7 May 2019
Why shareholders should vote FOR South Africa’s first shareholder resolution calling for climate risk disclosure
At Standard Bank’s AGM on 30 May, shareholders will vote on a resolution proposed by the RAITH Foundation and Theo Botha, with support from Just Share. This is the first climate risk-related shareholder resolution to be tabled in South Africa.
The resolution would require Standard Bank to:
(a) report to shareholders by the end of November 2019, at reasonable cost and omitting proprietary information, its assessment of the greenhouse gas emissions resulting from its financing portfolio and its exposure to climate change risk in its lending, investing and financing activities including: (i) the amount and percentage of carbon-related assets relative to total assets, and (ii) a description of any significant concentrations of credit exposure to carbon-related assets; and
(b) adopt and publicly disclose a policy on lending to coal-fired power projects and coal mining operations.
These are Resolutions 10.1 and 10.2 respectively in Standard Bank’s 2019 Notice of AGM. The board of Standard Bank has recommended that shareholders vote against both parts of Resolution 10. The RAITH Foundation, Botha and Just Share have prepared a memorandum for Standard Bank’s shareholders which provides further context to the resolution, responds to the board’s “reasons for non-endorsement” of the resolution, and gives further reasons for voting in favour of it.
Banks’ financing choices have a major role to play in promoting carbon reduction. Bank lending and investments make up a significant source of external capital for carbon intensive industries. Every rand invested by South African banks in new fossil fuels increases climate risk, renders it harder to achieve a just transition to a low-carbon economy, and exposes the banks to reputational and financial risks.
Shareholders should be able to assess the extent to which Standard Bank is exposed to climate risk by virtue of its lending, investment and financing activities. However, the information currently disclosed by the company is insufficient to enable shareholders to adequately assess these risks.
Standard Bank’s board argues, inter alia, that its ESG reporting already provides shareholders with sufficient information to enable them to understand the company’s climate change risk exposure and risk management. It is difficult to understand how this claim can be accurate when the company does not disclose the information that the Financial Services Board’s Task Force on Climate-related Financial Disclosures (TCFD) considers essential to enable investors to “measure and respond to climate change risk.” Without this disclosure, shareholders are unable to assess the extent to which they are exposed to climate risk via their holding in Standard Bank.
Climate risks “are a function of cumulative emissions”, in other words, the longer we leave it to act, the more costly will be the adjustment we have to make. Financial institutions will put both their businesses and shareholder capital at risk if they fail to grasp the pace of change that is required in order to move to a low carbon economy.
Voting in favour of Resolution 10 will not only provide Standard Bank’s shareholders with much more meaningful information on climate risk than is currently disclosed by any South African financial institution; it will also mean that shareholders will set a precedent which will dramatically accelerate the pace at which South African companies consider, manage and report on climate change-related risk.