South African banks are increasingly keen to celebrate their role in financing renewable energy. They publish glossy reports. They highlight headline numbers. They position themselves as leaders in the transition.
At one level, this is welcome. We need far more capital flowing into renewable energy. Banks have a critical role to play in that shift.
But there is a growing problem. Many banks now treat increased investment in renewables as proof that they are decarbonising. It is not. These are not the same thing.
A genuine transition requires more than adding green assets to a balance sheet. It requires replacing high-carbon exposure with low-carbon alternatives. Without that substitution, emissions do not fall. They rise.
This is the distinction that sits at the heart of credible climate strategy. And it is the distinction many banks are failing to make.
In our analysis, banks are not only maintaining their fossil fuel exposure. In some cases, they are increasing it. That means their financed emissions remain high – or even grow – despite rising renewable energy investment.
This is not a transition. It is expansion on both sides of the ledger. A new ‘green’ project, doesn’t cancel out the emissions of a new ‘brown’ one. More emissions remains more emissions.
Yet the language banks use tells a different story. They speak of “transition finance” and “supporting decarbonisation”. They present renewable energy deals as evidence of progress, without accounting for what is happening elsewhere in their portfolios.
At best, this reflects a weak understanding of what decarbonisation requires. At worst, it misleads stakeholders.
Investors, regulators and the public are asked to accept that more renewables equals less carbon. That is simply not true.
The test is straightforward. Are fossil fuel exposures declining in absolute terms? Are high-emitting clients reducing their emissions in line with credible pathways? Are banks setting and meeting targets that drive real-world change?
If the answer is no, then the strategy does not deliver what it claims.
This has significant implications because banks sit at the centre of the economy. Their lending and underwriting decisions shape which sectors grow and which decline. If they fail to align those decisions with a low-carbon future, the transition slows for everyone.
It’s credibility at stake. Climate commitments rely on trust. If stakeholders begin to see these commitments as little more than rebranding exercises, that trust erodes quickly.
For banks that have invested heavily in governance and expertise, the gap is even harder to justify. Banks boards often reflect deep experience across finance, sustainability and risk. That should translate into strategies that are both rigorous and transparent.
We should expect clear evidence that renewable energy financing is displacing fossil fuel exposure – not simply sitting alongside it. We should expect targets that measure real emissions reductions, not just green deal flow. And we should expect disclosure that allows investors to test these claims.
Anything less falls short of what the moment demands.
The transition to a low-carbon economy is complex. It will not happen overnight. But complexity does not excuse confusion.
Banks know how to measure risk. They know how to manage portfolios. They know how to set and track targets. Applying that discipline to climate strategy is not beyond reach.
What is required is clarity of intent.
Financing renewable energy is necessary. But it is not sufficient.
A credible transition strategy must show how high-carbon assets will decline over time. It must demonstrate that emissions fall in absolute terms. And it must be honest about the trade-offs involved.
Until that happens, we should be cautious about the stories banks tell.
Because adding green on top of brown does not change the colour of the balance sheet. It just makes the picture harder to read.
Nicole Martens is Just Share’s executive director.
IMAGE: 123RF Free Images
