Just Share has published a new report: How cool is your bank? An analysis of how South Africa’s big five banks understand and manage climate risk.
All the “big five” South African banks claim to support climate science and the goals of the Paris Agreement, and all have highly visible marketing and advertising campaigns aimed at convincing customers and potential customers that they are leaders in sustainability.
But many people are concerned about whether the institutions which hold and manage their savings are, in fact, playing a positive role in addressing the climate crisis.
Just Share’s new report aims to give banking customers the tools to make their own assessment of how serious their bank is about ending financing for fossil fuels, and playing a meaningful role in financing the transition to a sustainable, low-carbon economy.
Just Share has been engaging with Absa, FirstRand, Investec, Nedbank, and Standard Bank, and analysing their climate-related disclosures, policies, and practices, for six years.
How cool is your bank? evaluates how these banks understand, disclose and integrate climate risks and opportunities into their financial decision-making, and the extent to which their lending and investment activities support their stated commitment to the goals of the Paris Agreement.
The report covers four categories, which together comprise 20 indicators with a total maximum score of 85 points.
- Nedbank leads the big five banks in understanding and managing climate risk, with a score of 51/85.
- Investec and FirstRand are in joint second place, with a score of 41/85.
- There is a big gap between the scores of the three frontrunners and Absa and Standard Bank, with Absa scoring 24/85 and Standard Bank 16/85.
Capitec, the sixth largest bank in South Africa, was excluded from this assessment because it is a retail bank which does not provide investment financing or other corporate investment services. Capitec has explicitly ruled out financing carbon-intensive projects in its Environmental Policy.
The role of banks
Financial institutions have an integral role to play in determining whether or not the goals of the Paris Agreement are met. The United Nations-convened Net Zero Banking Alliance (NZBA) is founded on the recognition that “banks play a key role in society. As financial intermediaries, it is our purpose to help develop sustainable economies and to empower people to build better futures.”
But despite the climate commitments made by banks under multiple global initiatives like the NZBA, they continue to pour finance into the fossil fuel industry.
Key findings from the report include:
- Despite all the banks expressing their commitment to climate action, four of the five increased their financing and exposure to fossil fuels over the reporting year. Only Investec’s fossil fuel financing and exposure decreased, due to a large and unexplained reduction in the bank’s oil exposure.
- The large gap between leaders and laggards shows that qualified and climate-competent leadership at board level is key to banks’ progress on climate issues. Internal rather than external factors drive performance across the 20 indicators.
- All the banks have made progress in their stated recognition of climate risks and commitment to global climate goals. All five banks have published climate or energy policies, and although most banks are not members of the NZBA, they have all made a commitment to reduce their financed emissions (the emissions banks finance through their loans and investments) to net zero by 2050.
- The banks have made least progress in relation to recognising and acting on the climate risks of fossil gas. Nedbank is the only bank that has committed to zero fossil fuel exposure by 2045 (except for backup supply for renewable energy projects), indicating that it will continue to finance gas production “where it will play an essential role in facilitating the transition to a zero-carbon energy system by 2050”. All the other banks indicate their intention to finance the exploration, extraction, and production of gas in the medium to long-term.
The banking sector must act with much greater urgency and ambition in supporting the decarbonisation of the global economy to meet the goals of the Paris Agreement.
As the chair of the NZBA steering group writes:
The task that we’ve set for ourselves – to decarbonise the global banking sector – is both critical and ambitious. The impact of climate change on the planet following decades of unchecked emissions is manifesting itself in many ways and the need for action is urgent. We know that decarbonisation requires change in the real economy, but that banks are crucial to enable that change, by providing finance to support clients and countries to transition to a new low carbon economy.
South African banks are failing to act with sufficient urgency to meet this moment. Driving them to do so requires sustained pressure from all stakeholders, including the banks’ customers.
Just Share’s work on banks and climate change
This report is the culmination of six years of Just Share’s analysis of the climate-related disclosures of South Africa’s “big five” banks.
In early 2017, when a group of NGOs first approached the banks which were planning to fund new coal-fired power stations, none of the banks understood or had assessed the climate-related risks involved. At the time, the banks took the view that it was appropriate for them to fund coal-fired power simply because government wanted to build it.
Since then, and under pressure from stakeholders, including climate-related shareholder resolutions either filed or supported by Just Share, each bank has slowly put climate-related risks and opportunities on its agenda, publishing fossil fuel financing policies and reporting in alignment with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).
In 2017, Nedbank became the first bank to confirm that, effective from 2018, it would “not provide project financing (…) to develop a new coal-fired power plant, regardless of country or technology”. Slowly, each of the other four banks followed suit, with Standard Bank being the last of the five to exclude financing for new coal-fired power plants in 2022.
However, to date, new coal-fired power remains the only fossil fuel-related category for which all five banks have excluded financing. As this report reveals, while there are significant gaps between the leaders and the laggards, even the three banks whose reporting demonstrates a relatively sophisticated grasp of climate risks and what is required to address them, still have a long way to go to fully align their financing and investment activities with the action required to meet the ambitious and increasingly urgent goals of the Paris Agreement.