26 July 2022
Analysis of Absa’s June 2022 coal, oil and gas standards and TCFD report
Just Share has analysed Absa’s recently-published Coal Financing Standard and Oil and Gas Financing Standard (the bank refers to policies on fossil fuel financing as “standards”), as well as Absa’s 2022 disclosures partially aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) (“2021 TCFD Report”).
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Absa is the last of the “big five” banks to publish fossil fuel policies covering oil and gas and continues to lag in its understanding of and engagement with climate risk and the imperative to transition to a low-carbon, resilient, and sustainable economy.
Absa’s May 2022 standards do not advance the bank’s position on climate change in any significant way. The standards contain only one new exclusion – a long-overdue exclusion of financing for new coal-fired power – and do not contain any meaningful targets for the reduction of Absa’s financed emissions (the emissions that banks and investors finance through their loans and investments – in other words, the emissions associated with the projects and entities to which they lend).
Absa’s intention is quite clearly to continue to fund coal, oil, and gas projects. The bank’s oil and gas standard states that “Absa will strive to achieve a balanced energy portfolio funding diversification mix between renewable energy, oil, natural gas, biomass, hydrogen and coal.”
This leaves Absa some way behind its peers. Nedbank, for example, has committed to having “zero exposure to all activities related to fossil fuels [except when required to back up renewable power] by 2045”.
FirstRand and Nedbank have ruled out financing new coal mining, with FirstRand also acknowledging “the material risk that long-term gas lock-in may pose to the South African economy”.
Whilst Standard Bank’s Climate Policy allows it to increase its financing of fossil fuels until at least 2040, it does contain more exclusions than Absa’s standards, and, in response to overwhelming (99,7%) shareholder support for Just Share and Aeon Investment Management’s 2022 shareholder resolution, Standard Bank has also committed to calculate and disclose the financed greenhouse gas (GHG) emissions from its exposure to oil and gas, and set targets for reducing that exposure in line with the goals of the Paris Agreement.
Investec, also in response to a climate action shareholder resolution that received 99,9% support, will set short, medium and long term targets to reach net-zero emissions and align with the Paris goals.
Absa’s policies reveal that the bank has a poor grasp of why it is crucial for financial institutions to have robust policies and stringent exclusions for financing fossil fuels in a world facing an urgent and escalating climate crisis.
Lack of meaningful fossil fuel-related targets
In its 2021 TCFD report, Absa sets a “net-zero carbon emissions by 2050” target, but even this high-level ambition is not included in its financing policies. This goal should be a minimum long-term ambition in an overarching fossil fuel policy, together with interim targets for achieving the long-term ambition across the bank’s financed emissions.
The 2021 TCFD report’s financing targets for the oil and coal sectors purport to reduce the bank’s exposure progressively from 2024 (oil) and 2025 (coal) onwards – although expressed as a reducing percentage of group loans, rather than aimed at reducing absolute emissions. However, Absa not only plans to increase its exposure to fossil fuels, but still envisages funding these sectors up to and including 2050. For the gas sector, the bank’s position is even weaker, with gas financing increasing until 2030 and only declining thereafter – but still not to zero by 2050.
While an intention to decrease exposure to the fossil fuel sector over time is important, the bank needs to target 0% of its lending to the fossil fuel sector as soon as possible, and at least on a timeline compatible with the Paris Agreement goals.
Coal Financing Standard
Absa’s updated Coal Financing Standard still does not rule out financing for new coal projects, including coal mining, industrial and metallurgical use of coal, new coal-fired industrial boilers or furnaces, or existing coal-fired electricity generation power plants.
It is inconsistent for Absa to claim to be aligned with the goals of the Paris Agreement while still supporting new coal projects, including new greenfield coal mining projects.
Oil and Gas Financing standard
In its first policy relating to oil and gas, Absa is enthusiastic about what it regards as the opportunities presented by Africa’s “significant oil and gas reserves”, emphasising the so-called strategic importance of oil and gas for economic growth in Africa, and for itself as a pan-African bank. It does so without a single reference to the significant contribution of fossil gas to global emissions, the associated risks of developing economies based on gas, or the growing body of evidence that developing fossil fuels – particularly oil and gas assets – is neither necessary nor desirable for Africa to improve its energy security and alleviate poverty.
Absa has based its approach to oil and gas purely on what it sees as “continued demand for natural gas and oil”. It contains no relevant exclusions when it comes to potential services and financing of oil and gas: the only exclusions relate either to activities that are immaterial to the regions in which Absa operates, or that account for commercial risk, but have nothing to do with the additional climate risks and/or impacts of new oil and gas projects on global emissions.
Urgent action required this decade
In August, the United Nations’ Intergovernmental Panel on Climate Change (IPCC) published the first part of its sixth assessment report, summarising the “physical science basis” for climate change. Relying on more than 14,000 peer-reviewed studies, the IPCC report provides new estimates of the chances of crossing the global warming level of 1.5°C (“more likely than not” by 2040, even in low emission scenarios), and finds that unless there are immediate, rapid and large-scale reductions in GHGs, even limiting warming to 2°C will be beyond reach.
The IPPC re-emphasises the findings of its “2018 Special Report on Global Warming of 1.5°C” that GHGs must be reduced by almost half by 2030 to avoid the most severe impacts of climate change.
Absa’s plans to continue funding fossil fuels up to and including 2050 (even if at a reduced amount), run contrary to climate science. Absa has not engaged at all with the overwhelming scientific consensus that action taken this decade will determine whether we are able to achieve the goals of the Paris Agreement.
Download Just Share’s analysis of Absa’s coal, oil and gas standards and TCFD report
IMAGE: 123RF / wllad