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No more cash for coal FirstRand says

FirstRand reported last week that the group’s return to its pre-pandemic peak would come earlier than expected, saying in a statement it had emerged from Covid-19 in “a fortified position”. 

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FirstRand, which owns retail lender FNB, is now focusing on inoculating itself against another threat that could imperil the banking group’s — and the economy’s — long-term stability: climate change.

Or so says its chief risk officer Gert Kruger, who this week spoke to the Mail & Guardian about the group’s new climate policy and a recent announcement that it will no longer finance new coal-fired power stations with immediate effect. 

“I think there are a lot of parallels that can be drawn between Covid and climate change because they are both natural phenomena — unlike the global financial crisis, which was purely a financial phenomenon … We need to become part of managing this problem. We can’t stand on the sidelines,” Kruger said.

Last Thursday, FirstRand published an updated energy policy and a climate change policy for the first time. It is the second of the country’s big four banks, after Nedbank, to commit to no longer funding coal. FirstRand, Africa’s biggest banking group by market value, will also no longer provide direct project financing for new coal mines from 2026. 

Climate change, and how the sector responds 

“It is clear people are thinking deeply about the topic [climate change] and want to make an impact and get it right. With Covid being slightly more under control than it was a year ago, this topic has risen in prominence,” Kruger said, adding that elements of the now-published climate policy have existed internally for the last five years. 

“But we found that since about late last year there have been far more calls from external stakeholders who have said they want more transparency.”

“It started with the international investors and local investors started to do the same. Activists have called for this for some time. As a consequence, we thought the timing was right now,” Kruger said.

FirstRand’s policy notes South Africa, where 80% of the group’s operations are based, is particularly vulnerable to the rapid acceleration of greenhouse gas emissions “as mean annual temperatures have increased by more than double the observed global average since 1990”.

FirstRand assumes that in South Africa there will be a gradual reduction in coal production and end use from 2025 to 2030, as power utility Eskom decommissions five of its coal-fired power stations and global demand starts to moderate.

Shareholder activist organisation Just Share welcomed FirstRand’s policy updates, saying in a statement that the move represents “a significant improvement” on the bank’s previous energy-related policies. 

“The bank recognises the centrality of climate science to informed financial decision-making, and the importance of a just transition to a low-carbon economy,” it said. 

However, FirstRand’s position on coal is long overdue, Just Share added.

(John McCann/M&G)

Consensus

South Africa’s dependence on coal for electricity, and calls to transition away from it, have created a sense of urgency for FirstRand, Kruger said. 

“People are asking: What is your stance towards the industry? Are you stepping away from the industry entirely? Or are you working with the industry in order to help with the transition? The latter is the position that we took,” he added.

Responding to criticism that FirstRand’s climate policy may be overdue, Kruger reiterated that a form of the policy has existed internally for some time “but what was important to us was to understand the consensus in terms of the countrywide transition. And that research was only conducted countrywide in the past year”.

He cited research by the  National Business Initiative — which last month published a study recommending the government adopt more ambitious 2030 emissions reduction targets than those initially included in the nationally determined contribution — as a sign that there is now more agreement on what our transition will look like.

There has also been much recent collaboration between government and banks to come up with ways for the sector to respond to climate risks, which threaten the country’s financial stability, Kruger noted.

Financial institutions that have invested in, or have lent to, industries such as coal mining could incur losses if global demand were to decline sharply amid the transition to a greener economy.

“Banks, from a financing perspective, have got a material impact in terms of the economy. FirstRand alone provides about R1.3-trillion worth of financing. And it matters what you do with financing. It is an important economic tool that should be used responsibly,” Kruger explained.

“If corporates in South Africa face issues, it inadvertently transmits to us as a financier. So we have to work with people in order to help with this transition. If you don’t do that, the competitiveness of the entire economy will be compromised.”


Financial sector banks on a green future

In recent years, attention has turned to how the banking sector can help mitigate climate risks to South Africa’s economy.

Last year, the national treasury published a report titled Financing a Sustainable Economy, which drew on input from the South African Reserve Bank, the Financial Sector Conduct Authority, the JSE and the Banking Association of South Africa (Basa). 

The report looked at the voluntary practices for sustainable finance currently available in South Africa through banking. The Reserve Bank has also begun to include climate risks in the stress tests of banks.

Pierre Venter, Basa’s general manager, said climate change is one of the sector’s key focusses. “There is a lot happening in that space and we are very close to it.”

The association hosts the climate risk forum steering committee, which is chaired by the national treasury. The forum is tasked with developing a benchmark climate risk scenario for use in stress tests and to build capacity and competency for good climate risk governance, management and disclosure across the sector.

Venter noted FirstRand’s recent commitment to no longer fund new coal, saying it “puts into context the severity of the problem that we face”.

But, he later added, there is currently no uniform response by the sector to climate change. “The banks actually need guidance — not only the banks, the entire financial sector. We need to have this map for an orderly transition.”
A recent research note by the Bureau for Economic Research (BER) outlines how the financial sector has an important role in combating carbon emissions.

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Sarah Smit
Sarah Smit
Sarah Smit is a general news reporter at the Mail & Guardian. She covers topics relating to labour, corruption and the law.

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