In South Africa’s financial sector, the pace of climate action may be set by the slowest credible competitor. A bank that pulls back from high-carbon clients ahead of its peers risks watching that business move to a competitor; a bank that does nothing risks reputational and regulatory exposure. So most settle somewhere in between.
This year’s How Cool Is Your Bank? report by Just Share bears this out: the top-scoring bank, Nedbank, reached only 59%, Standard Bank trailed last, and some banks scored lower than the year before. No bank is breaking away from the pack, and none wants to be seen as a laggard. The result is a race to the middle – banks converging on what the market considers acceptable, rather than necessarily what climate science demands.
A bank or asset manager operates in a competitive market, making decisions about clients, sectors, products and investments alongside institutions that may have different approaches to climate risk. In our engagements for this year’s report, several banks acknowledged that moving faster requires additional resources, changes to established client relationships and greater scrutiny of clients. None wants to bear the costs of being the only, or first, institution to act; some even withhold executive pay targets because of their “potential competitive effects”. If moving first carries a cost while doing nothing carries few consequences, waiting can become the rational choice.
That dynamic matters because financial institutions are not passive observers of the transition. They influence which economic activities expand, adapt or decline through lending, investment, underwriting and capital allocation. Their renewable lending is growing fast, but only two of the five banks reduced their fossil fuel exposure since our last How Cool Is Your Bank? report, and reported financed emissions rose at every bank. A bank whose renewable and fossil books are both expanding has not necessarily changed direction.
The consequences of climate risk are already visible. The 2022 KwaZulu-Natal floods killed more than 400 people and caused an estimated R17 billion in damage, and scientists found that climate change had intensified the rainfall behind them. In June 2025, floods in the Eastern Cape killed 103 people and caused an estimated R5.1 billion in infrastructure damage. These losses fall on the same households, businesses, municipalities and insurers that make up banks’ loan books. Climate risk is therefore not an abstract future concern for South African financial institutions. It is already moving through the economy and onto their balance sheets.
This is where regulation comes in. It need not dictate which sectors a bank can finance or prescribe identical portfolio targets. Its role should be to establish a legally binding and enforceable common floor: a minimum level of climate-risk management, disclosure and transition planning that applies across the sector.
That floor does not yet exist. The Prudential Authority has identified transition planning as an important tool, but no bank has yet published a transition plan, and the Authority’s climate-disclosure guidance expects disclosure to become mandatory only “over time”. The Climate Change Act’s carbon budgets for emitters are not yet legally mandatory, and the Act says nothing about who finances them. With voluntary alliances such as the Net-Zero Banking Alliance now shut down, South African regulation must provide a backstop.
The case for a common floor is not simply to level the playing field. Some climate risks are too systemic and too consequential to leave to each institution to price and manage at its own pace. The Reserve Bank estimates climate transition risk to the financial system at almost R2 trillion, yet no bank publishes a plan for managing its share.
A common floor would also change the competitive equation. If every institution must identify, manage and disclose its material climate risks, a bank is less likely to be penalised for acting simply because its competitors have chosen not to. No bank should be able to rely on its competitors’ inaction to justify its own
But a regulatory floor should not become a ceiling. Banks should still be free – and encouraged – to go further through more ambitious targets, stronger sectoral policies, earlier changes in financing practices or greater mobilisation of capital towards the transition.
The question is not whether South African banks should be more ambitious on climate. They should. It is how to create a market in which ambition is not penalised. A stronger common floor can remove the incentive to wait for competitors, while an open ceiling preserves the incentive to lead.
That floor must be set now, made binding and enforced – not left to arrive “over time”. Banks should not wait for it either. They already understand the risks and have the capacity to act. South Africa has seen what a changing climate costs, in Durban in 2022 and in the Eastern Cape in 2025. the question now is whether the financial sector will move before the next disaster.
Odinakachi Okeke is a Climate risk analyst at Just Share.
IMAGE: 123RF
