As major funders of mining operations across Southern Africa, the responsibility of South African banks for the negative impacts of the activities they fund has yet to be established. By CLAUDE KABEMBA.
Operating within the SADC, a treaty-based community of states whose objective is the integration and co-ordinated development of its 15 members; South African banks are required to uphold the highest standards that respect human rights, ensure environmental protection, combat corruption, and promote transparency and accountability in all mining projects they fund in the region.
The southern Africa region is home to significant deposits of some of the world’s most strategic minerals, yet its citizens do not benefit from the proceeds of mining operations. Most SADC countries are exploring ways to change their governance models to secure and optimise the benefits of mining on home ground rather than off-shore. Much of the attention of this project has been on government regulation, taxation, contract negotiation, increased transparency and accountability, and the behaviour of mining companies. The role of the institutions that fund mining projects, the banks, has yet to be placed under the spotlight.
Banks worldwide are criticised for providing funding to many environmentally and socially damaging mining projects. Financial institutions view their investments from a “business perspective,” focusing on returns on investment. It is imperative, however, that the projects that South African Banks fund, respect Environmental, Social and Governance (ESG) principles.
The South African banking sector is well regarded internationally and is considered the most advanced on the African continent. The sector was ranked sixth out of 144 countries in the 2014-2015 World Economic Forum Global Competitiveness Report for the categories of Availability of financial services and Soundness of the country’s banks.
The ESG principles are well developed in SA banks. The sector subscribes to three formal codes: the Code for Responsible Investment in South Africa (CRISA) (the Code for Responsible Investment in South Africa (CRISA), the United Nations Principles for Responsible Investment (UNPRI) and the Equator Principles (EP). These codes provide the backdrop to industry initiatives in which ESG principles in the South Africa banking sector are implemented. The Equator Principles are the most prominent and comprise a set of categorisation, assessment and management standards designed to identify and address any potential environmental and social risks a mining project may present.
Five major South African banks – Standard Bank, ABSA, Nedbank, Investec Bank and First National Bank – are involved in financing mining projects in the SADC region. They have all signed up to the Equator Principles (EP) except Investec Bank. Investec is, however, familiar with the requirements of the EP from its participation in “club funding” deals with other banks that subscribe to the EP. Besides the EP, all five major banks do comply with the Global Reporting Initiative (GRI). Given the market share and project finance dominance of these five major banks, more than 80% of the banking sector in South Africa is supposed to apply and comply with the EP in project finance transactions.
Despite the fact that all major banks have adopted a set of internal norms and principles to promote human rights, labour rights, and environmental sustainability, comply with the EP and publish GRI reports annually, there is no compelling evidence that these banks undertake due diligence before funding mining projects. In fact, the evidence suggests that SA banks are financing mining deals in the region that continue to have negative social, environmental and governance consequences for affected communities. There is a considerable gap between the proclaimed commitments of SA banks to environmental and social protection and their actual implementation.
SA banks fall short in monitoring and evaluating the social and environmental impact of mining projects they fund in the region. Banks that fund projects rely on private third parties to report on evaluation, monitoring and verification of environmental and social damage caused by mining projects. These reports are not independently reviewed.
In addition, most deals are mired in secrecy. Banks do not provide information to mining communities, or civil society on the agreements entered with mining companies and provide scant information in their annual reports. South African banks often hide behind off-balance-sheet lending, whereby the borrower does not have to comply with regulations such as the EP.
Simply put, banks cannot be held accountable for environmental and social destruction caused by the projects they fund. In other words, corporate creditors cannot account for a client’s non-compliance with sustainability principles.
In view of this, it is high time SA banks opened themselves up to rigorous scrutiny. It is critical that they go below the financial bottom line and include social, labour and environmental impacts of the mining projects they are funding. They must ensure that the projects they fund do not exacerbate the resource curse – which occurs when resource use and extraction harm development instead of creating wealth.
Banks are critical stakeholders that can exert pressure and make demands on mining companies to ensure that they operate responsibly. They bear the duty to strengthen their monitoring and evaluation processes to ensure responsible lending and sustainable mining across the region.
The findings of recently completed research by OSISA’s Natural Resources Governance Initiative through its Southern Africa Resource Watch (SARW) project, probing the practices and standards of South African Banks’ funding of mining projects in the region, will be released during the Mining Indaba in Cape Town. This take on the subject promises to open up a whole new conversation exploring ways of ensuring that the region and all its people, enjoy the benefits of the wealth intrinsic to their land. DM
Photo: A general view of one of Zimplats mine in Selous near Harare, Zimbabwe, 29 November 2013. EPA/AARON UFUMELI
Dr Claude Kabemba heads up OSISA’s Natural Resources Governance Initiative and is the Director of the Southern Africa Resource Watch (SARW). He has previously led research and policy divisions at DBSA and the Electoral Institute of Southern Africa, and has consulted for organisations such as Oxfam, UNHCR, Norwegian People’s Aid and the AU. He holds a PhD in International Relations (Political Economy) from Wits University.
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