OUR BURNING PLANET
Some SA banks committed to fossil fuel disinvestment — others aim to keep coal and oil financing furnaces burning
The global climate crisis has mainly been caused by carbon emissions from the fossil fuel industry, among other culprits. Such companies would not have been able to continue their efforts without funding from financial institutions, and in South Africa, the situation has been no different.
Three of South Africa’s major banking institutions — RMB, Nedbank and Absa have given themselves no more than five years to stop funding new coal-fired projects as the race to meet the Paris Agreements intensifies.
The carbon-intensive fossil fuel extraction and burning processes have been the leading cause of the climate crisis, taking an immense toll on the environment and people alike.
South Africa’s energy supply is 70% reliant on coal, and the latest completion of Medupi that will require 16-million tonnes more coal a year, suggests that the country has no plans of slowing down on its coal appetite. And it seems that banks are keen to continue — with some limitation — to feed that demanding desire.
South Africa’s five major financial institutions, Standard Bank, Absa, Rand Merchant Bank (RMB), and Nedbank have either set targets to limit their involvement in coal-fired projects or made ambitious plans to divest completely from coal in the next decade or two.
Absa announced last year that it would not fund any new coal-fired power-generation plants, or industrial boilers and furnaces, effective immediately, but would consider projects that met enhanced due diligence, among several other conditions. Fossil fuels account for R9-billion, or 1% of its lending book, with oil making up most of the funding, Liezl Squier, Absa manager of media relations, told Daily Maverick.
Investec said in 2020 that it would no longer finance any new coal-fired projects in South Africa unless it was to fund Eskom.
“Our policy, very specifically, is that we are still committed to South Africa and to growth in South Africa. We will only lend to thermal coal in South Africa if it is going to Eskom, if it is keeping the lights on,” Investec global head of sustainability Tanya dos Santos told Daily Maverick
RMB and Nedbank, on the other hand, have given themselves up until 2026 and 2025 respectively to no longer fund new coal-fired power projects. Nedbank said its cutoff time for oil and gas funding was 2035.
The banks said however, they would continue to fund existing projects within certain guidelines set up by each of the banks, with the exception of Nedbank.
“Nedbank also announced that it will not directly finance new oil and gas exploration projects with immediate effect, and not advance any new finance for oil production, regardless of jurisdiction, from 1 January 2035,” Brigitte Burnett, Executive Head of Sustainability for Nedbank, told Daily Maverick.
Burnett said that an overall fossil fuel exit was planned by 2045 due to the long life of fossil fuel assets.
“Plans to divest from fossil fuels symbolise dismantling a pillar of the climate crisis. Divestment from fossil fuels does not only prevent further emissions and catastrophic climate impacts, but avoids the growing and exorbitant costs of stranded assets for funders. With renewables now ‘cheaper than burning fossil fuels’, a redirection of financial flows away from fossil fuels and towards clean, accessible and affordable energy sources becomes an imperative to increase energy security sustainably,” Alia Kajee, public finance campaigner for 350Africa.org, told Daily Maverick.
Meanwhile, the Standard Bank Group said in its Fossil Fuel Financing Policy 2020 that thermal coal was a necessary energy source in a number of the countries that the group operates in, adding that it would continue to fund new and existing projects based on particular compliances. Some of the countries the bank operates in include eSwatini, Mozambique and Uganda.
The group is involved in the East African Crude Oil Pipeline (Eacop), that will connect Uganda to Tanzania through a crude oil transportation pipeline. Through its subsidiary Stanbic Uganda, the bank is expected to act as a financial adviser on the project. The construction of the Eacop is expected to threaten surrounding biodiversity, water supply and local communities.
“In the case of oil and gas activities, the bank will only provide financial products and services to clients that commit to minimising or reducing their greenhouse gas emissions, and that have implemented oil spill preparedness and response plans, for instance,” David Hodnett, chief risk and corporate affairs officer at Standard Bank told Daily Maverick.
Eskom’s hunger for coal will continue to be fed by South Africa’s major banks. The power utility makes up a majority of RMB’s coal exposure which is at 0.2% of the banks’ loan books, with overall fossil fuel exposure at 1% of total lending, Gert Kruger, First Rand’s Chief Risk Officer told Daily Maverick.
The bank’s fossil fuel exposure is also increased by its co-founding role in Mozambique’s $4.87-billion gas project and several other oil and gas ventures in West Africa.
Despite significant roles in major fossil fuel projects, RMB aims to achieve net-zero by 2050 through replacing decommissioned coal power plants with renewable energy and low carbon alternatives, Griesel said.
“The net-zero target is not expected to be reached through divestment but with transition finance to these sectors in support of their transition to the green economy,” Kruger said.
“Capital will be directed towards transition financing (supporting impacted industries to transition). This will include renewable energy but also funding of mitigation and adaptation efforts for impacted industries.”
The bank’s renewable energy lending makes up 1.2% of total funding and is expected to increase over the years, according to Kruger.
‘Clean fossil fuels’
A just transition to renewable energy has been a leading topic of discussion as far as taking climate action is concerned. Academics, activists and organisations have been calling for the abandonment of fossil fuels entirely. Minister of Mineral Resources and Energy Gwede Mantashe has continuously proposed gas as an alternative based on it being considered a ‘cleaner’ fossil fuel. Nuclear has also been proposed as a possible alternative in reducing South Africa’s reliance on coal.
“The setting of Group climate targets will determine future finance decisions. We will consider natural gas as a transition fuel while renewable energies mature technologically and economically, whilst taking ‘just transition’ into consideration,” Absa’s Squier said.
The Standard Bank Group said in its Task Force on Climate-related Financial Disclosures (TCFD) interim report that it also considered natural gas (including liquefied natural gas) as an integral part of Africa’s just transition as the continent struggles with energy supply.
The Standard Bank Group said in its fossil fuel financing policy that it would continue to play a role in funding what it said was an expected increase in demand for natural gas. The group added that it would continue to fund oil and gas investments to support national governments’ energy and economic development needs.
“The lack of robust exclusions relating to financing coal-fired power plants from many of the major banks is evidence of [hesitant support of rapid decarbonisation], despite the fact that new coal-fired stations are not least costly, are not required for energy security, and have severely negative impacts on human health and other human rights, climate and the environment,” Emma Schuster, climate risk analyst at Just Share told Daily Maverick.
Reliance on coal for South Africa’s electricity generation has placed the country in the position of the world’s 12th biggest emitter, with Eskom (not forgetting Sasol) being mainly responsible for 42% of South Africa’s emissions.
South Africa has been struggling to meet the country’s energy demand due to archaic infrastructure coupled with years of corruption. The country’s rolling bouts of load shedding have left the utility scrambling for an investor to help keep the country’s electricity supply going.
“Across the world, expectations are growing for banks to rule out even considering financing for such projects, on the basis that their impacts cannot be mitigated, and that due diligence exercises in relation to such projects are therefore unnecessary,” Schuster told Daily Maverick.
Total fossil fuels for Investec stood at R5.4-billion, making 1.9% of its lending book in the 2021/2022 financial year, down from 2.8% last year. Coal makes up R500-million, or 0.2% of Investec’s lending book, with a further downward trajectory expected as far as coal is concerned, Dos Santos said. R3.5-billion makes up 1.2% of renewable energy in the bank’s loan book, with R3.3-billion of that amount being in solar power and the rest in wind energy.
Dos Santos said the bank’s decline in fossil fuel exposures was due to loan repayments coming to an end, with the bank not seeking to find replacements. Investec has made a commitment to fund existing fossil fuel projects that are in line with its regulations.
“Investing in new technologies — and in renewable energy projects especially is good. But it is also not enough to increase investments into renewables, and somehow use that to ‘offset’ continued financing of fossil fuel projects,” Schuster said.
Standard Bank has the highest fossil fuel exposure, at almost 4% of all its total lending, with non-renewables at more than R60-billion and renewable energy investment at about R13-million.
“The transition away from fossil fuels will necessarily be a gradual and measured process, given widespread energy poverty across sub-Saharan Africa, where less than 43% of the population have access to a national grid,” Hodnett said.
Nedbank, known for its advanced sustainability practices, follows suit with high fossil fuel exposure at 2.2% of gross loans and advances for non-renewable power generation, placing it at R18.6-billion, while renewable energy lending made up 3.6% of the bank’s gross loans at R30.2-billion.
Although Standard Bank has not made the call to completely cut fossil fuel funding, 86% of the bank’s new lending has been for renewable energy. The bank has not financed new coal-fired power plants since 2009, the group said.
“If banks and other financial institutions continue to provide funding for coal, oil and gas, it will become increasingly unlikely that the Paris Agreement’s goals can be met. South African banks, like all financial institutions, must rapidly limit their exposure to fossil fuels and scale up and direct financing towards assets and investments necessary for transitioning to low-carbon, resilient and sustainable economies,” Just Share’s Schuster continued.
South Africa’s just transition is expected to cost the country $10-billion, Eskom said, hopefully bringing an end to the country’s electricity supply woes. In the meantime, however, Karpowership, a company providing floating gas powerships, is amid the bidding process to meet the country’s electricity shortfall.
The Absa Group and Investec have been notoriously associated with the project that has failed its environmental assessments and is awaiting its appeal from the Department of Fisheries, Forestry and the Environment.
“Final decisions around Absa’s participation in the financing of any of Eskom’s Risk Mitigation IPP Programme projects remain subject to relevant external due diligence and internal approvals,” said Squier, adding that proof of valid environmental permits was key for Eskom as a buyer and banks as financiers.
Investec has previously financed Karpowership in other ventures outside South Africa and the floating power plant is an existing client of the bank. Dos Santos said the letter of credit provided before applying for the RMIPPPP was not a commitment by the bank to fund the project, and that funding would be dependent on due diligence.
As South Africa prepares for the COP26 meeting it has updated Nationally Determined Contributions that have seen a lower emissions target.
“Companies like to talk about their climate change ‘journey’, but it is too late for any more delay. It is now time for real action: science-based strategies and emission reduction targets that will result in compliance with the Paris Agreement’s goals, and meaningful exclusions in banks’ fossil fuel policies,” Schuster said. DM/OBP
Daily Maverick © All rights reserved