that a move away from carbon-intensive industries will deepen unemployment issues in developing economies and that addressing energy poverty “should be an immediate priority with a transition to cleaner energy” seen as “a complementary priority”.
This approach demonstrates Absa’s misunderstanding of the meaning and purpose of a just transition, which recognises that fossil fuel-based energy systems have entrenched poverty and inequality, and that rapidly developing least-cost renewable energy is precisely the vehicle through which energy access will be achieved.
