South Africa’s major banks need to improve transparency around their financing of fossil fuel industries, according to industry observers, who describe the current disclosures as “trivial” and “not meaningful.”
Environmental, social and governance issues were key features of President Cyril Ramaphosa’s state of the nation address in the week of Feb. 8, in which he outlined plans for a “just transition to a low-carbon economy and climate-resilient society.” South Africa is one of Africa’s wealthiest countries but its economy is still heavily reliant on coal, which accounts for 87.6% of its energy, International Energy Agency data shows.
There are no specific legal requirements for responsible investing and financing, though South Africa’s responsible investment code urges institutional investors to incorporate ESG into its investment activities.
The top four lenders by assets — Standard Bank Group Ltd., FirstRand Ltd., Absa Group Ltd. and Nedbank Group Ltd. — produce ESG reports and other related documents, but they offer limited insight, said Stuart Theobald, chairman of Intellidex, a financial markets research and consulting firm.
Absa and Nedbank declined to comment, while FirstRand and Standard Bank did not respond to questions from S&P Global Market Intelligence.
“What we want to know is whether [banks are] funding coal miners or natural gas and their exposure to these industries, for example. That would be useful,” said Theobald. “Mostly, banks aren’t disclosing the stuff we really want know. The catalyst for change largely comes from external sources, particularly European shareholders and funders who are putting pressure on banks to improve ESG disclosure.”
Much of banks’ ESG disclosure is “trivial verbiage to fill space,” said Theobald.
The banking regulator should introduce specific regulations limiting or banning lending to certain sectors, said Happy Khambule, Greenpeace Africa’s senior climate and energy campaign manager.
He described banks’ pledges to limit their investments in certain sectors such as coal, weapons, and nuclear power as “vague platitudes” in response to growing shareholder activism and greater public awareness of lenders’ role in supporting environmentally and socially destructive industries.
“The banks have a big role to play in making sure climate targets are achieved,” he said.
‘Transparency for transparency’s sake’
South Africa’s largestbank by assets, Standard Bank, published its first climate-related financial disclosure report in October 2020, which revealed that 4.4% of its loan book value is to the fossil fuel industry and related companies, while 0.8% is to the renewables sector. In comparison, FirstRand’s fossil fuel lending accounted for 1.5% of its total loans, with 1.4% of the loan book dedicated to renewables.
In December 2020 Standard Bank also announced that it would only finance oil and gas companies that commit to minimizing or cutting their greenhouse gas emissions.