New report assesses SA companies and banks’ response to climate risks

November 25th, 2019, Published in Articles: EE Publishers, Articles: Energize

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The Centre for Environmental Rights (CER) launched the fifth assessment in its Full Disclosure Series today, 25 November 2019.

The new report, entitled “Full Disclosure 5: The Truth About South African Banks’ and Companies’ Ability to Identify and Address Climate Risks”, considers South African banks’ and companies’ disclosure of and engagement with climate risks. The report raises critical questions about how major South African corporates are preparing for a low carbon economy, and how such preparation will give some companies a competitive advantage over others.

Relying on the Recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD Recommendations), CER assessed the climate-related disclosures of fifteen JSE-listed companies, considering the extent to which these companies report on climate change as well as the quality of existing disclosures. These companies comprise ten of the largest emitters of greenhouse gases (GHG) in South Africa, and the five major banks, which include:

 Emitters:

  • African Rainbow Minerals Limited
  • ArcelorMittal SA
  • Anglo-American PLC
  • Eskom Holdings SOC Limited
  • Exxaro Resources Limited
  • Goldfields Limited
  • PPC Limited
  • Sappi Limited
  • Sasol Limited
  • South32 Limited

Banks:

  • Absa Group Limited
  • FirstRand Limited
  • Standard Bank Group Limited
  • Nedbank Limited
  • Investec Limited

Full Disclosure 5 assesses bank and company compliance with critical elements of the TCFD Recommendations. As of August 2019, some of our key findings include:

  1. While ten out of the 15 companies and banks assessed identified climate change as posing a material business risk, only three (African Rainbow Minerals, Anglo American, South32) set out the short, medium and long-term impacts to their businesses, strategy, and financial planning.
  2. Only two companies (South32 and Anglo American) report on the scenarios used to inform their strategies, and eight have a target to reduce their emissions. AMSA, Eskom, PPC, SAPPI, ABSA, Investec and Standard Bank have not yet published emissions reductions targets.
  3. Only one bank (Nedbank) discloses its concentrations of credit exposure to carbon-related assets while two (Nedbank and Standard Bank) have a partial policy in place on funding coal mining and coal-fired power.

According to Daiyaan Halim, Legal Researcher for CER’s Corporate Accountability and Transparency programme: “Assessing commitments by companies to address climate risk is possible if companies publicly disclose plans and mitigation strategies to enable such scrutiny. To mitigate climate risks, banks and companies should develop strategies based on scenario analysis which considers a 2oC or lower climate scenario. The scenario analysis informs the metrics and targets that a company might use to assess and manage its climate-related risks and opportunities. More specifically, companies ought to report on emission reductions, while banks should have a strategy in place to reduce their credit risk exposure to risky carbon-intensive industries.”

CER provided all assessed companies with a summary of findings in relation to that company, and several companies responded with updated information on their strategies to address climate risks, and indicated a willingness to engage with CER. These responses will be reflected on the Full Disclosure 5 website as they are received. “The commitments by some companies to improve their strategies and continue engaging with CER is very encouraging,” says Halim. “But it is clear that South African companies still have a long way to go.”

“Corporates and financial institutions face physical and transitional risks from climate change that can affect their bottom line. Even worse, high greenhouse gas emitters place our health, livelihoods, food security, water supply, human security, and economic growth at risk. Now more than ever, companies are ethically obliged to disclose climate-related risks and opportunities, as well as set out tangible mitigation strategies to protect people and the environment from further harm and to avoid negative impacts for their own businesses, employees and investors,” says Leanne Govindsamy, head of CER’s Corporate Accountability and Transparency programme.

“The ability of banks and companies to respond to climate risk and adapt to a low carbon economy is crucial to manage the economic, environmental and human rights risk posed by climate change. These risks, and companies’ plans to respond to that risk, must be fully disclosed so that investors, communities, civil society and the media can have robust engagements with and about corporations that do not display a willingness to reduce emissions and manage risks associated with the continued reliance on coal, in particular,” says Govindsamy.

The impacts of climate change are being felt around the world, with poor and marginalised communities most vulnerable to the adverse effects of climate change. In South Africa, drought and floods are some of the manifestations of a warming climate, and predictions are for this to have radical implications for our country’s security and prosperity. Climate variability has direct impacts on the country’s economy and natural resources, and is already negatively affecting food security, water resources and health. Moreover, in South Africa, climate impacts are also predicted to result in further widening of the already extreme gap between rich and poor. (See the government’s Draft National Climate Change Adaptation Strategy published in May 2019.)

Given South Africa’s obligations under the United Nations Framework Convention on Climate Change (UNFCCC), and President Ramaphosa’s statements at the United Nations Climate Summit in September 2019 in which he highlights the urgency of responding to the climate emergency, the new Full Disclosure report asks whether South African companies are committed to addressing climate change by working towards a low carbon economy and achieving climate-resilient development.

“Governments, companies, financial institutions, civil society, faith-based and community organisations are all scaling up efforts to fight climate change, prevent further loss of life and livelihood, and halt the destruction of the environment, recognising that, despite our natural environment being key to combatting climate change and reversing its impacts, complex ecosystems are being destroyed at unprecedented rates,” says Govindsamy.

Nicole Martens, head of the Africa and Middle East division of the UN Principles for Responsible Investment (UNPRI), an investor initiative in partnership with UNEP Finance Initiative and UN Global Compact, has made the following comment on the Full Disclosure 5 report: “The PRI encourages investors to integrate ESG factors into their decision-making processes and to engage actively with assets in their portfolios on these same issues. A commonly cited challenge to being able to do this is the availability of credible relevant data. We are pleased to see that the CER has taken a first step in addressing this challenge and fully expect responsible investors to assess and integrate the data available into their investment processes accordingly.”

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