Just Share: SA Banks Climate Risk Report Reveals Mixed Progress

• Just Share's 'How Cool is Your Bank?' report assessed South Africa's Big Five banks on climate risk and transition strategies.
• Nedbank scored highest at 59%, but three banks showed lower scores due to the report's more rigorous methodology.
• The assessment now demands evidence of actual portfolio decarbonization and credible plans, moving beyond basic commitments.
• Despite significant growth in renewable energy financing, all banks continue to exhibit rising finance emissions.
• A true climate transition requires not only increased green finance but also a strategic reduction in fossil fuel investments to decarbonize portfolios.

The transition to a low-carbon economy requires more than just increasing green finance; it necessitates a strategic shift in the 'brown' parts of their portfolios, actively reducing investments in fossil fuels.

Just Share's third annual 'How Cool is Your Bank?' report recently evaluated the climate risk management and transition strategies of South Africa's Big Five banks. The assessment covered critical areas including fossil fuel exposure, emissions disclosure and targets, governance, strategy, sustainability and transition finance, and nature and biodiversity. Nedbank emerged as the top performer with a score of 59%, followed by Investec at 49%, FirstRand at 46%, Absa at 32%, and Standard Bank trailing at 31%.

Notably, three of the five banks recorded lower scores than in the previous edition of the report. Odinakachi Okeke, a climate risk analyst at Just Share, clarified that this decline does not necessarily indicate a regression by the sector. Instead, it reflects an elevated standard in the report's methodology, which now poses more demanding questions regarding banks' actual financing practices. While there has been encouraging progress in renewable energy financing, with FirstRand showing a remarkable 175% growth and now holding a larger share of energy lending than four of its peers, a significant challenge remains: finance emissions are still increasing across all banks.

The 'How Cool is Your Bank?' report has progressively raised its assessment bar over its three editions. Initial evaluations focused on whether banks had basic policies and commitments in place. However, the latest iteration moves beyond mere box-ticking, scrutinizing whether these commitments are genuinely altering banks' financing decisions, particularly regarding their exposure to high-emitting activities. The methodology now seeks evidence of credible plans for decarbonization, emphasizing that a lower score might indicate a bank's failure to keep pace with evolving best practices rather than a lack of effort.

Just Share underscores that the benchmark for assessing South African bank climate transition strategies must continuously adapt as the urgency of the climate crisis intensifies. This dynamic approach ensures that banks are challenged to implement substantive changes rather than relying on static commitments. The shift in methodology reflects a growing expectation for financial institutions to demonstrate tangible progress in reducing their climate impact, moving beyond simple disclosures to active portfolio transformation.

The findings highlight a critical tension in the financial sector's approach to climate change: while the growth in renewable financing is a positive development, demonstrating the capacity of South African banks to mobilize significant capital for essential technologies, it does not automatically lead to portfolio decarbonization if fossil fuel financing continues at scale. This distinction is crucial for understanding the true nature of a climate transition. Simply adding green finance without simultaneously addressing and reducing the 'brown' parts of the portfolio—investments in high-carbon industries—will not achieve the necessary systemic change.

This ongoing challenge means that despite increased investments in sustainable projects, the overall finance emissions for South Africa banks continue to rise. For the climate transition to be effective, it requires a fundamental shift in the entire financing landscape, not just an expansion of green products. The report implicitly suggests that the credibility of SA Big Five banks ESG performance and their climate commitments will increasingly depend on their ability to demonstrate a clear strategy for phasing out fossil fuel exposure alongside their renewable energy initiatives.

Lawyers advising South African banks or companies seeking financing should note the increasing scrutiny on credible climate transition strategies and the evolving benchmarks for climate risk management. This report indicates a rising standard that moves beyond mere disclosure to actual decarbonization of portfolios, which could influence future regulatory requirements, investor expectations, and potential litigation risks related to 'greenwashing' or insufficient climate action.

Source: Original analysis from Just Share's latest report