[TOP STORY] Evaluating SA’s Big Five banks on climate risk and transition strategies

Simon Brown (0:02)

MoneywebNOW, on the money.

This podcast is brought to you by StandLib Acid Management. Invest in more certainty to navigate volatile market conditions. I'm Tino Thurden, Odinakachi Okeke. He's a climate risk analyst at JustShare. The How Cool Is Your Bank report just came out, third edition. It's looking at how South Africa's big five banks understand and manage climate risk. It looks at fossil fuel exposure, emissions disclosure and targets, governance and strategy, sustainability and transition, finance and of course, nature and biodiversity. As I said, this is the third. Netbank comes top again, but only with 59 percent. InvestTech at 49 percent, first round at 46 percent, Absor at 32 percent, and Standard Bank down at 31 percent. Odinakachi, I appreciate the time today. Three of the five actually scored lower than in the previous report. After three editions, are we seeing a sector that's moving backwards, or have you perhaps raised the bar in the methodology of the report?

Odinakachi Okeke (1:03)

Thank you. Thank you, Simon, for having me. I think you've listed out the numbering, or rather the scoring that we've got here. But I think, first of all, I'd resist in the sense the idea that the sector is, in a sense, moving backwards. So I think we do see real progress in some areas. I think particularly when we look at renewable energy financing, and also look at the development of transition and sustainable finance products.

But I think in another way, we've also raised the bar in this situation, that is. So the first edition had asked some fairly basic questions about whether the banks had policies and commitments in place. But then after three editions, I think we can ask more demanding questions in the sense that are those commitments changing what banks actually finance? Questions like are they reducing exposures with high emitting activities, or are they tackles actually backed in this sense by credible plans? So a lower score does not necessarily mean that the bank has done less.

It can also mean that the bank has not kept the pace with what we now think the practice requires. And that is really the point of this benchmark. If we don't want banks to be able to tick the same boxes year after year, I think the standard in a sense has to move as the transition comes in this way a bit more urgent.

Simon Brown (2:20)

I think that's a great point. This cannot be a box ticking exercise and I like your point there. It needs to evolve and the way that the banks are measured needs to be part of that evolving. And there is some good parts happening here. Renewable lending is up. First round grew to 175%.

There are bigger share of energy lending at four of the five banks. So really good news in that regard. But finance emissions are still rising across all banks. It does feel, to your point around, sort of almost a looming crisis. We're moving forward two steps and then we go two or three backwards. It's not a linear relationship at all. There's a lot of backwards and forwards happening.

Odinakachi Okeke (2:56)

And to be honest, you're spot on in that observation. I think that's where the tension actually sits here. But I would not describe it as two steps forward and actually then three steps backwards. I think in a sense, the growth in renewable financing is quite encouraging. It shows in this sense that banks can mobilize significant capital towards the technology South Africa needs. But then financing needs, especially these financing of renewable products or renewables, in a sense, it does not automatically decarbonize the bank's portfolio if it continues to finance fossil fuels at scale.

I think that is the critical discussion or distinction we've got to sit with here. The transition is not simply about adding green finance. I think it's also about changing. That is pure definition of what a transition means. It's changing what happens to the brown, in this case, the brown parts of the portfolio.

So I'll give you an example. If a bank finances, take for example, 10 billion rand of renewables, but continues to finance a large and growing fossil fuel portfolio, its overall finance emissions and what we hear about finance emissions basically is that the emissions you attribute to a company due to its investment decisions, well, following from that, the amount of greenhouse gases entering the atmosphere, in this case, can still rise. So we need both sides of the equation. So rapidly scaling up our financing for the transition, and also, in a sense, managing down the exposure to high emissive activities. In this case, you cannot cut, you have to categorically say, you cannot simply add in finance on top of unchanged fossil fuel business and then turn around and call that decarbonization.