Climate Change and the Role of Banks: A Study on the Corporate Response from the Major Banks in South Africa

CLIMATE CHANGE AND THE ROLE OF BANKS

A Study on the Corporate Response from the Major Banks in

South Africa

Research Report

The Graduate School of Business

University of Cape Town

in partial fulfilment

of the requirements for the

Masters of Business Administration Degree

Dinesh Naidoo

03 December 2009

Supervisor: Jonathon Hanks

ABSTRACT

The challenges posed by climate change are fast emerging as one of the primary concerns for

firms, investors and governments. The banking sector is considered an influential

intermediary within the economy, capable of mitigating the economic risks arising from

climate change and promoting a shift toward a low carbon economy. This study examines the

corporate response of major banks in South Africa to the problem of climate change. It

employs two different assessment metrics to evaluate the nature of the climate actions taken

by these banks and evaluates the quality of these actions in comparison with international

banking benchmarks.

The report finds that that the major local banks are sufficiently aware of their role and

responsibilities in mitigating the effects of climate change; evidence of their commitment to

climate change was found in their sustainability reports and media releases, as well as

inferred from their involvement in national and international projects addressing climate-

related issues. The financial institutions profiled in this study have invested in reducing their

carbon footprint and have pledged realistic greenhouse gas emission and/or energy reduction

targets, which suggest that they recognise their responsibility to mitigate their own impact on

the global climate.

The report reveals that the major local banks have made a good start in meeting the challenge

of climate change. However, the shift to a low carbon economy requires that banks do more

than only managing their own greenhouse gas emissions. The report argues that the local

banks should stimulate a market response to climate change through government lobbying

activities, collaborative research with clients, strategic investment in early-stage technologies

and increasing supply chain awareness of climate change issues. It is also argues that the

local financial institutions may not have adequately explored the best practice initiatives of

international banking benchmarks. On this basis the report concludes that the while the major

banks in South Africa are aware of their roles and responsibilities in addressing climate

change issues, the nature of their corporate response is not currently sufficient.

KEYWORDS

south, africa, role, response, banks, climate, change

DECLARATION

This report is not confidential. It may be used freely by the Graduate School of Business,

University of Cape.

This work, unless indicated, is my own work and has not been submitted in whole or in part

for the award of any degree at another University or Institution. I declare that each significant

contribution to this research report from the work, or works, of other people has been cited

and accurately referenced.

Dinesh Naidoo

December 2009

ACKNOWLEDGEMENTS

I would like to acknowledge the following people and organisations for their contribution to

this study.

Mr J. Hanks Thank you for giving me the opportunity to undertake

this study and for trusting me to complete it.

Mr A. Dane Thank you for your patient support and invaluable advice

throughout the development of this body of work.

Dr L. Ronnie I am extremely grateful for your insights and influence

on my work.

ABSA Group Limited

FirstRand Group

Standard Bank

Nedbank Group

NCI Pty Ltd

AMEC Limited

I dedicate this work to the spirit and vision of my parents

Papiah Naidoo

Panjasaram Govender

“only a life lived for others is worth living”

(Albert Einstein)

CONTENTS

1 Introduction 1

1.1 Research Area 1

1.2 Problem Statement 2

1.3 Purpose of the Research 2

1.4 Research Scope 3

1.5 Research Ethics 3

1.6 Chapter Organisation 4

2 Literature Review 6

2.1 The Science and Economics 6

2.2 Institutional Investor Interest 8

2.3 The Role of Banks 13

2.4 International Benchmarks 21

2.5 South African Banking Sector 25

2.6 The Regulatory Environment 32

2.7 Conclusion 34

3 Research Questions 36

4 Research Method 37

4.1 Objective 37

4.2 Approach 38

4.3 Research Design 38

4.4 Sampling 39

4.5 Data Collection Methods 39

4.6 Data Analysis Methods 40

4.7 Reliability 40

4.8 Transferability 40

4.9 Research Limitations 41

5 International Banking Best Practice 42

5.1 Climate Change Policy Framework 43

5.2 Internal Banking Interventions 44

5.3 Financial Products and Services 50

6 South African Banking Response 58

6.1 Summary of the Research Findings 59

6.2 Review of the Research Findings 62

6.3 Limitations to an Effective Climate Change Response 81

6.4 Guidance for an Effective Climate Response Strategy 82

7 Conclusions 85

7.1 General Findings of the Research 85

7.2 Major Findings of the Research 88

7.3 Recommendations 89

8 References 91

9 Appendix A 95

10 Appendix B 98

11 Appendix C 107

LIST OF TABLES

Table 1: Climate Change Related Risks and Opportunities for Banks 15

Table 2: The Potential Value in Investing in Climate Change 16

Table 3: The Size of the Private Banking Sector in South Africa 27

Table 4: Perceived Risk Level by Sector 28

Table 5: Schedule of Climate Policy Implementation 34

Table 6: HSBC Emission Reduction Targets 47

Table 7: Summary of Research Results - CDP 2009 59

Table 8: Summary of Research Results - RiskMetrics/CERES 2009 61

Table 9: Differences in the Response of the Local Banks 63

Table A1: CDLI Results Summary – Nedbank Group 96

Table A2: CDLI Results Summary – FirstRand Group 96

Table A3: CDLI Results Summary – Standard Bank 96

Table A4: CDLI Results Summary – ABSA Group Limited 97

Table A5: CDLI Results Summary – HSBC Holdings 97

Table B1: Governance Checklist - Scoring Methodology 101

Table C1: Sample Profile - HSBC Holdings 107

Table C2: Sample Profile – ABSA Group Limited 115

Table C3: Sample Profile – Nedbank Group 120

Table C4: Sample Profile – FirstRand Group 126

Table C5: Sample Profile – Standard Bank 132

LIST OF FIGURES

Figure 1: Total Assets held by all Banks in South Africa 27

Figure 2: Asset Ownership by the Major Banks in South Africa 28

Climate Change and the Role of Banks 1

1 INTRODUCTION

Climate change poses a major risk to the global economy: it affects the wealth of societies, the

availability of resources, the price of energy and, arguably, the value of companies. In this

context, it can be argued that the financial sector has a two-fold responsibility: firstly, it needs

to prepare itself for the negative effects that climate change may have on its business and those

of its customers; secondly, it can significantly help to mitigate these economic risks and to

promote the low-carbon economy by providing appropriate products and services. The

companies that banks decide to finance will be critical in slowing the negative effects of

climate change and in moving the world economy away from fossil fuels and into cleaner

technologies (Cogan, 2008).

1.1 RESEARCH AREA

There is growing evidence that international banks are responding to the climate challenge

(Gledhill et al., 2008). Prominent international banks such as Barclays and Merrill Lynch are

addressing climate change as a risk management issue and working toward better disclosure as

an “essential first step to embracing a changing regulatory and economic environment”

(Cogan, 2008, pp 2). A survey of mainstream financial institutions in 2002 had indicated that

many banks were unaware of the climate change issue or had adopted a „wait and see policy‟1.

These attitudes were compounded by practical issues like the lack of information on carbon

emissions and delays in finalising the regulations of the new greenhouse gas markets.

The South African government, through what was then the Department of Environmental

Affairs and Tourism, has “outlined different scenarios of mitigation action to inform long term

national policy and to provide a solid basis for its position in multilateral climate negotiations

on a post 2012 climate regime” (ERC, 2007, pp 1). One possible strategy is to use the market

to promote the uptake of low carbon technologies and climate-friendly social practices through

1 Source: http://www.unep.org, retrieved Sat, 02 May 2009.


incentives and taxes, which could shift patterns of domestic investment. A growing need for

domestic investment could potentially attract more climate-related involvement from the local

banking sector. The banking sector can be considered the backbone of our national economy,

providing/attracting capital for innovation, infrastructure and job creation. In addition, the

domestic financial sector is recognised as world class in terms of its skilled workforce, capital

resources infrastructure, technology and its regulatory and supervisory environment, which

suggests that it could easily exploit the opportunity presented by a shift to a low carbon

economy (van Zyl et al., 2003).

However, the stance of our local banking sector toward climate change is unclear and the

sufficiency of its response where this has already occurred is largely unknown making this an

interesting area for new research. Further, it is suggested that this study could encourage the

local banking sector to examine more closely the activities of an increasing group of forward

looking financial institutions that are currently addressing the challenges of climate change

(Bergen, 2008; Cogan, 2008).

1.2 PROBLEM STATEMENT

“The banking industry is not itself a high-impact sector of carbon usage, but it is potentially

much more so as a result of its policies of lending to and investing in high-impact sectors”

such as the energy industry (Smith, 2007, pp 3). It can be argued that the traditional view of

the banking sector as a low-impact sector, has reduced the motivation of the local banking

industry to accept that climate change is a real threat on the scale suggested by Stern (2006)

and to ensure that the leading institutions within this sector recognise their role in effecting

change in our emerging market economy.

1.3 PURPOSE OF THE RESEARCH

This study reviews the operations and climate change related activities of the „big four‟ banks

in South Africa namely Standard Bank, FirstRand, Nedbank Group and ABSA Group Limited.


Banks produce carbon dioxide (CO2) and other greenhouse gas (GHG) emissions2 directly

from their operations and indirectly by financing clients who generate their own greenhouse

gas emissions. The primary aim of this study is to review the current policies and practices of

the selected banks within the context of policy developments and international benchmarks on

climate change. Further, this study aims to increase awareness of the special role and

responsibility of banks with regard to climate change issues. Finally, the purpose of the

research is to encourage the introduction of formal policies within the banking sector that

address climate change in a more systematic way.

1.4 RESEARCH SCOPE

The scope of this report is limited to a review of the corporate governance practices of major

banks in South Africa within the context of national and international climate change policy

developments. Specifically, the research explores the actions (internal and external) of these

banks in managing climate change risks by using two different assessment metrics developed

by the Carbon Disclosure Project and the CERES Investor Group respectively. Finally, the

research benchmarks the initiatives of these financial institutions against those of international

banks and provides recommendations for an improved response to climate change issues (as

appropriate).

1.5 RESEARCH ETHICS

There is an ethical risk to the respondents of the proposed survey. However, this risk shall be

minimized by keeping the identities of each participant secret while their answers to the

survey shall be used only with their written consent.

2 The Kyoto Protocol identifies six greenhouse gases. Carbon dioxide is considered the most important. In order

to compare these gases accurately, they are each converted into CO2 equivalent units. Therefore, the term CO2

emissions shall be used in this report to mean CO2 equivalent emissions of greenhouse gases.


1.6 CHAPTER ORGANISATION

Diagram 1 illustrates the proposed organisation of the Chapters within the Thesis. Chapter 2

[Literature Survey] provides an overview of the current knowledge about climate change, as

well as the role of commercial and regulatory institutions within the context of climate change

issues. Chapter 3 [Research Questions] presents the key questions that the research aims to

address. Chapter 4 [Research Method] describes the important details of the research

methodology that is to be followed in the collection and analysis of data. This chapter also

discusses research design, sampling, reliability, transferability as well as research limitation

issues. Chapter 5 [International Banking Best Practice] offers insights into the corporate

response to climate change from the best performing international financial institutions.

Chapter 6 [South African Banking Response] provides an overview of the current practice of

the four major banks in South Africa with regard to their internal and external policies,

strategies and sustainability reporting on climate change. In addition, the chapter also

benchmarks the response of the major local banks against the best practice activities of

international banks. Finally, Chapter 7 presents the conclusions and recommendations of this

study.


Diagram 1: Organisation of Chapters.

LITERATURE SURVEY

RESEARCH QUESTIONS

RESEARCH METHOD

RESEARCH FINDINGS

RECOMMENDATIONS

Comparison Against Benchmarks

CONCLUSION

Banks: Internal Response

Banks: External Response

INTRODUCTION

CLIMATE CHANGEChapter Organisation


2 LITERATURE REVIEW

This chapter presents and examines an increasing body of knowledge pertaining to: the

science and economics of climate change; the growth of institutional investor interest in the

climate problem; the role of banks and other organisations in ensuring an adequate response to

climate-related challenges; and the potential implications of policy developments in both the

domestic and international regulatory environment to business stakeholders.

2.1 THE SCIENCE AND ECONOMICS

The problem of climate change is widely regarded as the most serious environmental

challenge facing the modern world. The science behind climate change suggests that there are

increasing concentrations of carbon dioxide (CO2) and other greenhouse gases in the earth‟s

atmosphere as a result of human activities. This has been shown to contribute to increased

global atmospheric temperatures (global warming) and related changes in the world‟s climate

system. A strong argument in support of the effect of human activities on climate change was

presented in a report by the United Nations Intergovernmental Panel on Climate Change

(IPCC), which concluded:

The earth‟s surface temperature has increased 0.74 C, mostly in the last 50 years –

possibly making this the warmest period of the past 1300 years.

Carbon dioxide emission and temperature trends are at the high-end of the range

forecasted by the IPCC, with the global average temperature increasing approximately

0.1 C per decade.

The rate of sea level rise has increased 70 percent since 1993 compared to the previous

30 year period.

The frequency of heat waves, forest fires and heavy precipitation events has increased

globally since 1950 (Pachauri et al., 2007).

The potential economic impacts of climate change were brought into sharp focus with the

publication of the Stern Review (Stern, 2006). The report discussed the effect of global


warming on the world economy firstly by examining the evidence on the economic impacts of

climate change and thereafter exploring the economics of stabilising greenhouse gases in the

atmosphere, and secondly by considering the complex policy challenges involved in managing

the transition to a low-carbon economy and in ensuring that societies can adapt to the

consequences of climate change.

The Stern Review suggested that human action relating to climate change, over the ensuing

decades, could create risks of major disruptions to economic activity and that costs of extreme

weather conditions could reach between 0.5 and 1 percent of global GDP per annum by the

middle of the 21st Century. Sir Nicolas Stern has more recently suggested that climate change

mitigation would cost 2% of global GDP per annum, double his estimate proposed in 2006

(Jowit and Wintour, 2008). He has also since stated that “the damages were under-estimated

by the Stern Review and the costs of inaction are even bigger than previously argued” (Smith,

2009, pp 1). Crucially, he contends that the cost of inaction could be as high as 30% from his

previous estimate of 20% in 2006. Therefore, it is not surprising that “cost impacts from

extreme weather events and greenhouse gas (GHG) regulation are emerging as risk factors in

pricing securities and assigning credit and asset valuations” (Cogan, 2008, pp 11).

Africa is seen to be extremely vulnerable to physical change impacts – a problem compounded

by limited adaptive capacity (Cogan et al., 2009). Box 1 presents some arguments in support

of this view.

Box 1: Climate Change – The Vulnerability of Africa (Adapted: Conway, 2009, pp 14)

The dependence of most countries on natural

resources and their agricultural sector implies that

shifts in weather conditions that damage the

agricultural sector will have a major impact on

incomes and livelihood.

Poor countries and communities tend to have a

higher share of their wealth locked in natural

resource and environmental assets; anything that

damages this natural resource base will certainly

affect these countries more.

Most people operate at low levels of income with

limited reserves and in the absence of formal

insurance cover.

Governments and institutions are weak and poorly

resourced forcing people to cope without support.

The brain drain of well-qualified people exacerbates

the problem of their limited capacity.


2.2 INSTITUTIONAL INVESTOR INTEREST

The evolution of investor and/or financial sector interest in climate change has been a gradual

process. The following section presents a brief chronology of the growing awareness of

different participants in the financial sector to climate change issues.

1980 to 1990

A review of the literature revealed that scientific evidence supporting climate change

increased from the middle of the 1980s. The establishment of the Intergovernmental Panel on

Climate Change in 1988 and the publication of its first Assessment Report in 1990 helped to

launch climate change onto the political stage (Leggett, 2000). “The initial press coverage on

climate change showed a peak around this time and some companies such as Du Pont started

setting emission reduction targets and began exploring new business opportunities focused on

energy efficiency” (Pfeifer, 2008, pp 252). However, institutional investors3 showed limited

interest in climate change during this time. Nevertheless, the period also saw the birth of

Socially Responsible Investment (SRI), with some fund managers including climate change

issues within their SRI activities. Sparkes (2002) reported that the Jupiter Ecology and NPI

Global Care Growth Funds were the first to use screened approaches to avoid investments in

large oil and coal companies by seeking to invest in organisations providing solutions to the

problem of global warming. Despite these developments, the vast majority of institutional

investors were inattentive to climate change matters during this period.

1990 - 1995

This period saw the holding of the UN Earth Summit (1992), which was arguably the start of

many of the global debates on environmentally sustainable development. One of the important

outcomes of the Earth Summit was the signing of the UN Framework Convention on Climate

Change (UNFCCC). This period was also marked by the launch of the UNEP Finance

Initiative (1991) by a group of commercial banks (Deutsche Bank, HSBC, NatWest, Royal

3 These are large organisations such as banks, finance companies, insurance companies, labour union funds,

pension funds, mutual funds or unit trusts, which have significant amounts of cash for investment.


Bank of Canada and WESTPAC) in collaboration with UNEP. The aim was to catalyse

awareness among the banking sector on environmental issues4.

1995 to 2000

During this period the IPCC released its second Assessment Report (1995) and the Kyoto

Protocol was signed (1997). The political debate arising from the Kyoto Protocol resulted in

another wave of increased press coverage on the climate issue and in an increase in companies

publicly discussing climate change mitigation. Despite the rising profile of climate change, the

mainstream financial community – other than a few in the insurance sector – generally seemed

to overlook the issue of climate change.

2001 to 2004

This period saw the start of several collaborative initiatives to address investment risks and

opportunities associated with climate change. These “initiatives include the Carbon Disclosure

Project (CDP) and the International Investor Group on Climate Change (IIGCC), which aimed

at increasing awareness and research into the financial implications of climate change as well

as improving disclosure of corporate greenhouse gas emissions” (Pfeifer, 2008). It was also

during this period that banks working in the in the project finance5 sector became involved in a

process of developing a common and coherent set of environmental and social policies

(including guidelines) that could be applied to all industry sectors globally. These banks

(CitiGroup, Barclays, ABN AMRO and WestLB) in consultation with the World Bank‟s

International Finance Corporation (IFC) developed a banking industry framework for

addressing environmental and social risks in financing, which was referred to as the Equator

Principles (2003)6. The principles are intended to assist banks assess, mitigate, document and

monitor credit and reputational risks associated with financing development projects and

through collaboration establish best practices. The Equator Principles do not explicitly address

climate change, but is considered by many as a “first step at integrating environmental

4 Source: http://www.unepfi.org, retrieved Sun, 29 November 2009.

5 Project financing is a method of funding in which the lender looks primarily at the revenues generated by a

single project both as the source of the repayment and as security for the exposure.

6 Source: http:.//www.equator-principles.com, retrieved Sun, 29 November 2009.


considerations into project finance – increasing the likelihood that signatory banks develop

robust climate change governance policies” (Cogan et al., 2009, pp 13).

The view that climate change was of strategic business importance was more prevalent within

the insurance and reinsurance business than in any other segment of the financial services

industry. In fact, a survey7 on climate change found that “77% of respondents believed that

there would be significant effects for their market within 20 years – expected responses from

the insurance industry ranged from price increases and cover charges to increased losses, more

difficult reinsurance terms and withdrawal from high hazardous areas” (Whittaker, 2002, pp

17). The reinsurance companies Munich Re and Swiss Re were considered leaders in the

industry with regard to their climate modelling work and commitment to greenhouse gas

emissions trading markets respectively.

However, commercial banks lagged behind in their response to the challenge of climate

change. The “responsibility for developing bank policy and best practice on climate change

was situated within the corporate environmental risk function, which may not have wielded

sufficient influence in senior management circles where bank policy was decided” (Whittaker,

2002, pp 19). Whittaker (2002) also reports that limited efforts were made to explore the

opportunities offered from greenhouse gas emissions trading within banking institutions with

commodity trading functions. Deutsche Bank and Rabobank were leaders in the banking

sector using their individual asset management division‟s involvement with the World Bank‟s

Prototype Carbon Fund to gain considerable experience in carbon finance fundamentals.

Further, this period witnessed a surge of other players entering the climate change debate. The

Carbon Trust published a series of reports on the climate problem and NGOs also tried to

encourage mainstream investors to incorporate climate change policy into their engagement

and investment strategies (Pfeifer, 2008).

7 The survey was performed by the Chartered Insurance Institute in the United Kingdom (2001). The CII is a

professional organisation for those working in the insurance and financial services industry in the UK. The CII

survey formed a part of a detailed report prepared by a team of researchers investigating all aspects of climate

change and its impacts on insurance. The study followed-similar research performed by the CII in 1994 as well

as research commissioned by the UK government.


2005 to 2008

There was significant progress made by institutional investors during this period in the manner

in which they dealt with climate change. There was an increase in the number of investors

actively trying to use their influence as shareholders to encourage companies to adopt more

proactive approaches to managing risks and opportunities arising from climate change. In

2006 the United Nations introduced their Principles of Responsible Investment (PRI). The PRI

stemmed from a recognition that while investors were developing an awareness of investment

risks associated with Environmental, Social and Governance (ESG) issues.8 They did not

possess a common set of guidelines that enabled them to work on these issues with the firms

in which they were investing. In addition, it was recognised that firms taking proactive

measures on ESG issues were insufficiently rewarded by markets (Sharma, 2006, pp 480).

The European Union (EU) initiated the Emission Trading System (ETS)9 to ensure it would

meet the national Kyoto targets while “institutional investors started to show renewed interest

in renewable energy as a result of policy incentives, the increasing costs of conventional

energy and the falling costs of alternative energy technologies. However, the size of

investments in clean technology funds or firms remained relatively small” (Jeuken, 2006).

The promising news was that annual investments from banks in clean technology was

increasing dramatically – Cogan (2008, pp 14) reported that of the “40 largest publicly traded

banks in the world profiled in the CERES study, 29 had documented their involvement in the

renewable energy market through everything from private equity and fund investments, to

underwriting of initial public offerings, debt financing and even direct ownership stakes in

some companies.” In fact, annual investment in renewable energy globally exceeded the USD

100 billion in 2006 (Greenwood et al., 2007). Nevertheless, Cogan (2008) advised that the

investment in traditional fossil fuels far exceeded that of renewable technologies and few

banks had indicated their intention to scale back their funding of carbon intensive energy

sources such as tar sands and conventional coal-fired power plants by 2007.

8 Climate change is widely accepted as forming a essential part of ESG risks.

9 This system covers 12,000 major industrial plants across Europe or 45% of European emissions. Participants are

given allowances to generate specified levels of emissions and must find ways to keep emissions below their

permitted level or buy credits/allowances from another participant in the market should they be short of

allowances.


2008 to 2010

Cogan et al (2009, pp 17) report that in “response to growing expectations for financial

institutions to address climate change through their lending and investment activities, a

number of major firms have been successful in developing standards for climate risk

management.” For example, CitiGroup, JP Morgan Chase and Morgan Stanley launched the

Carbon Principles (February 2008) while Credit Agricole, HSBC, Munich Re, Standard

Chartered and Swiss Re announced their adoption of the Climate Principles (December 2008),

which was developed by the Climate Group.

The banking signatories to the Carbon Principles commit to using an enhanced due diligence

process when financing carbon intensive projects such as coal-fired power plants. This

standard does not preclude such projects from the banks‟ lending portfolios; it does ensure a

more rigorous evaluation of the environmental and regulatory risks associated with financing

such projects. In comparison, the Climate Principles offer a broader set of best practice

guidelines that include:

developing financial products and services to help clients manage climate risk and

opportunity;

incorporating climate change issues into research activities;

consideration of practical ways to assess the carbon and climate risks of lending and

investment activities; and

a commitment from banks to request their project finance clients disclose their

greenhouse gas emissions as well as pursue emissions reductions for projects that

release 100,000 tonnes CO2-e or more per year10

.

The next major event on the climate change timeline is the 15th

Conference of the Parties to

the UNFCCC to occur in Copenhagen (December 2009), tasked with developing a global

climate agreement governing the post-Kyoto commitment periods.

10 The largest coal-fired coal-fired power plants release approximately 20 Million tonnes of carbon dioxide per

year (Cogan, 2009, pp 17).


2.3 THE ROLE OF BANKS

Although not initially obvious, banks present an opportunity for the mitigation of climate

change. As the primary lenders of capital to the global economy along with their expertise in

risk management – banks are capable of effectively combating climate change. A report by the

Global Reporting Initiative and KPMG (Vijn et al., 2006, pp 22) indicated that “a company‟s

exposure and response to climate change can be used by the financial services sector as a

differentiator in investment decisions and asset allocations. Companies that anticipate

regulatory developments and changes in consumer demand related to climate change, and that

respond by developing new products, services and other opportunities could provide fund

managers and investors with higher returns.”

An interesting finding of the KPMG study was that most companies surveyed did not report

on the “financial implications of risks or opportunities related to climate change such as the

expected costs of complying with future regulations or anticipated profits from the sale of new

climate change related products/services” (Vijn et al., 2006, pp 33). This survey result lends

support to the argument that banks have a significant role to play in the climate change

campaign from the perspective of reducing their own financial risk as well as capitalising on

the opportunity to assist companies dealing with the financial implications of new regulatory

controls.

Cogan (2008) suggests that banks can factor in a market price for carbon dioxide as

carbon-reducing policy and carbon emissions trading expand globally. He also argues that

banks will need to re-assess their treatment of fixed income assets, which could be affected by

inflationary pressures attributable to weather-related losses and climate regulations that will

make carbon emissions exceedingly expensive. In addition, Cogan (2008, pp 13) posits that

“government securities may be called to cover climate-related risks that the private sector is no

longer able / willing to finance or insure”. Finally, he suggests that banks could benefit from

the demand of climate protection products / services with the creation of new markets

supporting efficient risk sharing of increasingly vulnerable infrastructure.


A similar viewpoint was argued in a report by the Allianz Group and World Wide Fund for

Nature, which states that “price volatility in carbon markets (CO2, oil, gas and coal) and

climate related commodities leads to uncertainty in financial projections” (Dlugolecki and

Lafeld, 2005, pp 7). The report outlined an “agenda for actions” that banks taking leadership

for climate change issues should focus on and argues that banks:

need to review and optimise their own carbon risk management and develop

assessment tools applicable to carbon risks and carbon risk reduction strategies e.g. by

using carbon related economic analysis for sectors or companies;

must define clear risk requirements for clients regarding carbon risk reduction and

market strategies;

should facilitate the finance for public programmes that foster the introduction of

carbon technologies; and

should invest in the development of carbon risk hedging products such as derivatives.

Smith (2007, pp 3) argues that banks could also consider using ethical lending guidelines such

as the Equator Principles to decline finance to projects with the greatest potential to damage

the climate, but cautions that “even if banks accept the premise they must perform product

life-cycle analyses on their client‟s climate change impact, but the real influence they can

exert on their project-financing recipients is questionable.” The argument raised by

Smith (2007) is valid since banks cannot be expected to manage a potentially endless chain of

responsibility because it is ultimately global dependence on carbon-based energy and other

products that significantly contributes to climate change.

The Allianz report identifies some important risks and opportunities for banks (refer: Table 1),

which when considered in conjunction with the potential value of climate friendly projects /

opportunities (refer: Table 2), makes a compelling argument in favour of increased bank

involvement in climate change issues.


Table 1: Climate Change Related Risks and Opportunities for Banks (Allianz, 2005)

Banking Class Type of Risk Type of Opportunity

1. Corporate Banking and Project

Financing

1.1 Reduction in competitiveness

and GHG intensive business

Clients due to higher mitigation

costs.

1.5 Risk management services for

Clients affected by carbon

emission trading schemes.

1.2 Higher costs for energy

consumers due to new mitigation

policies.

1.6 Carbon trust services.

1.3 Price volatility in carbon

markets and carbon-related

products.

1.7 Carbon project finance

services.

1.4 Reputational risks due to

investments in controversial

energy projects.

2. Investment Banking and Asset

Management.

2.1 Investment in immature

technologies.

2.3 Trading services in carbon

emissions trading schemes.

2.2 Additional costs following

changing weather patterns such as

in the utilities sector.

2.4 Establishment of carbon trusts

and fund custody.

3. Retail Banking 3.1 Direct losses due to drought,

precipitation, soil erosion and

flood.

3.3 Microfinance for climate

friendly activities.

3.2 Policy changes such as the

termination of subsidies for

renewable energies.

3.4 Advisory service in the field of

loans for small renewable energy

projects.


Table 2: The Potential Value in Investing in Climate Change (Deutsche Bank, 2007)

Potential Value [USD Billions] Opportunity

500

The value of low-carbon energy markets by 2050

100

The demand for projects generating GHG Emission Credits by 2030

100

The global investment in clean energy by 2009

18 to 23

The estimated revenues from the solar industry by 2010

84

The cumulative net savings from energy efficient products in USA by

2012

2.3.1 Why should financial institutions take climate change seriously?

The short answer as to why financial institutions should engage in the climate change issue is

that the consequences of climate change have gone far beyond its effects on the natural

environment. In a relatively short period of time the dynamics of the issue has changed

drastically – media coverage and public awareness is increasing, while government and

corporate action suggests that the issues have clearly entered the political and economic arena.

This is only the tip of the iceberg – add the financial implications of direct weather-related

impacts on property investments and insurance claims or the indirect costs arising from the

increased credit risk of vulnerable clients then the business case for banks and other financials

becomes irrefutable. In this context, the following section provides an overview of the

financial implications of climate change and the reasons why institutional investors such as

banks should be interested in the economic implications of climate change.

Physical Risks

According to the IPCC, companies will be affected by weather-related impacts of climate

change as a result of droughts, floods, storms and rising sea levels including the increasing

unpredictability of weather patterns. Perroy (2005) suggests that weather-related impacts are

most likely to affect investments in the agricultural, forestry, fishery, health care, insurance,

tourism, water and property sectors. The more obvious consequences include damage to

property from extreme weather events, increased insurance premiums and asset losses.


Consequently, banks face the possibility of credit default on projects impacted by such

scenarios.

However, the implications of these physical risks are not always obvious. KPMG (2008,

pp 26) suggests that the “less obvious risks include the impact on workforces such as

heat-related illness or disease, enforced relocation of operations and increases in commodity

prices. It is possible that some companies may be protected from these risks by insurance

products, but there is still a danger that newer forms of risk might be passed onto the private

sector.” KPMG ranked the financial sector within the “danger zone” of their risk preparedness

framework primarily because of the wide variation in preparedness among banks to deal with

climate change issues. This observation suggests that banks may need to reduce their actuarial

risk by introducing adequate protection measures or, in the extreme, reassess their entire

project financing business models.

Regulatory Risk

Whittaker (2002, pp 19) reports that “environmental specialists within commercial banks show

a keen awareness that climate change may influence their behaviour towards larger corporate

clients considered to be most at risk”. At the time the future of government legislation on the

matter was not certain and banks could afford to be complacent, but in recent years “climate

change has increasingly been seen as a serious market failure that must be corrected by some

sort of government intervention” (KMPG, 2008, pp 30). Pfeifer (2008, pp 250) warns that

“companies will be affected by government policies to internalise the cost of greenhouse gas

emissions – the specific financial impacts relating to the scale of emissions from their own

facilities, indirect emissions in the supply chain and embedded in the products” Although, the

sectors most likely to be affected are the energy intensive sectors, banks should be alert to the

knock-on effects on a wider range of sectors including their own.

Competitive Advantage

Lash and Wellington (2007, pp 2) argue that “companies that manage and mitigate their

exposure to climate change risks while seeking new opportunities for profit will generate a

competitive advantage over rivals in a carbon-constrained future.” Climate change presents an

opportunity for organisations to develop new technologies, products or services to meet


potential changes in demand. They can also “implement measures that reduce the need for

greater expenditures in the future to deal with new policies or the physical impacts of climate

change” (Pfeifer and Sullivan, 2006, pp 251). Hence, banks can benefit by prudently selecting

companies chasing climate change opportunities and thereby mitigating their own risk to

climate change impacts and differentiating themselves from their competition.

Litigation Risks

Banks should also recognise that their clients could potentially be held liable for damages

associated with the physical effects of climate change. This introduces the possibility of

climate effects impairing the ability of companies to service their debt and increasing the

bank‟s potential for financial loss arising from companies being bankrupted through

regulatory non-compliance costs.

Reputational Risks and Opportunities

Potential reputational risks arise from companies being viewed negatively by consumers, staff

and shareholders due to their actions on greenhouse gas emissions and responses to climate

change (Lombard, 2005). Whittaker (2002, pp 19-20) reports that the “reputation of banks

could be tarnished should it become associated with climate damaging activities and the

possibility of being held legally liable for meeting the greenhouse gas obligations of debtors

such as the delivery of emissions reduction credits.” He argues that banking associations have

failed to rouse interest on the issue among their members because of a lack of perceived

immediacy and more compelling evidence of its relevance to commercial banking. In the

current context, KPMG (2008) conclude that banks face an increasing risk to their reputation

as consumer awareness and expectations of a responsible corporate response to the threat of

climate change grows. Nevertheless, there are also reputational benefits for banks if they adopt

a proactive stance on climate change.


2.3.2 Why have banks delayed in engaging with climate change issues?

In 2008, CERES and RiskMetrics released a report evaluating 40 of the world‟s largest banks

on their governance practices pertaining to the risks and opportunities arising from global

climate change. The report findings indicated a range of responses from significant to minimal

to non-existent (Cogan, 2009, pp 16). The report also found that many of the positive actions

from banks have occurred recently despite compelling evidence of the problem being known

since 2006. A review of the local banking response to climate change suggests a similar trend.

Currently, none of the major banks have a climate change policy – a notable exception being

Nedbank which released a climate change policy statement as at March 2009.

In general, the local banking industry has responded more positively than some of the other

sectors such as real estate and food products, but not as quickly as other financials such as the

insurance sector which is more seriously affected by climate change. It can be argued that the

response of the local banking industry is slower than expected, but there are reasons for such a

response. Dlugolecki and Loster (2003) suggest that four types of barriers have prevented the

financial sector from engaging with climate change: cognitive, political, analytical and market

related operational barriers.

Cognitive Barriers

It can be argued that the mainstream financial world generally regards environmental and

social issues like climate change as marginal to a firm‟s financial performance. Nevertheless,

“internally climate change potentially cuts across nearly all financial functions, creating a

sense of shared responsibility that deters any one group from taking the initiative” (Dlugolecki

and Loster, 2003, pp 389). Crucially, it is the lack of a sustainable connection between climate

change and financial risk as well as the slow pace of price realisation for carbon that has

blinded the financial sector from noticing the financial benefit of addressing climate change

issues.


Political Barriers

There has been a considerable delay in creating “political conditions under which international

carbon management and climate mitigating measures can be assigned a stable value by the

financial sector”. Further, there has been “uncertainty about the commitment of regulators to

the consistent enforcement of long-term emission reduction targets” by firms. Finally, some

“developing markets place numerous restrictions of foreign financial institutions” making it

difficult for banks and other commercial sector participants to engage with climate change

issues. (Dlugolecki and Loster, 2003, pp 389)

Analytical Barriers

It seems that there is a low level of awareness about climate change among key finance and

insurance sector advisors, which is resulting in insufficient information and analysis being

provided to the commercial sector. Sullivan and Kozak (2006) suggest that this situation is

compounded by the “general inadequacy of corporate disclosures”. Pfeiffer and Sullivan

(2008) suggest that initiatives such as the Carbon Disclosure Project are addressing the

problem of disclosure. These authors conclude that even if the challenges in investment

analysis could be corrected, the long-term impact horizon for some climate change impacts

would result in these impacts being ignored in current invest decisions. Consequently, banks

would not be sufficiently incentivised to act since their risk and cost/benefit analyses would

not predict a clear threat to their business.

Market Operational Barriers

Banks are potential investors in clean technologies and as such are motivated by the presence

of “tax incentives, guaranteed market shares and renewable energy certificate trading schemes

that provide them with a clear commercial advantage. However, the inefficiencies in the

present greenhouse gas emissions trading markets deter them from getting more involved”

(Dlugolecki and Loster, 2003, pp 390).


2.4 INTERNATIONAL BENCHMARKS

The barriers to financial sector engagement with climate change issues may have prevented

most financial institutions from responding appropriately, but some have adopted proactive

strategies to meet the threat. Jeuken et al. (2006, pp 37) reveals that a select number of “major

international banks have a climate change policy or a clear environmental statement. These

banks include Bank of America, J.P. Morgan Chase (USA), HSBC (United Kingdom) and

Goldman Sachs.” However, these market leaders have, in recent years, been joined by a

number of new banking institutions in climate-friendly initiatives as a result of the work

performed by the Carbon Disclosure Project (CDP) and the CERES Investor Group.

2.4.1 The Carbon Disclosure Project

The CDP is an independent non-profit organisation which holds the largest database of

corporate climate change information in the world. The data is obtained from responses to the

organisation‟s annual information requests issued on behalf of institutional investors,

purchasing organisations and government bodies. It was established in 2000 and has become

the benchmark for carbon disclosure methodology and process, providing primary climate

change data to the global market place (CDP1, 2009).

Mission and Target Participants

The CDP‟s aim is to collect and distribute high quality information that motivates investors,

corporations and governments to take action to prevent dangerous climate change. The

information requests are issued to more than 3,700 corporations across the globe on behalf of

475 institutional investors, more than 35 purchasing organisations and government bodies in

the United Kingdom. The CDP plays a vital role in encouraging private and public sector

organisations to measure and manage their greenhouse gas emissions such that climate change

impacts are minimised (CDP1, 2009).


Data Collection Methodology

An integral part of its mission is to review and assess the action and disclosure of firms against

what is considered as a best practice response to the challenges of climate change. It manages

this process through the issue of „information requests‟ to a broad range of companies from

different sectors. The information requests are made through the issue of a questionnaire to the

various participants. The questionnaire for all CDP programmes covers four major areas:

management‟s views on the risks and opportunities that climate change presents to the

business;

greenhouse gas emissions accounting;

management‟s strategy to reduce emissions / minimise risk and capitalise on

opportunity; and

corporate governance with regard to climate change.

In addition, three other areas are included for the CDP‟s Supply Chain and Public

Procurement programmes:

greenhouse gas emissions split by business category;

management‟s engagement with its suppliers; and

greenhouse gas emissions over the lifecycle of goods or services.

The results of the company responses to the questionnaire are assessed and the firms with the

best disclosure practices are profiled on the Carbon Disclosure Leadership Index (CDLI). The

leading banks featured on this index are widely accepted as financial sector benchmarks with

regard to their response to climate change. Box 2-1 reveals some of the more prominent global

financial institutions (including their CDLI scores) that have responded to the CDP 2009.


Box 2-1: The CDLI 2009 – Financial Sector Respondents

HSBC Holdings 92

Bank of Montreal 87

National Australia Bank 82

Lloyds Banking Group 80

WESTPAC 80

Royal Bank of Scotland 77

Barclays PLC 74

JP Morgan Chase 74

Influence in the Financial Sector

The institutional investors such as banks, pension funds and insurance companies, who sign

the information requests, are known as „Signatory Investors‟. Currently, the Carbon Disclosure

Project has 475 Signatory Investors, which include global investment/finance houses such as

Barclays, HSBC, Goldman Sachs, Merrill Lynch, Mitsubishi UFJ, Morgan Stanley, National

Australia Bank, Nedbank, FirstRand and Standard Chartered PLC11

. The influence of the

organisation is growing as the results of their Investor Research Project (Riddell, 2007)

revealed:

60% of signatory investors interviewed reported that they methodically identified

which companies in their portfolio either were not responding to the CDP or were

providing poor or trivial answers.

26% of the signatory investors interviewed filed shareholder resolutions requesting

better disclosure of climate related risk.

13% of the signatory investors interviewed encouraged their investment bankers to use

CDP data when making new lending decisions.

100% of the investors interviewed agreed that the CDP data is a valuable resource and

incorporated it into their decision-making process at some level.

The use of carbon data by international banks seems to be increasing. However, the influence

of the Carbon Disclosure Project on the financial sector in South Africa is relatively unknown.

11 ABSA Group was not listed as a signatory to the CDP 2009 (CDP

2, 2009). However, ABSA is owned by

Barclays (55.4%), which is a signatory to the CDP 2009.


2.4.2 CERES

CERES is a national coalition of investors, environmental groups and other public interest

organisations working with firms to address sustainability challenges such as climate change.

It was established in 1989 and has become a prominent campaigner for the well-being of

human society and the protection of the earth‟s biological systems and resources by leveraging

the collective power of these investors and stakeholders.

CERES also launched and directs the Investor Network on Climate Risk (INCR), which is

group of more than 80 institutional investors from the United States and Europe. The purpose

of the INCR is to promote better understanding of the risks of climate change among

institutional investors (Cogan et al., 2009). Probably, its most notable achievement is its

development and launch of the Global Reporting Initiative (GRI), which is in effect the

current international standard for corporate reporting on environmental, social and economic

performance.

Data Collection and Methodology

CERES produces numerous business sector reports on corporate governance and climate

change. It works in partnership with the RiskMetrics Group for the production of these reports.

RiskMetrics is a leader in the disciplines of risk management, corporate governance and

financial research and analysis – RiskMetrics in consultation with CERES developed the

Climate Change Governance Checklist to analyse corporate responses to climate change. This

assessment metric has been previously used to rank some of the largest publicly traded banks

and financial services in the world.

Data for these reports are collected from a host of sources that include securities filings,

company reports, company websites, media accounts and third party questionnaires. The

checklist has 14 indicators to evaluate corporate governance in five main areas – these are

board oversight, management execution, public disclosure, emissions accounting and strategic

planning. In each of these areas, numerous sub-factors are considered to generate a score of

proactive company measures to address climate change (Cogan, 2008, pp 5).


The checklist applies to a broad range of industries, but was adapted for the banking sector to

reflect the particular circumstances of the industry (refer: Appendix B). In particular, the

banking checklist places greater emphasis on board and management strategies to address

climate change as well as integrate the associated risks/opportunities in lending, investment

and brokerage operations. The checklist also makes scoring adjustments for different classes

of financial services companies. Diversified Banks12

are scored according to a 100 point scale,

Asset Managers according to an 80 point scale and Investment Banks according to a 97 point

scale. Box 2-2 presents some of the more prominent financial institutions assessed by

RiskMetrics/CERES.

Box 2-2: RiskMetrics 2008 – Financial Sector Ranking

HSBC Holdings 70

ABN AMRO 66

Barclays PLC 61

HBOS PLC 61

Deutsche Bank 60

Royal Bank of Scotland 55

UBS AG 52

JP Morgan Chase 43

2.5 SOUTH AFRICAN BANKING SECTOR

The banking sector in South Africa is of great importance to the country‟s economy. The

significance of the sector can be examined in terms of the size of its assets13

. Hawkins (2004,

pp 180-190) reports that the value of bank assets exceeded RSA GDP – an observation that

still holds true in 200914

. Therefore, it could be argued that the size of these assets relative to

GDP underlines the importance and potential influence of the banking sector to the economy.

12 A diversified bank is engaged in the full spectrum of financial service activities. The local banks profiled in

this study fit the broad definition of a diversified bank.

13 The assets held by banks are predominantly loans and advances to the private non-bank and government

sectors.

14 Statistics SA reported that RSA GDP in 3

rd Quarter 2009 was R 617 Billion, which places the estimate of the

nation‟s Annual Nominal GDP at R 2,468 Billion. Kruger (2008, pp 1) reports that banking sector assets

amounted to R 3,170 Billion. The assets of the top four banks were estimated at R 2,676 Billion as at 31

December 2008.


However, in the context of climate change the economic strength of the major banks

reinforces the notion that the sector could be a serious proponent for sustainable change.

2.5.1 Structure

South Africa operates a “four pillar policy” with regard to the banking industry. “This relates

to having a minimum number of substantial banks (so called “pillars”) on which the domestic

banking industry relies and the discouragement of mergers between any of those four banks.

The primary reasons for such a policy relate to the maintenance of minimum levels of

competition, in the interests of prudential and systemic stability, in order to avoid the spread of

risk and to promote reliance on a broader platform of institutions” (Mboweni, 2004, pp 4).

South Africa's banking industry is dominated by four major commercial banking15

groups:

ABSA, First National Bank, Standard Bank and Nedbank (Henderson, 2008). These provide

retail and investment banking services in competition with a wide range of niche commercial

banks. Mboweni (2008, pp 55) indicates that “the size and broad structure of the banking

sector was unchanged, from the previous year, as at the end of June 2008 with 35 registered

banks in South Africa and 46 representative offices of foreign banks.” Further, Brand South

Africa (2009) reported that European, Malaysian and USA banks with licences to operate in

South Africa have concentrated on corporate rather than retail banking. Nevertheless, the

“dominance of the four major banking groups and their control of 84% of the total sector

assets remain unaltered” according to (Mboweni, 2008, pp 55).

15 A commercial bank is defined as an institution operating a business that involves the acceptance of deposits of

money which are drawn by cheque, draft, order or electronic means, these deposits in turn being made

available as loanable funds. They are still engaged in retail (individual) services, but their emphasis is

increasing to wholesale (corporate) services” (van Zyl et al., 2003, pp 79)


2.5.2 Size of the Industry

Table 3 provides some key indicators reported by the Reserve Bank on the private banking

sector in South Africa. Figures 1 and 2 illustrate the size of the banking sector measured by

total assets and the control of these assets by the major banking groups in South Africa

respectively.

Table 3: The Size of the Private Banking Sector in South Africa (Adapted: Mboweni, 2008)

Type of Institution Number of Institutions

Total Assets

[R in Billions]

2007/2008 June 2007 June 2008

Locally Controlled Banks 14 2126 2715

Foreign Controlled Banks 5 9 10

Mutual Banks 2 1 1

South African Branches of Foreign Branches 14 173 227

Total Registered Banks 35 2309 2953

Figure 1: Total Assets held by all Banks in South Africa. The chart reveals that the value of

banking assets has been increasing over the past few years to R 3.6 Billion (Source: McGregor

BFA, 2009).

2005 2006 2007 2008

To

tal A

ssets


2006 2007 2008

Standard Bank

Other Nedbank

FirstRand ABSA

Figure 2: Asset Ownership by the Major Banks in South Africa. The chart reveals that 82% of

banking assets were held by the four dominant banks in 2008 (Source: McGregor BFA, 2009).

2.5.3 The Corporate Clients

Bergen et al. (2008, pp 45) investigated the perceived business risk of various industry sectors

– the research “revealed that almost every sector is, at a minimum, exposed to one high or

medium level risk from climate change.” Table 4 shows the spread of risk across various

industry sectors.

Table 4: Perceived Risk Level by Sector (Adapted: Bergen et al., 2008)16

Industry Sector Regulatory Risk Physical Risk Reputational Risk Litigation Risk

Agriculture

Automotive

Aviation

Property

Chemicals

Construction

Financial

Food + Beverage

Forestry

Health Care

Manufacturing

Mining + Metals

Oil + Gas

Pharmaceuticals

16 Table 4 shows the “perceived risk level by sector for the four types of climate risk according to 50 reports

analysed by KPMG. The score pertaining to each risk category was calculated as the average of the risk

assessments from the reports discussing the sector” (Bergen et al., 2008, pp 45).

33%

13%19%

17%

18%

32%

14%19%

16%

19%

30%

14%

19%

16%

21%


Industry Sector Regulatory Risk Physical Risk Reputational Risk Litigation Risk

Insurance

Retail

Telecommunication

Tourism

Transport

Utilities

Legend High Risk Med Risk Low Risk Not Mentioned

An important feature of the financial reports of AMB AMRO, Rabobank and Fortis in the

Netherlands is that they each disclose the breakdown of their commercial loan portfolio per

industry sector. These breakdowns make it clear as to how their financing is geared toward

their greenhouse gas emitting clients and helps them gauge their risk levels A review of

literature pertaining to the local banking sector did not reveal similar information, which

suggests that the local bank exposure to climate risk from corporate clients is possibly largely

unknown.

2.5.4 Sustainability Reports

The emergence of non-financial sustainability reporting occurred primarily to address

environmental issues in the period prior to 1999 (White, 2005). However, it has since become

a mainstream practice to report not only on a firm‟s environmental impacts, but also its

responsibilities to the improvement of society and achievement of economic goals. In fact,

sustainability reports have become a crucial source of information that is used by both internal

and external decision makers of firms. Therefore, it is not surprising that the demand for

focused and effective reporting on the business implications of climate change led to a change

in the way socially conscious firms prepared their sustainability reports.

These reports cover a firm‟s economic, environmental and social activities. However, not all

firms use the same indicators to measure their activities - making it difficult to perform

comparisons across companies. Therefore, to address this problem of consistency the GRI


(Global Reporting Initiative)17

developed sustainability reporting guidelines to help

standardize the reports prepared by firms.

Diagram 2 illustrates the structure of the GRI reporting principles, which has become a

minimum standard for firms reporting on sustainability issues. The increasing expectation by

stakeholders that firms disclose information about the business implications of climate change

was reflected in the inclusion of a new indicator “EC2 – Financial Implications, Other Risks

and Opportunities for Organization‟s Activities due to Climate Change” (Vijn et al., 2006,

pp 8).

The State of Sustainability Reporting in South Africa

Sonnenberg and Hamann (2006, pp 310) indicated that “South African companies that are

leaders in sustainability reporting have moved towards systematic reporting and are beginning

to provide an increasing range of quantitative and comparable data for stakeholders to assess

their progress – where numerical data is inappropriate leaders are beginning to explain in a

more systematic manner their strategies and programmes for addressing key issues.”

Consequently, these leaders became part of a growing international trend in sustainability

reporting (Elkington, 2004). In 2006, many companies in the services, financial and retail

sectors did not report on their environmental activities. Firms that discussed environmental

activities tended to “report at a generic and selective level, reflecting their assumption that

their impacts were limited to direct ones such as office-based resource consumption. The

awareness of these firms with regard to their indirect impacts and activities to mitigate or

manage these impacts was very limited even among the largest financial institutions in the

country.” (Sonnenberg and Hamann, 2006, pp 315)

17 The GRI was established by the Collation for Environmentally Responsible Economies (CERES) and the

Tellus Institute in 1997. It entered into partnership with the United Nations Environmental Programme

(UNEP) soon after its inception. It became independent in 2002 (Woods, 2003).


Diagram 2: Defining the Content and Quality of Sustainability Reports (Adapted: Global Reporting

Initiative, 2006)

In addition, reporting in accordance with the GRI guidelines was a minority activity - only a

third of the companies participating in the JSE SRI18

index used the GRI as basis for reporting,

but these firms did not necessarily report „in accordance‟ with the GRI. Currently, it is not

clear how well the banking sector has responded to the trend for better sustainability reporting.

However, an examination of the “GRI Report Lists” revealed that Standard Bank and Nedbank

have declared their reporting levels, while ABSA and FirstRand have undeclared reporting

positions19

. The declaration of a reporting level is not indicative of non-compliance, but it does

suggest that Standard Bank and Nedbank are leading the major South African banking

18 The JSE (Johannesburg Stock Exchange) was the first bourse in an emerging market to develop a sustainability

index for its top (160) listed companies. The JSE SRI (Socially Responsible Investment) Index was launched

in 2004 (Sonnenburg and Hamann, 2006, pp 305).

19 An organization self-declares a reporting level based on its own assessment of its report content against the

criteria in the GRI Application Levels. Declaring an Application Level results in a clear communication about

which elements of the GRI Reporting Framework have been applied in the preparation of a report (GRI, 2006,

pp 5).

Transparency

Reporting Principles[Ensuring Quality]

Reporting Principles[Defining Content]

Completeness

Inclusiveness

Sustainability Context

Accuracy Balance

Comparability

Clarity

Timeliness

Reliability

Materiality


institutions in issues of sustainability reporting – a component of which relates directly to

climate change issues.

2.6 THE REGULATORY ENVIRONMENT

The role of government is to provide leadership on mitigation measures through the

introduction of policy and regulatory structures within which solutions for climate change can

operate. It is crucial that government place a price on carbon and stimulate demand for

products in the emissions trading market and to communicate a clear message to the financial

services industry that climate change demands a serious commitment in time and resources.

2.6.1 Long Term Mitigation Scenario

The RSA Government “commissioned a process in 2006 to examine the potential mitigation

of the country‟s greenhouse emissions. The process was to be informed by the best available

information. The process aimed to produce Long Term Mitigation Scenarios (LTMS) that

would provide a scientific analysis from which the government could draft a long-term climate

policy” (SBT, 2007, pp 1). The key findings of the LTMS process were:

South Africa could grow without carbon constraints and benefit economically, but this

will be concomitant with increasing carbon emissions. It is proposed that a four-fold

increase in our emissions by 2050 would not be tolerated by the international

community.

There are certain quantifiable strategic mitigation options which are immediately

implementable. These include: energy efficiency primarily in industry; electricity

supply options; carbon capture and storage (CCS); transport efficiency and shifts and

people-orientated strategies supported by awareness.

South Africa can choose both regulatory and economic instruments. However, neither

of these completely addresses emissions reductions sufficient to meet the “required by

science” targets. Nevertheless, with an escalating carbon dioxide tax, economic

instruments are the most effective by almost 75%.


The LTMS conclusions were taken to Cabinet in July 2008. Thereafter, a number of decisions

were taken that provided an overarching framework for the development of a Climate Change

Response Policy for South Africa.

2.6.2 South African Climate Policy

The decisions taken by government and which were reported in the National Climate Change

Response Policy included the following (DEAT, 2009):

Greenhouse Gas Emission Reductions and Limits: South Africa intends to pursue a

peak, stabilization and decline greenhouse gas trajectory over the next 60 years. This

would mean that emissions will peak during the period 2025 to 2035, will stabilize

within the 2050 to 2060 period and thereafter decline.

Expand, Strengthen or Scale-up Existing Initiatives: The government aims to deepen,

extend and scale-up existing initiatives around energy efficiency, renewable energy,

the development of “green” industries, current research into climate friendly business

methods in order to achieve a greater impact.

Implement the Business Unusual Call for Action: South Africa intends to prioritize

investment into research and technology development that would make a major impact

on greenhouse gas emissions. This would include investments in R+D for electric and

hybrid vehicles, new solar technologies, clean coal technologies, carbon capture and

storage as well as participation in a range of other national and international initiatives

that could achieve breakthroughs in achieving low carbon ways of doing business.

Vulnerability and Adaptation. South Africa recognizes its vulnerability to the impacts

of climate change. Consequently, it commits to improving awareness across

government and society on the potential impact of climate change and is prepared to

meet the resultant challenges.

Preparing for the Future: Government has decided to launch a policy development

process that would result in a national Climate Change Response Policy in the form of

a White Paper.


Subsequently, a “National Climate Change Response Policy Development Summit” was held

from 03 to 06 March 2009 (Midrand, South Africa), which laid the foundations for a

participatory process that is to culminate in a Policy White Paper on Climate Change by 2010.

The translation of this policy into a legislative, regulatory and fiscal package is expected by

2012. Table 5 presents the timetable that was proposed to guide the process.

Table 5: Schedule of Climate Policy Implementation (DEAT, 2009)

Milestone Deadline

Sectoral Policy Development Initiatives September 2009

Post-2012 UNFCCC Negotiation Positions August 2009

Post-2012 UNFCCC Negotiation Complete December 2009

National Policy Revised in Alignment with International Commitments March 2010

Publication of Green Paper for Public Comment April 2010

Publication of National Climate Change Response Policy December 2010

Translation of Policy into a Regulatory, Legislative and Fiscal Package Present - 2012

2.7 CONCLUSION

The current body of scientific evidence seems to indicate that unlimited energy use and

resource extraction are resulting in climate change through the release of greenhouse gas

emissions. The “new climate reality” suggests that business leaders cannot ignore the threat to

the environment and the socio-economic issues arising from it. The banking sector plays a

crucial role as a financial intermediary between households and firms – “by providing finance

to most of the world‟s industries, the banking industry is a microcosm of all industries and

society as a whole” (LCCP, 2006, pp 16). Therefore, it can be argued that banks are subject to

the operational risks and costs arising from climate change.

The insurance industry has already begun reorganizing itself to address the threat of climate

change in anticipation of physical and regulatory risks to its business. Similarly, certain

international banks have taken the lead in establishing climate-friendly policies and market

positions. The actions of HSBC, Bank of Montreal, National Australia Bank and Barclays

PLC are setting the benchmark for the banking industry with regard to responsible


climate-friendly practices. The momentum started by these international banks has shifted to

other parts of the world. Nedbank and Standard Bank have joined the ranks of these market

leaders through their proactive stance on climate change issues. It could be argued that this is a

strategic move performed in anticipation of local climate policy interventions. Nevertheless,

government has embarked on a path to address climate change, which means banks and

business cannot afford to be complacent about their contribution to the climate problem.


3 RESEARCH QUESTIONS

In the context of the literature reviewed it is posited that:

I The major banks in South Africa are not sufficiently aware of their role and

responsibilities in mitigating the effects of climate change.

II The corporate response from the major banks in South Africa, who are aware of their

roles and responsibilities, is insufficient in addressing climate change issues.

In order to assess the corporate response of the banking sector to climate change, the following

research questions are proposed:

What are the implications arising from national and international policies and related

developments on climate change for the banking sector in South Africa?

What governance practices have major banks in South Africa adopted to respond to

climate change?

How does the climate change response of major banks in South Africa compare with

international banking benchmarks?

What screening protocols are banks using or intend to use in order to evaluate new

projects with regard to climate change risks and how is this process being managed?

What active steps are banks taking to develop their products or services that ensure

climate-friendly practices from their clients?

What is the extent to which banks require corporate borrowers to demonstrate that they

have identified and incorporated climate change impacts on their business model,

including value chains?


4 RESEARCH METHOD

There is a “large amount of information available to stakeholders in sustainability reports

covering a range of climate related issues and implications” (Vijn et al, 2006, pp 10).

However, these reports range significantly in their level of quality and focus. Smith (2007)

supports this view, suggesting that banks could present more accessible information in their

sustainability reports. Nevertheless, these sustainability reports are probably the best source of

publically available information for evaluating the climate response from banks, but they are

not the only source.

This study also relied upon the responses to the Carbon Disclosure Project from participating

banks (local and international), personal interviews and other publicly available research

material as useful sources of information for addressing issues on climate change. This study

is mainly a qualitative investigation into the climate response from the major banks, but also

incorporates some quantitative research elements for the analysis of the CERES Climate

Survey.

4.1 OBJECTIVE

The research uses sustainability, CDP and CERES reports as a basis for evaluating the quality

of the climate response from the major banks in South Africa. The primary aim of the research

is to assess the climate governance practices of the major local banks by comparing their

climate-related response against those banks ranked top in the Carbon Disclosure Project‟s

Leadership Index.


4.2 APPROACH

The approach to this study is inductive and consists of the following phases20

:

A literature survey of recent reports and studies on climate change.

The selection and review of a sample of sustainability and CDP reports prepared by

banks in South Africa, the United Kingdom, the USA and the Netherlands21

, as well as

any other climate-related publications produced by these banks.

The identification of criteria to score banks in South Africa against international

banking sector benchmarks.

The analysis of the corporate response of the major local banks to the challenge of

climate change using methodologies prescribed by the CDP and RiskMetrics/CERES.

The execution of a set of structured interviews to assess the corporate response of the

major local banks to climate change issues.

Identification of similarities and/or differences between banks being surveyed against

the international banking sector benchmark.

4.3 RESEARCH DESIGN

The aim of the research is to assess the variation in the response of the major local banks to

climate change, where each bank is considered a single case, and then comparing these

responses to those of international banks. Further, the collection of data on the quantifiable

variables of interest shall be performed more or less at the same point in time through the use

of a standardised questionnaire issued to each bank. Consequently, the proposed research

design corresponds with the definition of survey research. Bryman and Bell (2007, pp 56)

define survey research as “comprising a cross-sectional design in relation to which data are

collected predominantly by questionnaire on more than one case and at a single point in time

20 The process of induction involves drawing generalisable inferences out of observations (Bryman and Bell,

2007, pp 14).

21

A review of a 2006 Dutch Banking Sector Report about climate-related developments in that country revealed

similarities with the financial sector‟s climate-related position in South Africa. The researcher considers that

the experience of Dutch Banks in response to climate change issues is relevant to the local context.


in order to collect a body of quantitative or quantifiable data in connection with two of more

variables, which are then examined to detect patterns of association.”

4.4 SAMPLING

The set of structured interviews was limited to a few senior persons from the major banking

institutions – the banks profiled included Standard Bank, FirstRand, Nedbank and ABSA. The

individuals interviewed were pre-selected according to their involvement with climate related

issues on behalf of their respective organisations – this form of sampling is commonly termed

“purposeful sampling” (Patton, 1990, pp 169). The aim of the survey research was not to

obtain statistically verifiable data, but rather to obtain a snap-shot view of the banking sector

response to climate change. Consequently, the sample size for the survey was small (less than

10 persons).

4.5 DATA COLLECTION METHODS

The indicators used in the research to assess the climate response of banks in South Africa

were derived from indicators used in similar international studies22

. Hence, questions posed in

the structured interviews were designed to extract identical and/or similar information from

respondents as those posed to participants in previous international surveys.

This study relies on publicly available sustainability reports from each of the major banks as a

primary source of information or data. The secondary sources of information/data include

annual company reports, company website-based information, company responses to the CDP

2009, academic papers and articles as well as information gathered from the structured

interview process.

22 The previous international studies being referenced in the research include Jeucken et al. (2006), Bergen et al.

(2008) and Cogan (2008).


4.6 DATA ANALYSIS METHODS

Two different assessment methods have been employed to evaluate the climate-related

response of the major local banks.

CDP Assessment: The scoring methodology prescribed by the Carbon Disclosure

Project 2009 has been used without amendments.

CERES/RiskMetrics Assessment: A scoring system based on that described by Cogan

(2008) was employed for the analysis of the sustainability reports.

4.7 RELIABILITY

The reliability of the indicators used in this study is consistent. The use of these indicators

requires the researcher to exercise personal judgement in the interpretation of source

information, which introduces a level of subjectivity into the assessment process.

4.8 TRANSFERABILITY

The survey research did not involve a large number of peoples from the major banking

institutions. In fact, the pool of respondents totalled five persons from all the major local

banks. The survey questions were designed to obtain a general view of the bank‟s position on

climate change. The questions were generic in nature and offered some scope for subjective or

opinion-based answers. This survey approach was considered useful to ensure easy

comparisons across responses from the different banking organisations both domestically and

internationally. However, no claims of transferability are made in this study because “with a

small number of individuals in a certain organisation being interviewed or surveyed it is

impossible to know how the findings can be generalised to other settings” (Bryman and Bell,

2007, pp 423).


4.9 RESEARCH LIMITATIONS

It is not the intention of the author to provide detailed quantitative information in the research.

Nevertheless, the findings of this study could be developed to inform analyst research and

financial sector decision making.

The research is limited by confidentiality restrictions on information from the major financial

institutions. In order to avoid constraints placed on the publication of this study, only

information available in the public domain was used.

It was assumed that the participants in the bank climate survey had sufficient knowledge of the

climate change problem, their institution‟s stance on climate-related matters and were in a

position to offer an informed response to the questions posed. However, the research findings

could be limited by the survey participants‟ access to climate change relevant information or

biased by their personal opinions on the matter.


5 INTERNATIONAL BANKING BEST PRACTICE

It is difficult to refute the evidence supporting global climate change and as such it will

become increasing more difficult to overlook the impact that climate-related issues are having

on the business environment in South Africa. It has been suggested that the business that best

understands and prepares for this imminent reality shall be the most successful in the future

(CDP2, 2009, pp 28). It is also suggested that firms can benefit from developing or adopting

effective climate change strategies that correspond well to current „best practice‟ responses. In

this context, some essential elements of an effective climate change strategy are described

(refer: Box 3).

Box 3: Elements of an Effective Climate Change Strategy [Adapted: CDP2, 2009, pp 29]

Executive/Board Level Commitment- it is important

that there is a clear understanding and strong

commitment to climate-related issues at the highest

levels of the organisation. The risks and opportunities

presented by climate change must receive sufficient

attention from the leadership so that climate-related

business drivers are appropriately integrated into

company strategy and policy. This commitment

involves:

ensuring appropriate board oversight on climate

change; and

ensuring climate-focused statements are made in

annual reports, media releases, sustainability

reports and public policy statements.

Emissions Accounting - provision must be made for

a detailed assessment of the firm‟s carbon footprint –

this involves:

identifying relevant and significant sources of

GHG Emissions;

using or defining a common set of metrics for

monitoring, calculating and reporting on

emissions;

ensuring the quantification of emissions as

Scope 1, 2 or 3 as appropriate; and

ensuring third party verification of emissions

data.

Strategic Planning - the firm should set and update

GHG reduction targets by:

evaluating potential action options that are

informed by a risk/opportunities assessment

covering the firm‟s value chain, by the outcome

of the emissions accounting process and by an

emissions forecast;

ensuring that the targets are linked to an agreed

baseline, reference scenario and target date; and

integrating these targets within internal key

performance indicators and decision making

processes.

identifying opportunities & developing products

associated with emissions trading & CDM

Projects;

Management Execution – it is important that firms

identify and implement appropriate emissions

reduction and adaptation measures by:

assessing and implementing internal

opportunities relating to energy efficiency,

renewable energy, logistics and internal

behavioural change;

better supply chain management and client

advisory services;

assigning management responsibilities &

integrating climate change performance into

incentives;

identifying & realising opportunities for

partnerships with relevant stakeholders,

participation in external initiatives such as the

CDP, Clinton Initiative; and

engaging in positively in policy development.


An effective climate change strategy provides clear direction for a firm determined to address

climate-related issues in a sustainable way – a firm equipped with an understanding of its

essential elements would be in a position to develop their own strategy following an

examination of the climate-related activities of international benchmarks. This chapter aims to

accelerate that research and development process by first discussing the essential elements of a

climate change policy framework, by providing insight into how prominent international

banks are reducing their direct emissions and by describing how these benchmarks are

contributing to a reduction in the emissions of their clients through the use of their financial

products and services.

5.1 CLIMATE CHANGE POLICY FRAMEWORK

A common characteristic of the climate-relevant value propositions offered by banks such as

HSBC, Barclays PLC and National Australia Bank is that they are all supported by a

comprehensive climate change policy statement either as a stand alone document or integrated

into existing environmental policy frameworks. Jeucken et al. (2006) identified five important

elements of a good policy statement when investigating the climate change policies of Bank of

America, Citibank, J.P. Morgan, HSBC and Goldman Sachs. Jeucken et al. (2006, pp 37)

highlighted that these major international banks:

strongly emphasise that climate change, specifically the reduction of carbon emissions,

is a major challenge to society, business and politics; and that good cooperation

between all involved stakeholders is necessary to address the challenge;

recognise the special role that government must play with regard to the provision of a

sound policy framework which provides the basic conditions for a market-driven

mechanism;

recognise that voluntary actions alone are insufficient and that regulations, enforced by

incentives and/or penalties, are necessary for action;

view themselves as mediators between different stakeholders with a special role in the

promotion of energy efficiency and emission reduction within their organisations as

well as in the activities of their clients and the government; and


assume that substantial reduction targets for energy consumption and carbon emissions

is possible.

Morgan Stanley provides a good example of a clear Environmental Policy Statement (EPS).

Morgan Stanley‟s EPS commits the bank to assisting clients in greenhouse gas intensive

industries to: develop financial strategies for responding to emerging regulatory policies;

devote resources toward renewable sources of energy; provide investment research that

improves understanding of the impacts of climate change and carbon constraints on business;

encourage clients to evaluate the problem of greenhouse gas emissions as well as promote an

investment in and use of emerging environmental technologies.

The public disclosure of a clear climate change statement or policy forms part of the

assessment criteria used by Ceres and the Carbon Disclosure Project when evaluating the

commitment of firms such as Morgan Stanley to addressing climate-related matters.

Therefore, it can be argued that a carefully prepared climate change statement presented in the

sustainability or annual company report not only helps raise the competitive ranking of the

firm, but more importantly sends a strong message to all stakeholders that climate-related

issues are important to the organisation. Hence, it is not surprising that the banks ranked

highest in the CDP Leadership Index (2009)23

have a well-defined, publicly available climate

change policy statement.

5.2 INTERNAL BANKING INTERVENTIONS

Although, banks are not significant direct emitters of greenhouse gas on the scale of utilities or

heavy industry, they can still contribute to climate change mitigation by managing their own

emissions more effectively. The measures being adopted by major international banks to

address climate change issues include:

23 HSBC [Rank 1], Bank of Montreal [Rank 2] and National Australia Bank [Rank 5] performed the best among

financial institutions in the CDP Global 500 Leadership Index


leadership making strong, well-informed public statements on their commitment to

climate-related issues;

adopting formal emissions accounting and management systems;

altering their energy procurement policies in favour of renewable energy sources;

integrating green building principles into real estate management;

placing stricter limits on business travel;

introducing climate-related training for employees;

engaging with a plethora of external climate change lobbying activities;

implementing in climate-friendly procurement practices; and

increasing the quality of their public disclosure activities.

Executive/Board Level Commitment

It was difficult to obtain details about climate-related corporate governance practices

employed by the major international banks, from their annual company or sustainability

reports, because they do not report extensively on these issues in these publications24

. A richer

source of information in this regard was found to be their responses to the CDP 2009. Almost

all the major international banks have instituted board level oversight for climate change

issues affecting their business. Their boards are informed on internal and external

climate-related developments by executive committees and their corporate executives express

a strong commitment to climate change concerns in their public statements (refer: Box 4).

Box 4: Public Commitment to Climate Change from the International Benchmarks

“NAB is very serious about climate change, and one

of the most significant and visible commitments we’ve

given thus far is becoming carbon neutral ourselves

by 2010.”

Mark Joiner

Group Chief Financial Officer

National Australia Bank

“I believe Barclays can lead the financial sector in

producing products and services that allow

increasing numbers of people to choose to invest in

environmental products, which in turn, will drive the

reduction in carbon emissions.”

Marcus Agius

Group Chairman

Barclays PLC

24 HSBC was a notable exception to this finding.


Emissions Accounting

A common characteristic noticed across the major international banks, addressing climate

change issues, is their adoption of the Greenhouse Gas Protocol for measuring energy-related

emissions from their office buildings and retail branches. Cogan (2008, pp 22) found that “28

of the 40 banks profiled in his study calculated and disclosed their GHG emissions.” He

indicates that many banks have “gone beyond conducting GHG emission inventories by

setting emission reduction targets and regularly reporting on their progress to interested

stakeholders.” The setting of emission reduction targets cannot be over-emphasized since

these is critical for sustainable greenhouse gas management, but it is not always obvious what

constitutes a good target. Box 5 presents some guidelines that local banks might consider

when evaluating the effectiveness of targets set by benchmarks or when establishing targets

for their own firms.

Box 5: Characteristics of Effective GHG Reduction Targets [Adapted: CDP2, 2009, pp 48]

Scope of Emission Sources – a minimum

requirement for any reduction target should be the

inclusion of all Scope 1 and 2 emissions. Scope 3

emission targets should be established as is relevant

to the sector in which the firm operates – an example

would be the expected inclusion of logistics-related

emissions in Retail Sector, but not Financial Sector

targets; while both sectors should ideally set business

travel targets.

Geographic and Organisation Boundaries – it is

important that firms exclude those regions or

business areas that do not have reliable GHG

inventories in their reporting. However, such

exclusions should be a temporary measure until the

firm is better able to monitor, calculate and report on

the emissions emanating from these business areas.

Absolute or Emissions Intensity Targets – the short

argument is that absolute targets are more effective at

addressing the needs of climate change than emission

intensity targets.

Establishing a Baseline and Target Dates – it is

recommended that an emissions baseline be

established for the most recent year for which reliable

emission data is available. The target year should not

be set more than ten years following the base year.

Identification of the Type of GHG Emission –

ideally provision should be made for any of the

greenhouse gases that a firm releases. In principle, it

is acceptable to exclude those gas emissions that

form a low percentage of the total Scope 1 and 2

emissions. However, it is expected that these

exclusions shall be mentioned.

Nature of the GHG Reduction Commitment – The

target needs to clearly and ambitiously address the

issues of climate change as required by science, but

also achievable within the proposed timeframe. It

should be informed by the firm‟s scenario/strategic

planning assumptions that include company growth

rates, electricity sources, infrastructure changes,

property management issues and efficiency levels. In

addition, the target should exclude emission

reductions achieved through offsetting or emissions

trading initiatives.


An analysis of the emission reduction targets, set by some of the banks ranked top on the

CDLI, revealed that many of the reported targets meet most of the recommended criteria. In

particular, their emission reduction targets satisfy the required conditions for scope of

emission sources, organisational boundaries, declaration of absolute targets, establishing a

baseline and appropriate target dates. The best example of reduction target information was

noticed in the sustainability reports prepared by HSBC and WESTPAC Group. Table 6a

reveals how HSBC reported their emission targets.

Table 6: HSBC Emission Reduction Targets (Adapted: HSBC Sustainability Report, 2008)

Group Targets (excl. Data Centres) Reduction Targets per FT Employee (2008-2011)

Energy Use from Buildings -8.0 %

Carbon Dioxide from Energy Use in Buildings -6.0 %

The bank also clearly defined its „geographic and organisation reporting boundary‟ by stating

that “the new four year targets set in 2008 apply to HSBC offices and branches in 23 countries

and territories where 91% of our employees are located as well as to our global service and

technology centres. Data centres are excluded.25

” Further, HSBC declared that the bank had

set new three-year targets for business air travel which start in 2009. The bank committed to

initially achieving a 10% reduction in carbon dioxide emitted per employee from combined

long and short-haul flights based on a 2008 baseline. In addition, HSBC stated that it seeks to

attain a further 5 percent reduction in carbon emissions per year for the period 2010 to 2011.

Similarly, WESTPAC has ambitiously declared that it is targeting a 30% reduction of

electricity-related emissions (Scope 2) without the use of offsets by 2013. The bank also aims

to maintain the 20% reduction in air travel emissions (Scope 3) achieved in 2009 over the next

four year period.

Energy Efficiency

Jeucken et al. (2006) suggests that “reducing energy consumption by changing behaviour can

be a cost-effective measure for reducing carbon emissions.” NAB reported in their 2008

Corporate Responsibility Review that “the environment initiatives underpinning the success of

their energy efficiency programme at their Head Office in Leeds (United Kingdom) included

25 Source: HSBC Sustainability Report (2008, pp 21)


an investment in infra-red sensor lighting throughout the building, new air-conditioning and

plumbing, improved recycling facilities and 100% accredited green renewable energy

purchases.” The Bank of Montreal indicated that the bank achieved an energy consumption

reduction of 526 kW26

through the elimination of 409 servers, 40 peripheral devices and 2

storage sub-systems. HSBC also reported similar initiatives to reduce energy use – the bank

suggests that “for those parts of Group where targets have been set, excluding data centres,

energy use was reduced by 4.6% when normalised by the number of full-time employees in

2008. This was achieved by the installation of intelligent lighting systems, efficient air

conditioning and heating systems as well as through the use of renewable technologies such as

ground source heat pumps, solar thermal and photovoltaic panels and micro wind turbines.27

”

Carbon Neutrality/Offsets

Cogan (2008) reported that a number of international banks have declared targets to achieve

carbon neutrality28

. Although banks can reduce carbon emissions from energy consumption by

using renewable energy sources, they still can generate carbon emissions from other activities

such as paper consumption, business travel and commuting. This creates opportunities for

offsetting their emissions through the purchase of carbon credits or through an investment in

Joint Implementation or Clean Development Mechanism (CDM) projects.

Barclays PLC has embarked on a phased approach to becoming carbon neutral. The bank has

been offsetting emissions from their UK and European operations since 2006 and 2007

respectively - it has purchased 416,000 tonnes of carbon credits including both Certified

Emissions Reductions (CER) and Verified Emissions Reductions (VER) – the cost of the

carbon credits is allocated to Barclays Business Units on the basis of their carbon emissions.

Barclays PLC suggests that this cost allocation mechanism creates a strong financial incentive

within the bank to invest in energy efficiency29

. HSBC has also pursued a similar strategy –

the bank reports purchases of VERs from high quality projects in 2008 such as industrial

26 BOM suggest that this is the energy 430 average-sized homes would consume in a single year.

27 Source: HSBC Sustainability Report (2008, pp 23).

28 A bank is considered carbon neutral if it does not produce direct carbon dioxide emissions on a net basis.

29 Source: Barclays Sustainability Review (2008, pp 15).


efficiency projects in India and China, a biomass project in Hungry and several small hydro-

electric projects in China. These projects have all been approved by the UN Clean

Development Mechanism (CDM) and the offsets assured by the Voluntary Carbon Standard.

The cost of the offsets is charged to the HSBC entity concerned thus incentivising HSBC

Offices to consistently reduce their emissions.

The Bank of Montreal has also worked hard to consistently reduce their carbon footprint in an

effort to become carbon neutral. The bank encourages employees to use teleconferencing as an

alternative to non-customer facing meetings in other cities; the use of public transit systems

are promoted through BOM partnerships with municipal transit authorities whereby

employees are offered monthly transit pass discounts for using public transport; and the bank

is working to ensure that they use the most fuel efficient vehicles whenever possible e.g. the

bank has mandated that all newly leased vehicles in Canada must be hybrids.

NAB reports the production of monthly intranet based air travel reports for each business unit

located in Australia to encourage behavioural changes and assist each business unit to better

manage travel. The initiative has not achieved the targeted 20% reduction in air travel, but it

demonstrates the commitment of NAB to climate change issues.

Awareness Training

A large number of the leading international banks have invested significantly into creating

greater awareness among their employees on climate change matters. HSBC has trained

approximately 350 employees from 50 countries at their regional Climate Centres on an

intensive training programme climate change and sustainability. These individuals are the

bank‟s designated Climate Champions responsible for initiating change within their business

areas. The National Australia Bank (NAB) hosts a voluntary green team community

comprising approximately 640 employees, which has been used to raise awareness about the

impacts of climate change and implementing campaigns to support the firm‟s commitment to

carbon neutrality.


Supply Chain Management

Banks can play a pivot role in influencing the reduction of their indirect climate-related

emissions through effective supply chain management activities. It is suggested that close

collaboration between the banks and their suppliers on climate change mitigation strategy

could benefit both parties mitigate their individual impacts. Barclays PLC operates a group-

wide sourcing process which includes criteria for measuring and assessing their supplier‟s

sustainability. Barclays administers a tendering process for relevant categories whereby

suppliers are required to provide data on the product or service‟s environmental footprint.

Barclays reported that in 2008, the firm engaged directly with a supplier in South Africa,

Striata, with regard to the provision of e-statements. The initiative resulted in an estimated

saving of 50,000 tonnes of carbon emissions.

The Bank of Montreal and HSBC both reported in their respective sustainability reports for

2008 that they have added environmental sustainability to their list of evaluation criteria for

potential suppliers. In particular, HSBC has piloted a programme to rate their potential

suppliers on a weighted scorecard that includes social and environmental criteria. The bank

reported that a full-time post was established with a global remit to roll out the project,

co-ordinate management of sustainability in the supply chain and drive improvements in their

supplier‟s performance – in order to support this process, a purchasing and sustainability

working group was established with participants from across HSBC‟s operational regions.

5.3 FINANCIAL PRODUCTS AND SERVICES

It has been argued that in a carbon constrained economy banks can motivate their clients to

address climate change and in this way influence the reduction of their own indirect carbon

emissions. It can also be argued that their level of influence on the client is dependent on the

type of financial product, the competition the bank faces for a client and on the inherent

profitability of reducing greenhouse gas emissions. Currently, critics debate the pressure banks

can bring to bear on their clients with regard to climate change matters. Nevertheless, a

significant number of international banks have embraced their role and responsibilities in


addressing the issue of climate change and have introduced formal policies to manage these in

a systematic manner (Jeucken et al., 2006, pp 13).

Debt Financing

The interest rates that banks can charge for loans are probably the simplest method available

to banks to leverage clients to respond appropriately to climate-related issues. Banks provide a

wide-range of loans including personal loans and mortgages to consumers, commercial loans

and financing for large projects. Jeucken et al (2006) suggests that banks can integrate the cost

of carbon emissions in their financial risk assessment of a loan. This would necessitate that

clients report their expected carbon emissions pertaining to the asset (machine or plant) for

which the client is seeking finance. The Bank of Montreal (BOM) reported that it updated its

lending guidelines by introducing questions on due diligence specifically related to climate

change30

. In addition, the bank reported that “it is their intent to avoid dealing with borrowers

who have a poor track record for environmental risk management.” Therefore, BOM has

guidelines in place to evaluate the environmental impact of the loans they finance and the

projects in which they participate – “all eligible borrowers for commercial and corporate loans

are subject to an environmental risk assessment process.”

The responsible lending initiatives undertaken by the Bank of Montreal resemble the risk

management policies or lending procedures addressing climate change offered by other major

international banks. Citibank incorporates the potential costs of carbon in the firm‟s financing

of power generation. The Royal Bank of Canada has undertaken a carbon risk analysis of its

lending portfolio and has developed a proposal to incorporate carbon risk into the credit and

risk rating methodologies of the entire firm. Cogan (2008) reported that the Bank of America

has established a “specific target to reduce greenhouse gas emissions associated with its

lending portfolio. Its policy applies to its utility corporate finance portfolio, where it is seeking

a 7% reduction in the rate of greenhouse gas emissions relative to electricity produced by 2009

– in order to achieve this goal the bank is changing its portfolio mix to add customers with

lower carbon emission profiles.” HSBC is developing micro-finance products for borrowers in

developing economies to enable them to adapt and mitigate against the impacts of climate

30 Source: BMO Corporate Responsibility Report and Public Accountability Statement 2008


change – it is working through microfinance institutions to provide credit, wholesale lending,

cash management, remittances, foreign exchange handling to provide these products and

services - as such the bank is able to demonstrate both a commercial return and positive social

impact.

Renewable Energy Finance

Cogan (2008, pp 27) reports that “while most banks are quiet about their financing of the

fossil fuels industry, 29 of the 40 banks surveyed in his research have highlighted their

involvement in the renewable energy market.” This trend seems to be unchanged with the

National Australia Bank (NAB) stating in their 2008 Corporate Responsibility Review “we

continue to lend significantly to renewable energy projects – we support customers who wish

to invest in cleaner technologies such as wind power or lower carbon, fossil fuel-based power

generation.” NAB revealed that the bank is financing a wind farm project in Yorkshire,

England (12 turbines, 2.5 MW each with an energy yield of 74.5 GW hours per annum). The

bank believes that their approach to project finance can help improve their customers

environmental and social performance while also recognising the significant impact they can

have in influencing more responsible lending through the projects and organisations to which

they provide financing. Similarly, Barclays PLC reported in their 2008 Sustainability Review

that 18 of the 31 projects financed were non-fossil fuel power generation projects. An example

of their effort in the renewable energy sector is their funding of a 4 year, GBP 1.3 M project to

make small-scale solar power accessible to rural communities in Kenya31

.

The commitment from major international banks to renewable energy is strong if you consider

the money being spent on projects. The Royal Bank of Scotland provided USD 2.6 Billion in

capital to renewable energy projects making it the leading lender in 200632

; BNP Paribas

contributed USD 1 Billion to 8 renewable energy projects in 200633

while Bank of America

announced a USD 20 Billion, 10 year programme to support environmentally sustainable

business activity to address climate change.

31 Barclays PLC is working with a not-for-profit organisation called SolarAid.

32 Source: Infrastructure Journal R&A.

33 Source: New Energy Finance.


Mortgage Financing

It can be argued that mortgages are the most important loan category. Therefore, banks could

play an important role in contributing to reduced carbon emissions by encouraging property

owners to increase energy efficiency in their homes and/or work premises. It is also posited

that banks can improve the energy efficiency of a building through life-cycle assessments e.g.

by taking maintenance and energy costs into account in the design and selection of building

materials prior to the start of a development (Jeucken et al., 2006, pp 17). Société Générale in

partnership with ADEME34

is offering “ecological mortgages‟ – these are loans offering

preferential rates to customers in financing of energy-efficient/low-impact homes. Cogan

(2008, pp 30) reports that “Mitsubishi UJF Financial Group, Mizuho Financial Group and

Sumitomo Financial Group also offer preferential rate loans – typically 0.5% below posted

rates – for small and medium enterprises that meet specific environmental standards. Mizuho

has extended this loan programme to residential customers installing photovoltaic generation

equipment and is providing life-cycle assessments of environmental products for its corporate

clients.”

Investment and Insurance Products

Banks can establish special climate change funds, which only invest in firms that have a clear

carbon reduction programme. There is a wide array of possibilities for such funds ranging

from plain share funds to very sophisticated derivative funds. BMO Mutual Funds recently

launched two sustainability products in response to growing demand from customers seeking

to invest in firms that demonstrate an ability to effectively meet the challenge of sustainability

issues35

. The BMO Sustainability Climate Class provides investors with exposure to equities

related to products and services that could reduce/delay the effects of climate change. The

bank‟s second product offering, the BMO Sustainability Opportunities Class provides

exposure to equities related to a wide range of themes including water, alternative energy and

climate control.

34 ADEME is the French Agency for Environment and Energy Management

35 Source: BMO Corporate Responsibility and Public Accountability Statement (2008)


Investment funds are a good way for banks to pool investments to reduce risk as well as offer

these as financial products e.g. climate-related funds/indices. In 2007, HSBC Corporate

Investment Banking and Markets (CIBM) introduced the “Global Climate Change Benchmark

Index along with a family of four investable global climate change sub-indices. The

Benchmark Index was designed to provide exposure to firms that are best positioned to profit

in the face of climate change challenges – the bank now offers a climate change fund based on

the index” (Cogan, 2008, pp 29). Similarly, Barclays Global Investors (BGI) offers clients a

variety of products with different investment strategies including Active, Index and Model

Driven Funds. In 2008, Barclays PLC launched several new index funds based on

environmental or social indices for both institutional and retail investors. A notable example is

the iShares S&P Global Clean Energy ETF, which is based on an S&P Index to track 30

global companies in clean energy production as well as clean energy technology and

equipment36

. Other innovative investment offerings include the five climate-related products

from UBS:

UBS Global Warming Index, which is a tradable benchmark for global investments in

the weather derivatives market,

UBS World Emissions Index, offers index-linked products that allow clients to

participate in the index‟s performance which is linked to tradable derivative

instruments referencing emissions allowances,

UBS Diapason Global Biofuel Index,

UBS Climate Change Strategy Certificate, which is an actively managed basket of 25

shares that includes firms developing solutions in renewable energy and energy

efficiency, and

UBS Equity Fund – Global Innovators, that includes investment themes such as

renewable energy, mobility, water, nutrition and healthcare.

In the insurance product sphere, HSBC has firmly established sustainability and environmental

initiatives as a strategic priority. The bank has launched consumer life, vehicle, home and

travel insurance products linked to forest protection and a clean air initiative – primarily in

36 Source: Barclays PLC Sustainability Review (2008)


South America (Mexico, Brazil and Argentina). In addition, their insurance brokers have

developed climate risk consulting and renewable energy project insurance to promote

climate-friendly practices.

Asset Management Services

Banks manage financial assets such as shares, bonds and funds for their own purposes and on

behalf of third parties. The asset management activities of a bank differs from its direct

investment activities such as buying shares in a firm, in that the former activities can include

short-term buy and sell strategies while the latter is more strategic by nature (Jeucken et al.,

2006). It can be argued that banks can use their “voting rights” to elevate the importance of

climate change on the agendas of the firms in which they choose to invest; they can promote

carbon emission reduction by integrating emission risks/opportunities in their financial models

and can motivate financial analysts that provide investor advice to include carbon emission

costs in their reports.

Barclays PLC supports this view and comments in their 2008 Sustainability Review that “the

bank evaluates Environmental, Social and Governance (ESG) issues in the same context as

any other investment idea or insight. ESG issues are assessed from within the firm and from

external sources such as academic literature and industry information. These ideas are use in

the best economic interest of the fund performance, which is consistent with our overall

investment strategies. Voting decisions are made in a careful and considered manner taking

into account internal and external research and, where appropriate, communicating directly

with senior management and/or dissident shareholders of the relevant company – we report all

our voting activity to our clients as well as publicly presenting our voting activity on behalf of

mutual funds and exchange traded funds through our website”

Carbon Trading Services

Cogan (2008, pp 30) suggests that banks that “engage in commodities trading and brokerage

services are faced with a huge growth opportunity arising from greenhouse gas emissions

trading.” This is assessment is plausible considering that trading volumes on the European


Union Emissions Trading Scheme (EU-ETS)37

has increased from EUR 5 Billion (2005) to

EUR 14.6 Billion in 2006 - this market trend is expected to continue based on evidence

provided by the United Nations Framework Convention on Climate Change (UNFCCC), who

estimated that a global carbon market demand for greenhouse gas emission credits could be

worth as much as USD 300 Billion by 203038

. It can be argued that the development of

emissions trading exchanges is inevitable considering that many international firms are

developing greenhouse gas emission trading strategies in anticipation of climate change

related regulation – this means banks with emissions trading capabilities would be in a strong

position to assist these firms in sourcing offset projects and hedging against future regulation.

Cogan (2008, pp 31) suggests that there are three main opportunities available to banks with

regard to emissions trading: the brokerage of greenhouse gas emissions allowances and

credits; the financing and development of carbon offsetting projects as well as speculative

investing and derivative offerings in emissions credits. Barclays PLC established the first

carbon trading desk for the EU-ETS in the United Kingdom. Subsequently, Barclays Capital‟s

Emissions Trading Desk is the largest intermediary in the carbon market. Morgan Stanley,

Credit Suisse, JP Morgan Chase and Merrill Lynch initiated the formation of the Green

Exchange on the New York Mercantile Exchange (NYMEX) in 2007. The exchange offers a

range of environmental futures, options and swap contracts for climate-focused markets.

Similarly, NAB reports that the bank has participated in consultation processes with the

government, relating to the development of emissions trading in Australia and the United

Kingdom, in 2008.

The research on international banking activities suggests a clear move by major investment

banks to take a leading role in supporting emissions trading mechanisms and new risk

management products. The growing demand for climate-related financial products and

services is leading international banks into new markets and it can be argued that major banks

in South Africa from following similar business models.

37 Currently, the EU-ETS is the only regulated exchange for greenhouse gas emissions trading.

38 Sandhovel, A., et al. (2007). CEO Briefing – Carbon crunch: Meeting the cost. Genève: UNEP Finance

Initiative. This study assumed a price of USD 50 per tCO2e in 2030.


Lobbying and Other Activities

It has been suggested in this study that financial institutions have a twofold responsibility in

addressing the challenges of climate change. Their first task involves managing the negative

climate effects arising from their own actions and those of their value chain – and this has

been covered by the discussion in the preceding sections. The other important responsibility

involves the promotion of a low carbon economy, partly through the provision of appropriate

products and services, but also through lobbying and investment research activities.

The National Australia Bank reported that it has invested time consulting government and

non-government stakeholders in the development of carbon inventory policy. The bank

suggests that the consultation process is their way of developing knowledge while

simultaneously assisting government and industry progress their own understanding of the

issues. HSBC is active in this space having launched the HSBC Climate Partnership in 2007,

which brings together their Climate Group, Earthwatch, Smithsonian Tropical Research

Institute and the WWF to combat climate change by inspiring individuals, business and

governments worldwide. The bank also reported that their Climate Change Centre for

Excellence invests in research activities identifying the economic risks and opportunities of

climate change.

Conclusion

This chapter has presented a concise view of some of the main actions taken by the major

international banks in managing their internally generated greenhouse gas emissions. In

addition, it has described how these financial institutions are fulfilling their responsibility to

external stakeholders in promoting the shift to a low carbon economy through the provision of

„green‟ financing/insurance solutions, asset management and carbon trading services. The

developments on the international banking scene provide a solid foundation for an assessment

of local banking interventions pertaining to climate change.


6 SOUTH AFRICAN BANKING RESPONSE

Cogan (2008, pp 34) suggests that climate change is a “mega trend” that will affect all facets

of the financial services industry. The notion of a climate “mega trend‟ is reasonable

considering the rapid climate-related changes occurring in the international banking scene, but

it is not clear whether a similar trend has entrenched itself within the financial sector in South

Africa. This chapter explores the possibility that the major local banks are responding to the

challenge of climate change by critically examining evidence gathered from sustainability

reports, company annual reports and local bank responses to the CDP 2009. In addition, this

chapter provides critical insight into the value of the Carbon Disclosure Leadership Index and

CERES Ranking to encourage climate-friendly practices from banks in South Africa.

Methodology

The analysis of the corporate response from the major local banks has been performed using

two different assessment methodologies, which have been developed by the Carbon

Disclosure Project (CDP) and RiskMetrics Group.

The researcher used the CDLI Scoring Methodology to independently score each of the major

local banks prior to performing a comparison of these scores against those obtained by Incite

Sustainability. Incite Sustainability is the local policy and strategy consultancy who initiated

the Carbon Disclosure Project in South Africa. In addition, the researcher consulted Incite

Sustainability on a number of issues related to the outcome of their scoring in an effort to

understand the reasons behind differences in the scores achieved by the different banks. This

assessment used the publicly available response to the CDP 2009 provided by each of the local

banks as the only information source for scoring purposes39

. A high-level summary of the

scoring results for each of the local banks as well as some important details about the CDLI

Methodology is presented in Appendix A.

39 This approach was consistent with that recommended by the CDP and followed by Incite Sustainability.


The researcher also employed the Climate Change Governance Checklist, developed by

RiskMetrics in consultation CERES, to evaluate the corporate response of the major local

banks to climate change. This alternative to the CDP scoring system was adopted because it

places a greater emphasis on performance rather than disclosure activities by responding

firms. A breakdown of the scoring method followed for this assessment is provided in

Annexure B. Further, the information sources used in this assessment was not restricted to the

local bank‟s responses to the CDP 2009 – the information used to score the different financial

institutions was gathered from their sustainability reports, annual company reports, website

publications as well as their response to the CDP 2009. The detailed information captured for

this exercise is presented per bank in Appendix C.

6.1 SUMMARY OF THE RESEARCH FINDINGS

Table 7 and Table 8 present the results from the independent assessment of the major local

banks using the CDP and RiskMetrics/CERES Scoring Methodologies respectively.

Table 7: Summary of Research Results - CDP 2009 (CDLI Scores Assessed by Researcher)

Assessment Areas Nedbank FirstRand Standard Bank ABSA HSBC

Risks and

Opportunities 31 30 15 17 28

Emissions

Accounting 44 17 19 16 45

Verification and

Trading 25 10 26 14 25

Performance 31 25 12 11 36

Governance 12 9 10 12 14

Final Score40

89 57 50 44 90

Nedbank received the highest score among the local financial institutions, which is largely due

to their leading disclosure practices and demonstration of an awareness of the risks associated

with climate change. The bank achieved a score of 90 from the CDP, which when compared to

international benchmarks such as HSBC (92) and BOM (87) is a very creditable achievement.

40 The final score is calculated as per the CDLI Methodology after incorporating all score adjustment factors.

Consequently, the final score is not a direct summation of the scores achieved under the various assessment

areas.


This result is in line with Nedbank‟s high profile efforts to position itself as the country‟s

leading “green” bank. .

Overall, the CDLI results – at face value – suggest that “emissions accounting” is an area that

is poorly addressed by all the major banking institutions (except Nedbank). Although these

results are supported by a rigorous scoring methodology, it is important to bear in mind that

the CDLI was developed to identify companies with outstanding disclosure practices and thus

that it should not necessarily be seen as an accurate reflection of the commitment or

performance of the participating banking institutions. It is also important to consider the

following issues when reviewing the scores presented in Table 7:

The CDLI is based entirely on the disclosure information provided by the firm in their

online response to the CDP 2009.

The scoring does not consider the firm‟s efforts to provide carbon or wider

sustainability disclosure such as corporate responsibility reporting,

sustainability/environmental statements in annual reports, or through meetings and

engagement with stakeholders and policy-makers.

Finally, the scoring methodology used to rank firms on the CDLI is not based on a

complete metric of a company‟s performance in relation to climate change

management (CDP, 2009).

The obvious limitations to the CDLI Scoring Methodology necessitated a review of a broader

set of publicly available information pertaining to the climate change activities of the major

local banks. This wider pool of information was analysed using the RiskMetrics/CERES

Methodology and the results suggested that the response from the major local banks to climate

change is more closely aligned than that suggested by their CDLI rankings (refer: Table 8).


Table 8: Summary of Research Results - RiskMetrics/CERES 2009

Assessment Area Area Total Nedbank FirstRand Standard

Bank ABSA HSBC

Board Oversight 16 9 12 12 9 13

Management

Execution 22

15 14 10 12 17

Public Disclosure 18 13 9 9 9 9

Emissions Accounting 14 13 9 10 11 7

Strategic Planning 30 16 13 13 13 24

Total Score 100 66 57 54 54 70

Nedbank still achieved the highest score among the local financial institutions having achieved

66 from an available 100 points on the ranking system, but the difference between their score

and that of their closest rival was marginal. The bank also performed very well in comparison

to the top ranked international financial performer in 2008 i.e. HSBC (70)41

. The results

obtained from both scoring methods provide a mere snapshot of the climate-related

performance of the major local financial institutions. A more complete view of their

performance is best seen from an examination of the evidence supporting these scores.

The next section provides a foundation upon which a better understanding of these research

findings can be understood and provides possible reasons to explain the poor CDLI scores

from the perspective of the analyst as well as from each the major local banks. It also provides

a critique of the CDLI and guidance on how the local banks could possibly improve their

future response to the CDP.

41 HSBC was ranked top among financials in the Ceres Report released in January 2008.


6.2 REVIEW OF THE RESEARCH FINDINGS

It has been argued that the scores obtained from using the different climate-specific

assessment metrics do not describe the full picture of a bank‟s corporate response to climate

change; and that the scores are only appreciated when the data/information supporting them is

understood. However, it is not enough that the collaborating evidence be understood, the logic

behind the allocation of scores must also be appreciated and this is only possible if the

information pertinent to the scoring of each bank is presented in a format that allows for

immediate comparability.

Table 9 addresses the problem of comparability by providing a high-level summary of the

differences in the climate-related response observed across the major local banks42

while the

discussion that follows aims to describe these differences in more detail so that the scores

presented in Tables 7 and 8 are clearly understood.

42 It attempts to condense the important pieces of information contained in Appendix C.


Table 9: Differences in the Response of the Local Banks

PARAMETERS HSBC Nedbank FirstRand Standard Bank ABSA

Board Oversight

The firm has appointed a board

committee responsible for

environmental issues

Yes Yes Yes Yes Yes


committee responsible for climate

change issues

Yes Yes Yes No Yes


member to manage climate

change

Yes None Identified Yes No. However, this

responsibility is

collectively shared by a

number of the board

members.

None Identified

The board understands its role

and responsibility with regard to

climate change

Yes Yes Yes Yes Yes

The board has received training

that specifically addresses climate

change issues

Yes None Identified None Identified No. The board has received

awareness training, but not

detailed training on climate

change.

None Identified

Management Execution

The company's leadership has

made public statements with

regard to climate change

Yes Yes Yes None Identified None Identified

The firm has developed or

adopted a company policy that

specifically addresses climate

change issues

Yes Yes No No No

There is not more than one

reporting level between the chief

environmental officer and the

firm's CEO

Yes No Yes Yes No

The firm has established and

filled a climate change executive

position.

Yes No Yes Yes No



The firm has established an

executive level climate change

committee.

Yes Yes Yes Yes Yes

ESG Factors are included in

financing and risk management

activities

Yes Yes, but it is not clear how

climate-related risks are

being addressed.

Yes, but it is not clear how


being addressed.



being addressed.



being addressed.

The firm provides employees with

climate change related training43

.

Yes, the bank publicly

discloses the following:

- a Climate Change Module

in Graduate Development

Programme;

- climate change training is

part of Chairman‟s

Strategic Forum and

Group Risk Training;

- climate-related training

and research conducted

through HSBC Climate

Partnership Initiative.

Yes, the bank publicly

discloses that:

- employee training on

climate change is

conducted through the

Sustainability eLearning

Platform.

None Identified. However,

the bank reported in an

interview that it:

- runs a compulsory online

environmental awareness

training programme

incorporating climate

change aspects;

- performs induction

training which includes

climate change, general

environmental and

sustainability awareness

issues; and

- runs extended awareness

training programme,

covering climate change

issues, for a select group

of employees with

environmental

responsibilities.



interview that it:

- offers training at various

levels at their leadership

college where at the

executive level one-tenth

of training time is spent

on global issues - chief

among them being

climate change.

- ensures middle to junior

level managers get

sensitivity training

pertaining to climate

change issues.



interview that it:

- uses the ABSA Today

Broadcast and ABACUS

(an internal magazine)

articles to raise awareness

on climate change issues

with employees.

The firm rewards employee

performance on climate change

through financial incentives

Yes Yes No No No

The firm is involved in or

sponsors investment research

pertaining to climate change

Yes Yes None Identified None Identified None Identified

43 The information provided by the banks during interviews was not used for scoring purposes.



The firm participates in a number

of external climate-related

initiatives44

.

The Bali Communiqué, G8

Gleneagles Initiative CEO

Roundtable on Climate

Change, The Climate

Group, Institutional

Investors Group on Climate

Change, EPA Climate

Leaders, Principles for

Responsible Investment,

Equator Principles,

Extractive Industries

Transparency Initiative,

UNEP-Finance Initiative.

The National Energy

Efficiency Accord (RSA),

Equator Principles, UNEP-

Finance Initiative African

Task Force, UN Global

Compact, UN Climate

Neutral Network (Founding

Member), National

Business Initiative

Sustainable Futures

Advisory Committee,

Banking Association of

South Africa (Sustainable

Finance Committee) and

UNISA Climate Change

Advisory Committee.

JSE Social Responsibility

Index, Equator Principles,

Clinton Climate Initiative

Building Retrofit

Programme and UN Global

Compact, NBI


Index, Equator Principles

and National Business

Initiative.


Index, Equator Principles,

Carbon Markets and

Investors Association,

Green Building Council

(SA). Standard Bank also

engages with the National

Business Initiative on

issues pertaining to climate

change.

Public Disclosure

The company's annual report

discusses climate-related risks

and opportunities directly

impacting the bank. In addition,

the firm describes products and

services it has developed to

address climate change issues45

.

No No No Yes. The bank reports on

carbon trading services and

CDM financing initiatives.

However, the annual

company report does not

feature any discussion on

risks and opportunities

affecting the bank as a

result of climate change

issues.

No

The company sustainability report

is written in accordance with an

internationally recognised

reporting standard.

Yes Yes Yes Yes Yes

44 There‟s a possibility that the list of external initiatives provided in the table is incomplete. The list for each bank was prepared following a review of publicly available information only.

45

The focus of this metric is to establish whether banks have given sufficient thought to how climate change risk/opportunities directly impacts their business. A general discussion on

climate change or the banks initiatives in response to its challenges is not recognised for scoring purposes.



The firm's CDP response is

comprehensive with respect to

climate-related physical,

regulatory and reputational risks

and specifically identifies the

impact of these to the bank's

business operations.

Yes Yes Yes Yes Yes

Has the firm made any public

policy statements pertaining to

climate change?

Yes Yes Yes None Identified None Identified

Emissions Accounting

Boundary of Scope 1and Scope 2

emissions

All Internal Operations 13 Head Office and

Regional Office Buildings.

All RSA Operations were

included in calculation of

the Scope 1 footprint. A

total of 848 buildings were

included in the calculation

of the Scope 2 footprint,

but kWh data was only

available for 21 out of the

848 buildings covered.

All RSA Operations All RSA Operations

Reporting Year 2008 2008 2008 2008 2008

GHG Emissions Inventory

[Reported in Tonnes CO2e]

Emissions CO2e

Scope 1 102,933

Scope 2 771,506

Scope 3 107,445

Travel 166,000

Leased

Buildings

Products

Supply

Chain

Emissions CO2e

Scope 1 1,222

Scope 2 95,749

Scope 3

Travel 29,751

Leased

Buildings

Products 3,179

Supply

Chain

Emissions CO2e

Scope 1 25,548

Scope 2 197,587

Scope 3

Travel 5,201

Leased

Buildings

173,631

Products 1,759

Supply

Chain

Emissions CO2e

Scope 1 6,107

Scope 2 159,225

Scope 3

Travel 3,492

Leased

Buildings

Products

Supply

Chain

Emissions CO2e

Scope 1 152

Scope 2 205,656

Scope 3

Travel 18,961

Leased

Buildings

Products

Supply

Chain



Has the firm obtained third party

certification for their emission

accounting?

Note: The information presented

has been obtained from the banks‟

response to the CDP 2009.

Yes Yes No Yes No

Has the firm achieved any

emission savings or employed

emission offsets?

Renewable

Energy

40%

Saving

Energy

Efficiency

None

Calculated

Offsets Purchased

VER from

renewable

energy

projects in

China.

Renewable

Energy

None

Identified

Energy

Efficiency

R 1,9 M

Offsets Donated

88 trees to

offset

paper use.

Renewable

Energy

None

Identified

Energy

Efficiency

R 7,5 M

Offsets None

Identified

Renewable

Energy

None

Identified

Energy

Efficiency

None

Identified

Offsets None

Identified

Renewable

Energy

None

Identified

Energy

Efficiency

7% of

Total

Electricity

Cost

Offsets None

Identified



Strategic Planning

GHG Emission Targets

E = Energy

C = Carbon

W = Water

P = Paper

T = Business Travel

N/I = None Identified

N/S = Not Specified

Reduction Target

E: 8% 2011

C: 6% 2011

W: 11%

P:

T: 15% 2011

Targets Baseline

E 2004

C 2004

W

P

T 2008

Reduction Target

E: 12% 2015

C: 12% 2015

W: 5% 2010

P: 10% 2010

T:

Targets Baseline

E 2005

C 2007

W 2005

P 2007

T

Reduction Target

E: 10% 2010

C: 11% 2012

W: N/I

P: N/I

T:

Targets Baseline

E 2007

C 2008

W

P

T

Reduction Target

E: 10% N/S

C: N/S

W:

P:

T:

Targets Baseline

E 2007

C

W

P

T

Note: Standard Bank

disclosed in the CDP 2009

that it is in the process of

specifying energy/emission

reduction targets.

Reduction Target

E: 4% 2013

C: 2009

W: 4% 2013

P: 10% 2013

T:

Targets Baseline

E 2008

C 2008

W 2008

P 2008

T

Note: ABSA reported a

Carbon Emission Target of

5000 tonnes less than 2008

baseline.

Emissions Trading - Investigating Carbon as a

form of payment in

project financing,

- Investigating opportunity

in CDM and JI Project

Mechanism,

- Provision of Carbon

Market Advisory Client

Services

- Pursuing opportunities to

monetarize carbon

credits, CER and VER for

itself and clients.

- Investigating opportunity

in CDM and JI Project

Mechanism

- Established a carbon

trading desk to support

CDM Projects and trade

carbon credits.

- Trades in CER, ERU and

EUA.

- Involved with CDM

Project Mechanism.

- Actively promotes the

development of Carbon

Markets.

None Identified.



Renewable Energy - Provides debt financing

for low carbon projects

and technologies as well

as equity capital for early

project stage

development,

- Purchases green energy in

a number of countries

hosting their operations.

- Hosted National

Renewable Energy

Conference.

- Successfully lobbied

NERSA for renewable

energy feed-in tariff.

- Involved in Clinton

Climate Initiative.

- Experimental renewable

energy projects have been

applied in a few areas.

None Identified. None Identified.

Product/Service - HSBC Climate Change

Benchmark Index,

- HSBC Climate Change

Fund

- Climate Change Risk

Consultancy Services

- HSBC Climate

Confidence Index

- Has established Carbon

Finance Team

investigating product and

service offerings in

sustainability, carbon

advisory and inventory

areas.

None Identified None Identified None Identified


6.2.1 Analysis of Publicly Available Information

Table 9 makes more obvious some of the observed differences in the climate-related response

of the major local banks and it also places their responses within the context of the

international bank scene through a direct comparison with HSBC. This section broadens the

scope of analysis to include other international banks and reveals more details about the local

banking response to climate change.

Board Oversight

It seems that the corporate directors of the leading banks in South Africa are growing more

aware of the changing set of expectations around climate change matters. In particular, the

Chief Executive Officers of Nedbank and FirstRand have made public statements about their

commitment toward climate-related problems. Mr Tom Boardman (Nedbank) stated:

“Nedbank is proud to be able to play a part in contributing towards the fight against global

climate change” in a recent media release while Mr Paul Harris (FirstRand) indicated that

“while economic and social development requirements are possibly more prominent in our

macro landscape at this current time, it is important to be mindful of the potential impact of

climate change on our world” in the firm‟s 2008 Annual Report. All the banks have an

environmental oversight committee that is responsible for addressing climate-related issues as

part of their individual mandates. However, FirstRand and Standard Bank both differed from

their competition and each other by reporting the appointment of a board member with a

dedicated responsibility for climate change issues (Nedbank) and offering climate change

related training to board members (Standard Bank) respectively.

Management Execution

Hoffman (2006, pp 37) commented that “senior-level support and engagement are the most

critical components of any successful climate strategy” while Cogan (2008, pp 17) revealed

that on the international scene there is an increasing trend by senior management to “translate

climate change concerns into formal company-wide environmental policies.” Although, all

the local banks report the adoption of environmental policies in accordance with the Equator

Principles, only Nedbank has developed a climate-specific policy statement in alignment with


international best practice. Nedbank‟s Climate Change Positioning Statement released in June

2008 resembles those published by the Royal Bank of Scotland and Barclays PLC. In

addition to other things, the positioning statements commits Nedbank to reducing its carbon

footprint, offering climate-focused products and services, improving energy efficiency and

actively engage in the development of a national climate change policy framework.

The local banks have responded in a similar way to international firms by declaring that

climate change is not merely an extension of environmental policy, but also an integral part

of the firms risk management. ABSA‟s response was probably the most clear when it

revealed that “the bank‟s formal credit policy pertaining to environmental matters is to

consider the general environmental implications of all credit proposals. The credit policy

applies to any product or service offered by the Group that incurs credit risk -

environmentally sensitive lending transactions are subject to environmental criteria stipulated

in the lending conditions dictated by the assessment of environmental risk by the mandate

holder. In addition, the Group requires independent environmental impact assessments to

support credit applications from customers.”

However, in comparison to public statements pertaining to risk management from

international firms such as ABN AMRO and HSBC, local firms did not explicitly identify

how climate-specific risks would be managed. HSBC is reported to be “upgrading its risk

approval systems to include sustainability risk ratings. The risk rating will enable the bank to

differentiate deal approval levels, the type of facility it would offer clients as well as provide

portfolio information. ABN AMRO has indicated that with regard to climate change and

project finance, the firm identifies regulatory risk from GHG emissions policies, cash flow

risks from volatile costs and physical risks from weather events” (Cogan, 2008).

Public Disclosure

All the local banks display a strong commitment to public disclosure as evidenced from a

review of their sustainability reports, website postings and response to the CDP 2009.

However, it can be argued that their direct communication on climate change with

shareholders is not at an adequate standard by comparison with the leading international

banks such as HSBC and Barclays PLC. The Annual Reports (2008) of the local banks


include statements and brief descriptions of climate change initiatives such as involvement

with the CDP, but none report on the observed risks and/or opportunities presented by

climate change on their existing client portfolios.

Emissions Accounting and Management

Despite the problems experienced by the banks in obtaining good electricity consumption

information, they have managed to report their carbon emissions in accordance with best

practice. The major local banks use an inventory accounting method called the Greenhouse

Gas Protocol and have conducted a formal inventory of their energy-related emissions arising

from their office buildings and retail branches. In addition, the banks have also reported on

their indirect emissions arising from business travel and where possible emissions arising

from the use of products. All the banks (except FirstRand) acquired third party verification of

their Scope 1, 2 and 3 emissions, but only Nedbank and Standard Bank confirmed the year in

which certification was obtained.

Further, all the local banks have engaged with “green” building initiatives to improve energy

efficiency of both existing and new buildings. In particular, Standard Bank and FirstRand

report active involvement with the Green Building Council (RSA) and the Clinton Climate

Initiative (Building Retrofit Programme) respectively, while Nedbank and ABSA both report

the design of new buildings in accordance with the RSA Green Building Council‟s “Green

Star Rating System.”

The banks also recognise that more can be done to better manage their carbon footprint.

Nedbank intends to achieve reductions in energy consumption through technological

interventions such as replacement of air-conditioners with more efficient technology,

computer virtualization systems and by changing to energy efficient lighting such as Compact

Fluorescent Lamps (CFL) or Light Emitting Diodes (LED). FirstRand proposes the

implementation of lighting retrofits and motion sensors in all their buildings; the replacement

of all remaining CRT computer screens with LCD screens; energy saving settings and remote

shutdown of all computers; the use of heat pump water heaters, power factor correction as

well as server virtualization in their computer centres.


Standard Bank and ABSA have also publicly committed to similar initiatives – the former

reported to the CDP 2009 that “the bank will meet reduction targets by achieving higher

efficiencies on air-conditioning systems through the use of ice storage technology, high

pressure refrigerants and dual-cycle systems; through the installation of electricity load

management systems to operate critical premises; through the centralised monitoring and

management of energy consumption pertaining to critical equipment at all sites and through

the solar installations where this is economically feasible. The latter differs from its

competitors with regard to its focus on reducing the firm‟s dependence on coal-powered

energy sources. ABSA is scheduled to bring on-stream an energy centre in May 2010 that

will provide peak level power to 8 campus sites in Johannesburg. However, more

significantly the centre will be powered by liquefied petroleum gas, which has half the carbon

footprint of coal.

The emissions accounting and energy management initiatives proposed by the major local

banks are comparable to the best practice initiatives from their international counterparts.

However, it is difficult to gauge the future value of these initiatives since many of the local

financial institutions have only recently established emissions baselines. It can be argued that

in the absence of tangible energy savings and emissions reductions – local banking firms

faced with budgetary constraints arising from recessionary conditions may be slow to fully

engage with the climate change process.

Emissions Targeting

It is widely accepted that if firms do not measure their emissions, they cannot manage them;

and it is clear from the preceding discussion that the major local banks have set in motion

processes to ensure both effective measurement and management of their emissions.

However, these initiatives only have meaning if these firms set targets against which

emissions reductions can be assessed. The CDP reports that “the world is facing a carbon

chasm – to cut emissions in developed economies by the required 80% by 2050, there needs

to be a minimum global reduction rate of 3.9% per annum. Currently, there is an annual

global reduction rate of 1.9%” (CDP3, 2009). Local financial institutions may argue that

developed world commitments to emissions reductions cannot be applied to a developing

world economy such as South Africa. The reality is that all firms need to consider


implementing measures that are in alignment with the 80-95% greenhouse gas emission

reduction target recommended by the IPCC in order to avoid dangerous climate effects. The

question is how this achieved and what are the major local banks doing with regard to setting

appropriate emission reduction targets.

Table 9 reveals that all the local banks have set carbon emissions and energy reduction

targets, and all have declared absolute instead of intensity based targets46

. The CDP Global

100 survey47

results show that absolute targets outstrip intensity based in popularity; with

firms declaring almost twice as many absolute targets compared to intensity based ones. The

same study revealed that HSBC, Royal Bank of Scotland, J.P Morgan Chase and UBS AG

have all set absolute targets among the international financial institutions – suggesting the

major local banks are consistent with their international counterparts.

An important issue raised by the IPCC is that reduction targets need to extend beyond 2012 in

order to meet the reduction requirements recommended by science. All the banks, with the

exception of Nedbank and ABSA, have carbon emission and energy reduction targets that

terminate by 2012. This is not unexpected since globally there seems to be a trend to set

targets that terminate before or in 2012 – the CDP suggests that “businesses are waiting to

hear outcomes of the UN Conference in Copenhagen before setting longer term reduction

goals.”

Tables C2, C3, C4 and C5 detail the scope of the targets set by the local banks. All the major

local financial institutions declared company-wide targets. Although it is difficult to predict

whether these scope targets will remain fixed in the future – it can be concluded that they are

in alignment with best practice as portrayed by the likes of HSBC. Nevertheless, in view of

the fact that many of the local banks indicated increasing growth prospects nationally and

internationally, the following should be considered:

46 Absolute Targets are usually expressed as percentages or in tonnes of CO2e. Intensity Targets are defined as

goals to reduce the ratio of emissions relative to a business metric e.g. revenue, sales or production unit.

47 The survey used the CDP 2008 dataset to analyse how the world‟s largest 100 firms within the FTSE Global

Equity Index Series set emissions reduction targets and whether planned reductions are sufficient to combat

climate change.


company-wide targets will produce different outcomes to those focused on a specific

area of operations; and

accounting for any growth as a result of acquisitions influences the impact of a target;

therefore, base emissions should not be recalculated for organic growth or decline, but

can be adjusted in cases of mergers and acquisitions48

.

Finally, the local banks profiled do not indicate any targets focused on indirect emissions

arising from their supply chain. In comparison, HSBC and NAB report supplier procurement

processes that audit and monitor supplier practices that assess environmental performance

among a list of other criteria. In particular, NAB reported that it approved AVIS as a hire-car

provider on the basis that the firm was able to provide a carbon offset service to NAB

employees hiring cars for business and personal purposes.

External Financing, Product and Service Offerings

Chapter 5 offered insights into the lending practices adopted by numerous international banks

with regard to addressing climate change risks and opportunities. A review of publicly

available information pertaining to the major local banks did not reveal many instances of

climate change mitigation with respect to debt, renewable energy and mortgage financing.

There was also little evidence to suggest that extensive effort has been made with regard to

the development of asset management services and new investment product offerings.

Subsequent to these findings, the major local banks were interviewed and reasons for their

limited disclosure of available products and services were obtained (refer: Section 6.3). The

primary reason offered by banks, in support of their limited disclosure on climate-related

products and services, is their concern around dilution of their competitive advantage

following premature release of new climate-related product and service information.

Nevertheless, it was possible to extract some insight on their proposed product and service

offerings.

Nedbank reported that its energy project finance team is financing a number of renewable

energy projects and will increase investments in this sector and other clean technologies. In

48 Source: GHG Protocols.


addition, the bank indicated that it hosted the National Renewable Energy Conference in

order to stimulate widespread support for rapid national development of renewable energy

industries as well as appropriate financing strategies – a key success of the conference being

that the bank joined a working group aimed at lobbying government for the introduction of

renewable energy feed-in tariffs, which resulted in the National Energy Regulator of South

Africa (NERSA) approving Renewable Energy Feed-In Tariffs (REFIT) as at 31 March 2009.

Standard Bank revealed that it actively trades in Certified Emission Reduction (CER),

Emission Reduction Units (ERU) and European Union Allowances (EUA) as a business

activity in itself as well as in support of risk management of their financing activities. In

addition, the bank indicated financing of emission reduction projects that are primarily Clean

Development Mechanism. ABSA indicated in its response to the CDP 2009 that it

participates in the European Union Emissions Trading Scheme.

Like their international counterparts, the major local banks recognise climate change as a risk

management issue. However, in comparison to the leading banks such as HSBC or Fortis the

local financial institutions have not reported any requests of their clients to disclose carbon

emissions and mitigation strategies or requests for clients to include carbon pricing in project

due diligence processes. It is also not clear whether the major local banks have re-evaluated

their existing client portfolios with respect to carbon intensity parameters so as to establish

the exposure of these clients to credit risks arising from climate related problems.

The corporate response to financing and investment opportunities arising from climate

change from the major local banks is largely unknown. However, it is difficult to imagine

that these financial institutions are unaware of the massive growth opportunity available to

them within a rapidly expanding emerging market. Deutsche Bank Advisors (2008, pp 3)

suggest that from “a credit supply perspective, which will affect public and private markets,

some companies and projects will find it difficult to raise debt capital and increase their

reliance on equity. Deutsche Bank believes that a more dependable regulatory environment

for climate change will continue to see money move toward climate change sectors in private

markets.” In view of these observations, the major local banks could benefit from


development and disclosure of product and service offerings sooner rather than at a later

stage.

6.2.2 Interview Findings

The preceding section may have highlighted the inherent value of the RiskMetrics/CERES

Method for gaining a broader understanding of the climate response of the major local banks,

but it does not offer an explanation for the massive discrepancy in the CDLI scores across the

four leading banks. This issue of poor CDLI scoring was investigated through the use of

structured interviews with Incite Sustainability49

and separately with each of the major local

banks.

Challenges Experienced in Scoring

A key issue affecting the scoring was the requirement that responses had to be evaluated in

accordance with the strict scoring guidelines prescribed by the CDP. In a number of

instances, banks entered information in a way that could not be acknowledged or rewarded

with a score. Incite Sustainability reports a few situations that resulted in poor scoring

outcomes:

The assessment of responses to the CDP 2009 was made difficult by the fact that

important company-specific information was provided within attachments or placed

in incorrect areas such as additional information boxes. Although, it was clear to the

analyst that the response of the bank deserved maximum points, the location of the

required information/data prevented a score being awarded.

It was not possible to score responses to a question that included cross-referencing

since this contravened the scoring rules prescribed by the CDP.

It was not possible to score a company that did not provide a response i.e. left a blank,

to a question.

49 The difficulties experienced by Incite Sustainability in scoring the major banks in South Africa were

addressed in an interview with Mr Anthony Dane on Mon, 12 October 2009.


The strict protocol governing the scoring of responses to the CDP is necessary because its

limits subjectivity from analysts and supports the standardisation of responses for data

collection purposes. However, it can be argued that it is deficient in a number of ways which

could have negative consequences for participants and benefactors of climate-related

initiatives.

Challenges Faced by Local Banks

Although it can be argued that some features of the CDLI Scoring Methodology have

contributed to the poor scores achieved by some of the local banks, it is not the only reason.

The calculation of the banks carbon footprint is limited by the difficulties inherent in

gathering of emissions relevant data. ABSA reported that the collection of electricity

consumption information from its leased office buildings posed a serious problem – the bank

found it difficult in obtaining a detailed breakdown of their contribution to Scope 2 emissions

in leased office buildings. In addition, the bank suggests that it is committed to long-term

leases for office buildings that are not necessarily “green” because there is limited availability

of office space in the areas where the bank needs to maintain a visible presence and many of

the buildings the bank occupies cannot be adequately retrofitted in accordance with low

carbon emitting technology. Further, the bank‟s commitment to the resuscitation of the city

means the firm has little choice in the occupation of old buildings and forces the bank to

make difficult tradeoffs between financial performance and socio-environmental obligations.

Similarly, Standard Bank suggested that not all of their operations fall within the same

property management and ownership model. Consequently, the ability to access and control

the quality of emissions-related data varies significantly over their operations. In addition, the

bank suggests that the disarray in the municipal system and the quality of monitoring,

metering and billing of energy consumption makes it very difficult to effectively track

developments. Therefore, the bank posits that data credibility issues with the municipality

and the lack of good information in the absence of alternative metering systems prevents the

bank from accurately reporting on their emissions.


A Critique of the CDLI

The response to the CDP is viewed by the major banking institutions in South Africa as an

important governance measure, which conveys a powerful message to stakeholders on their

commitment to climate change. In view of the growing influence of the CDP and the

attention the media places on the results from the CDLI – the major local banks profiled in

this study expressed a strong concern that their organisations are exposed to a serious

reputational risk arising from poor performance ratings on the CDLI. The banks reported that

damage to their reputation or image is caused by the perception of poor performance created

by the CDLI rankings, which is a direct result of poor disclosure/reporting rather than

inadequate actions from their organisations in response to climate change issues.

The local financial institutions suggest that the weighting of the index does not reward

reporting transparency or performance, but rather benefits firms that understand how to

satisfy the strict reporting format of the CDP; that the indicators used by the CDP to assess

climate change emission reduction targets do not necessarily fit the profile of a bank; that the

CDP assessment does not adjust for emerging market business conditions and makes

comparisons across industries that are not directly comparable e.g. retail stores vs financials –

these deficiencies in the methodology inadvertently exacerbates the threat of reputation risk

for the bank. Further, it can be argued the CDLI rewards how a company has responded to

the questionnaire but not necessarily the quality of the information disclosed e.g. banks

disclosing emissions data for 500 branches are rewarded in the same way as one reporting

emissions for 10 branches.

It is the opinion of the author that the criticisms raised by the major local banks, pertaining to

the design of the scoring methodology, might pose a threat to the nature of their support of

the project, which may in the long-run, considering the influence of banks in South Africa,

slow the progress of climate-related efforts of banks on the continent.

Recommendations for Better CDP Assessment

It is difficult to provide definitive guidance on the manner in which banks should respond to

the CDP Questionnaire. Afterall, there is a level of subjectivity associated with the scoring


process. However, it is possible to improve the score achieved by eliminating the unnecessary

errors noticed during the review of some of the responses.

It is important that responses always address the requirements of the question. It was

noticed that some responses included information that revealed more about the

respondent‟s knowledge of climate change rather than information/data relevant to the

firm‟s activities/initiatives in response to climate-related issues.

It is critical that no question is left blank or unanswered. The scoring methodology is

designed to reward disclosure which means that responses such as „not applicable‟,

„negligible‟, „could not be determined‟, etc can be scored a point. In circumstances

where a variable score is indicated it is important that the response include reasons for

non-disclosure.

Firms are advised to always provide a level of detail in their response that is

specifically related to the responding company and their sector. The responses

reviewed lacked examples of activities, products and services being developed or

currently being offered to clients. In addition, banks did not describe/disclose clearly

how certain climate-related risks and/or opportunities affected their business directly.

Firms are also advised that future editions of the CDP intend to reward responsible

climate-related performance more highly than disclosure. Hence, it is expected that

firms who provide details of actual initiatives undertaken rather than those who

disclose well shall rise to the top of the CDLI.


6.3 LIMITATIONS TO AN EFFECTIVE CLIMATE CHANGE

RESPONSE

The major banks in South Africa posit a number of problems limiting their response to

climate change in the structured interviews. They reported on both internal and external

issues that undermine their ability to develop new products and services, disclose

climate-related information or build support for climate-related issues.

Internal Factors

It was suggested that “silo thinking” within some of the major banks has prevented the

dissemination of climate-related information, which is limiting collaborative action across

business units in the development of new products/services as well as the management of

climate change issues.

The banks have also indicated that they face problems with adapting existing financial

products to address climate change opportunities or risks, which has contributed to longer

lead times for the trial and deployment of new products and services.

There seems to be limited knowledge around credit modelling of climate change risks, which

makes it difficult to develop “value-adding” products and services for clients.

The uncertainty around downstream life-cycle implications of certain technologies such as

the disposal of battery units for hybrid vehicles means that climate benefits offered by such

technologies are overshadowed by other environmental non-compliance issues and costs.

The high costs associated with climate-friendly supplier procurement practices make such

activities less attractive.

External Factors

The state of competitive rivalry among the major local banks is prohibitive to collaborative

climate-related activities and is the primary reason for limited disclosure of new products and

services addressing climate change.


There are no regulatory incentives encouraging the development of climate-related or

environmentally focused products and services.

There is no enabling environment within the local economy for the investment in renewable

energy projects.

There is a limited awareness among clients about the risks and opportunities arising from

climate change. Consequently, banks face an onerous task in marketing climate-related

services to the broader African market.

There are few clients within the local market who are suitably positioned to take advantage of

the opportunities arising from climate change and this prevents banks from financing the

change.

6.4 GUIDANCE FOR AN EFFECTIVE CLIMATE RESPONSE

STRATEGY

It is clear that the major local banks face many challenges in adapting to global climate

change. However, these problems are not insurmountable and it can be argued that local

banks have only scratched the surface of possible business opportunities in the climate

change space. On the basis of the previous analysis, it is argued that banks can:

change their organisation culture by improving employee awareness on

climate-related issues and by training employees on how to reduce greenhouse gas

emissions both at work and at home;

invest more in installed energy monitoring and control technology in all their facilities

to ensure better management of their carbon footprint;

improve emissions reporting by expanding the scope of emissions monitoring and

measurement to include all greenhouse gases not only carbon;


revise the disclosure of emission and energy reduction targets in accordance with the

level of ambition suggested as being “required by science”;

set emission reduction targets that extend beyond 2012 (particularly once there is

greater clarity on the nature of the likely post-Kyoto climate framework).

fund research to track ongoing developments, both locally and internationally, in

climate-related policy and technology and use this material to increase understanding

among potential investors or clients of climate-related mitigation opportunities;

do more to improve supply chain awareness by assisting clients/suppliers better

understand the benefit of a low carbon economy through marketing and promotional

activities as well as through building partnerships with established manufacturers to

obtain joint benefits;

work more closely with regulatory and industry peer organisations such as SAICA

(South African Institute of Chartered Accountants) to promote a greater understanding

of the risks and benefits of a regional market for carbon credits;

do more in this country to motivate for regulatory incentives by lobbying for

improvements in institutional/legal/regulatory conditions that enhance the country‟s

attractiveness to foreign investors active in the renewable energy space;

grow the market for low carbon assets and raise the profile of asset finance by

selecting suitable clients and providing them with attractive products. UKSIF (2007,

pp 18) suggests that “early opportunities may be best focused on larger more establish

clients who present less risk to the finance provider.”;

exploit early growth opportunities by recognising immature markets not immature

technologies. This can be achieved by asset finance teams assisting clients in the

selection and acquisition of more energy efficient assets (UKSIF, 2007). The US


Department of Energy has identified case studies across a range of industries which

demonstrate cost savings from upgrading to more energy-efficient equipment. One

example from the chemical sector was a Furnace Retrofit Project (USD 18 M), which

achieved a 2.6 year simple payback that included an annual energy cost saving of

USD 2 M for the firm;

do more to encourage collaborative research on the expansion of the sustainable

energy portfolios of large regionally-based firms such as Sasol and PetroSA; and

make strategic acquisitions of advanced energy technologies such as solar and wind

power generation or invest in early-stage technologies such as carbon capture and

storage (CCS). It may be useful for local banks to learn from the experience of

international debt providers in the renewable technology market and transfer that

knowledge to the local economy. Currently, it does not appear that any of the major

banks have positioned themselves to achieve first-mover-advantage in this regard


7 CONCLUSIONS

7.1 GENERAL FINDINGS OF THE RESEARCH

What are the implications arising from national and international policies and related

developments on climate change for the banking sector in South Africa?

South Africa is poised to join other countries in implementing regulatory policy to mitigate

the impact of climate change. The “National Climate Change Response Policy Development

Summit” held from 03 to 06 March 2009 (Midrand, South Africa), laid the foundations for a

participatory process that is to culminate in a Policy White Paper on Climate Change by

2010. The translation of this policy into a legislative, regulatory and fiscal package is

expected by 2012. The implication for many high carbon emitting industries is that they shall

be forced to adapt to an increasingly carbon-constrained local environment.

It can be argued that increased legislation inevitably leads to an increased risk of litigation.

The three possible avenues of litigation could be actions targeting heavy carbon emitters,

challenges related to emergent government carbon controls and increasing scrutiny of

greenhouse gas disclosure (KPMG, 2008, pp 34). This could have a direct impact on the

banking sector through increased risk of credit defaults arising from legal action being taken

against their clients. In addition, banks may be forced to re-examine the treatment of their

fixed-income assets as these come under inflationary pressures from weather-related losses

and carbon controls that make carbon emissions more costly. It is posited that national and

international policies would create a demand for climate-protection products and services that

would translate into new investment, asset financing, equity research and portfolio

management opportunities for the banking sector.


What internal governance practices have major banks in South Africa adopted to respond

to climate change?

This study reveals that the major local banks have established executive level committees and

environmental forums to manage the risks arising from climate change. The banks have

different ways of incorporating environmental, social and governance factors into their risk

management and financing activities, but all acknowledge the need for the inclusion of

climate risks in their lending decisions. It is unclear from publicly disclosed information how

banks are planning to take account of climate-related risks, but some suggest through an

extension of environmental criteria in their lending conditions.

The banks reviewed in the research have all adopted the GHG Protocol for the reporting of

their Scope 1, 2 and 3 emissions and have implemented a number of interventions to meet

self-imposed carbon neutrality targets. All the banks (except FirstRand) have obtained third

party verification of their emissions and have set clear emission reduction targets extending

into the immediate future. It is promising that all the banks have opted for absolute instead of

intensity based targets and that both carbon emission and energy targets have been

considered50

. The scope of the targets reported is adequately defined by most of the local

banks, but only Nedbank and ABSA report targets that extend beyond 2012.

How does the climate change response of major banks in South Africa compare with

international banking benchmarks?

The climate-related interventions implemented by the major local banks with regard to

reducing their carbon footprint and participation in external initiatives such as the CDP 2009,

Green Building Council (RSA) and Clinton Initiative correspond very well with international

best practice. However, the quality of public disclosure on their climate-related activities is

poor in comparison to the likes of Barclays PLC, HSBC and Bank of Montreal. There is

limited disclosure of climate protection products/services, climate risks and opportunities

specific to their business and scant mention of how their respective organisations are

50 Standard Bank is the exception in that it is still in the process of defining emission targets.


managing climate-related issues. In addition, climate-related awareness training programmes

for employees and board members seems to be in its infancy within the major local banking

environment. Finally, local banks don‟t seem to be doing enough to stimulate a local market

for climate change through engagement with foreign investors on renewable power

generation, asset management advisory client services or through supply chain initiatives.

What screening protocols are banks using or intend to use in order to evaluate new

projects with regard to climate change risks and how is this process being managed?

There is little evidence to suggest that banks have developed screening protocols to evaluate

new projects with regard to climate change risks. However, the banks report that credit risk

modelling pertaining to climate change is being investigated. Currently, most banks are using

environmental impact assessments as a means to identify possible climate change risks, but

the evaluation criteria being used to assess the risk is not clear.

What active steps are banks taking to develop their products or services that ensure

climate-friendly practices from their clients?

In comparison to their international counterparts, the major local banks have done little to

promote responsible climate-related activity among their clients. The major local banks report

difficulties in marketing the cost/benefit of climate-friendly actions to their clients in the

absence of regulatory certainty over the future value of carbon pricing. In addition, banks

suggest that structural barriers such as limited awareness of climate change issues, life-cycle

costs and possible disconnects between energy-savings and budgeting within their client

organisations prevent the rapid adoption of climate-friendly practices. Nevertheless, the

financial institutions profiled in this study indicated that the release of climate-focused

financial products/services is imminent and may provide greater impetus for responsible

action from their clients.


What is the extent to which banks require corporate borrowers to demonstrate that they

have identified and incorporated climate change impacts on their business model,

including value chains?

This was difficult to ascertain from a review of publicly available information. The climate

survey across the banks also failed to provide clarity on the issue. Nevertheless, it is posited

that the challenge confronting the major local banks seems to be in assigning a value to

reputational risk – in the absence of such information and regulatory constraints on carbon

emissions; it could be long wait before local banks begin imposing stricter lending and

purchasing conditions on their clients and suppliers respectively.

7.2 MAJOR FINDINGS OF THE RESEARCH

I The research has revealed that the major local banks are sufficiently aware of their

role and responsibilities in mitigating the effects of climate change – evidence of their

commitment to climate change can be found in their sustainability reports and media releases

as well as inferred from their involvement in national and international projects addressing

climate-related issues. The financial institutions profiled in this study have invested in

reducing their carbon footprint and have pledged realistic greenhouse gas emission and/or

energy reduction targets, which suggest that they recognise their responsibility to mitigating

their own impact on the global climate.

II It is clear that the major local banks have made a good start in striving to meet the

challenge of climate change. However, the shift to a low carbon economy requires that banks

do more than only manage their own greenhouse gas emissions. It has been argued in this

report that the local banks should do more to stimulate a market response to climate change in

South Africa through government lobbying activities, collaborative research with clients,

strategic investment in early-stage technologies and increasing supply chain awareness of

climate change issues. It is also posited that the local financial institutions may not have

adequately explored the best practice initiatives of international banking benchmarks. On this

basis it is suggested that the corporate response from the major banks in South Africa, who


are aware of their roles and responsibilities, is generally not sufficient in addressing climate

change issues.

7.3 RECOMMENDATIONS

It has been argued that the major local banks (except in some instances) have not sufficiently

responded to the challenges of climate change when compared to their international

counterparts. It is suggested that their corporate responses to the issue can be improved

through:

improving employee awareness on climate-related issues and by training employees

on how to reduce greenhouse gas emissions both at work and at home;

investing in installed energy monitoring and control technology in all their facilities to

ensure better management of their carbon footprint;

improving emissions reporting by expanding the scope of emissions monitoring and

measurement to include all greenhouse gases not only carbon;

revising the disclosure of emission and energy reduction targets in accordance with

the level of ambition suggested as being “required by science”;

setting emission reduction targets that extend beyond 2012 (particularly once there is

greater clarity on the nature of the likely post-Kyoto climate framework).

funding research to track ongoing developments, both locally and internationally, in

climate-related policy and technology and use this material to increase understanding

among potential investors or clients of climate-related mitigation opportunities;

improving supply chain awareness of the benefits of a low carbon economy through

marketing and promotional activities as well as through building partnerships with

established manufacturers to obtain joint benefits;

working more closely with regulatory and industry peer organisations such as SAICA

(South African Institute of Chartered Accountants) to promote a greater understanding

of the risks and benefits of a regional market for carbon credits;


increased lobbying for regulatory incentives that lead to improvements in

institutional/legal/regulatory conditions, which enhance the country‟s attractiveness to

foreign investors active in the renewable energy space;

promoting a market for low carbon assets and raising the profile of asset finance by

selecting suitable clients and providing them with attractive products;

providing advisory services that assist clients in the selection and acquisition of more

energy efficient assets (UKSIF, 2007);

the encouragement of collaborative research on the expansion of the sustainable

energy portfolios of large regionally-based firms;

increased collaboration with other financial institutions to promote the sharing of

ideas on effective climate-related strategy;

investment in early-stage technologies such as carbon capture and storage (CCS) or

through strategic acquisitions of advanced energy technologies such as solar and wind

power generation;

This study has also revealed that there is a need for more extensive business research with

regard to climate change and the banking sector. It is recommended that future study in this

area focus on research that:

assists in factoring climate change risk and opportunities in credit risk modelling for

banks;

establishes better metrics for evaluating the corporate climate response from banks;

leads to the standardisation of assumptions and other essential requirements for the

calculation of Scope 2 and 3 emissions; and

establishes the life-cycle costs and downstream impacts of climate-friendly

technology such as the use of hybrid vehicles, which could improve the

climate-focused response from financial institutions.

Finally, it is clear that the local banking industry is making progress with regard to improving

their corporate response to climate change. It is hoped that their efforts will be accelerated

and deepened following the global climate agreement talks in Copenhagen.


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9 APPENDIX A

The “Carbon Disclosure Leadership Index (CDLI) is a ranking applied to companies

responding to the Investor CDP Questionnaire. It shows at a glance the range and quality of

the information disclosed.” The CDLI Scoring Methodology is publicly available from the

CDP website51

. This study applied the stipulated methodology to score the major banks in

South Africa using their individual responses to the CDP Questionnaire. This section

provides a high level summary of the scores achieved by each bank (refer: Tables A1 – A4).

Final Score

Caveat

In many instances the assessment of a company‟s performance in the CDLI is based on the

information that is disclosed and how accurately firms have answered the CDP

Questionnaire. Consequently, the banks that are better at disclosure and that have provided

high quality answers feature as better performers.

51 Source: https://www.cdproject.net/en-US/Results/Pages/leadership-index.aspx

100ableScoreAvail

vedScoreAchie


Table A1: CDLI Results Summary – Nedbank Group

Section Title Stand Alone Lead Conditional YES Conditional NO Total

Achieved Achieved Available Achieved Available Achieved Available Achieved Available

1 Risks & Opportunities 0 0 6 6 25 30 0 0 31

2a Emissions Accounting 27 34 10 10 7 7 0 0 44

2b Verification & Trading 7 7 9 9 9 9 1 1 25

3 Performance 13 14 10 10 8 10 0 0 31

4 Governance 0 0 3 4 9 10 0 0 12

Total 47 55 38 39 58 66 1 1 143

Table A2: CDLI Results Summary – FirstRand Group






3 Performance 13 14 3 10 9 10 0 0 25

4 Governance 0 0 2 4 7 10 0 0 9

Total 24 55 26 39 41 66 1 1 91

Table A3: CDLI Results Summary – Standard Bank






3 Performance 4 14 2 10 6 10 1 1 12

4 Governance 0 0 3 4 7 10 0 0 10

Total 18 55 28 39 36 68 2 5 82


Table A4: CDLI Results Summary – ABSA Group Limited






3 Performance 3 14 2 10 6 10 0 0 11

4 Governance 0 0 3 4 9 10 0 0 12

Total 16 55 23 39 31 64 1 3 70

Table A5: CDLI Results Summary – HSBC Holdings






3 Performance 14 14 10 10 12 12 0 1 36

4 Governance 0 0 4 4 10 10 0 0 14

Total 49 55 38 39 60 68 1 2 147


10 APPENDIX B

“RiskMetrics in consultation with Ceres and the Investor Network on Climate Risk developed

the Climate Change Governance Checklist to analyse corporate responses to climate change.

The checklist has 14 indicators to evaluate corporate climate change activities in five main

governance areas: board oversight, management execution, public disclosure, emissions

accounting and strategic planning - within each of these areas, many sub-factors were

considered to produce a score of pro-active company measures to address climate change”

(Cogan, 2008, pp 5).

The application of the checklist to assess the major banks in South Africa required a more

detailed breakdown of how points would be awarded per sub-factor than was revealed by the

methodology published by RiskMetrics. Consequently, the scoring methodology used in this

study was developed to closely resemble that prepared by RiskMetrics (refer: Table B1)52

.

Methodology Explanation

The scoring methodology presented in this worksheet is based on the scoring system

developed by the RiskMetrics Group in consultation with Ceres and the Investor Network on

Climate Risk. RiskMetrics and Ceres developed their Climate Change Governance Checklist

to analyse corporate responses to climate change. The checklist has 14 indicators - these have

been labelled I1 to I14 in the matrix. There are 5 main governance areas: board oversight,

management execution, public disclosure, emissions accounting and strategic planning - the

total score for each of the main categories/areas is indicated to the right of the relevant

category title e.g. Board Oversight has a Total Score of 16. These 16 points are made up of a

number of sub-assessment categories which have been formatted in italics for ease of

identification. The banks have been assigned a score with regard to their performance in the

sub-assessment category. The scoring criterion for allocation of point in a sub-assessment

category is provided in boxes beneath each checklist indicator e.g. Board Committee:

52 The scoring methodology used in this study was based upon the best practice examples provided in the Ceres

Report and was developed in conjunction with Incite Sustainability.


Environmental Oversight is a sub-assessment category - the text provided alongside it

explains how points are allocated.

The scoring is based on information obtained from the following sources: company

sustainability reports (2008), company website, annual reports (2008) and the company's

response to the carbon disclosure project in 2009. This spreadsheet has 5 worksheets in

addition to the Summary and Scoring System Worksheets. The remaining worksheets

tabulates the information gathered from the stipulated sources from the banks being studied

and grouped under the 5 broad governance areas developed by the RiskMetrics/Ceres

Checklist. The information gathered by RiskMetrics/Ceres on the international benchmark

bank, HSBC, is provided for reference in each of the main governance worksheets. It is

important to realise that some sub-categories require a scorer to use information presented in

worksheets pertaining to another governance category in order to allocate a score e.g. the

sub-category, External Initiatives, is located under the governance category, Management

Execution. However, in order to score this sub-category information pertaining to the

governance category Public Disclosure had to be used. This inconsistency is related to the

design of the scoring sheets by RiskMetrics/Ceres.

Data Quality and Accuracy

All data presented in Tables C2, C3, C4 and C5 were obtained from publicly available

sources of information. The information has not been verified, but reasonable attempts have

been made to clarify matters directly with the participating banking institutions. In addition,

no formal due diligence or any other form of assurance has been undertaken or claimed by

the researcher on the underlying data.


Scoring Types

Two variable scoring approaches are used in the assessment of the data in Tables C2, C3, C4

and C5.

Variable Scale A

1 point is awarded if the information available shows that the indicator requirements

are satisfied.

1 point is awarded if the quality of the information available is good – e.g. there are

illustrative examples and other details that enhance the readers understanding of the

bank‟s corporate response.

Variable Scale B

1 point is awarded if the information available shows that the indicator requirements

are satisfied.

2 points are awarded if the quality of the information available is good – e.g. there are

illustrative examples and other details that enhance the readers understanding of the

bank‟s corporate response.

Caveat

In many instances the assessment of a company‟s performance is based on the information

that is publicly disclosed. Consequently, the banks that are better at disclosure will feature as

better performers. Therefore, the reader is advised that the assessment performed in this study

could be limited because some information, necessary to make a judgement on a firm‟s

performance, was not publicly available or was difficult to access.


Table B1: Governance Checklist - Scoring Methodology (Adapted: Cogan, 2008, pp 40)

Board Oversight Total 16

I1 Board is actively engaged in climate change policy and has assigned oversight

responsibility to board member, board committee or full board. 16

Board Committee: Environmental Oversight. The Board of Directors designates a

board-level committee with explicit oversight of the company‟s environmental

affairs.

3

Board Committee: Climate Change. The Board designates a board-level committee

with explicit oversight of the company‟s climate change policy and initiatives.

3

Board Member: Climate Change: The Board designates a specific board member

with explicit oversight of the company‟s climate change policy and initiatives.

3

Board Role: The Board has taken specific actions to initiate, approve and/or

monitor the company‟s environmental affairs and climate change initiatives.

3

Board Training: The Board receives training and education addressing

environmental, climate change and/or sustainability issues.

3

Company specific examples are provided in support of the sub-factors presented.

1


Management Execution Total 22

I2

The Chairman or CEO assumes leadership role in articulating and executing

climate change policy.

NB: The information required to score the sub-category, External Initiatives, is

found in the public disclosure worksheet.

4

CEO Leadership/Statements: The Chairman/CEO assumes leadership role in

articulating the company‟s climate change strategy, including shareholder

communications and participation in external initiatives.

3

External Initiatives: The company participates in external coalitions, working

groups or initiatives to mobilize action on climate change and incorporation of

ESG factors in financing decisions.

1

I3 There are top executives and/or executive committees assigned to manage climate

change response strategies. 6

Climate Change Executive: The bank designates a corporate-level executive (this

could be the chief environmental officer) or committee with explicit responsibility

for managing environmental affairs and/or climate change policy and initiatives.

2

Levels to CEO: The bank discloses the number of reporting levels between the

chief environmental officer and CEO. Disclosure earns one point and a bonus

point is earned if the responsible person reports directly to the CEO.

2

Other: The Head of a division or business function assumes direct responsibility

for managing climate change policy. 1

Staff Training/Education: The staff receives training and education addressing

environmental, climate change and/or sustainability issues.

1

I4

Climate change initiatives are integrated into risk management and mainstream

business activities. The bank issues formal policy and governance procedures to

incorporate environmental, social, and governance (ESG) factors in its risk

management function and/or financing decisions.

NB: The information relevant to score the sub-categories listed below is located in

the public disclosure governance worksheet.

10

Company assesses direct climate change related risk to the company e.g. physical

damage to company buildings, business disruptions, increasing energy costs,

reputational risks, etc. Disclosure earns one point and a bonus point is earned if a

detailed explanation is provided.

2

The company has taken action to mitigate/manage these direct risks.

1

The company assesses indirect risks associated with the influence of climate

change on the company‟s lending portfolio. Disclosure earns one point and two

points are earned if a detailed explanation is provided.

3

The company has taken action to mitigate/manage these indirect risks 1

The bank assesses climate change related business opportunities. . Disclosure earns

one point and a bonus point is earned if a detailed explanation is provided.

2

Company has taken action to exploit these opportunities 1

I5 Executive officers‟ compensation is linked to attainment of environmental goals

and GHG targets. 2


Management Execution Total 22

Compensation Link: The company explicitly links executive officers‟

compensation to attainment of environmental and/or climate-related goals.

Disclosure earns one point and a bonus point is earned if compensation is

specifically related to a climate-related goal.

2


Public Disclosure Total 18

I6

Securities filings disclose material risks and opportunities posed by climate change.

NB: It was assumed that the 3 survey responses on governance, social and

environmental issues to the JSE SRI Index provide similar information as Form

10-K. Information contained in these surveys was discussed in personal interviews

with the various banks.

8

Securities Filings Statement: Company discusses material climate change risks and

opportunities in Form 10-K or equivalent securities filings. Points are awarded

according to the following breakdown:

The securities filings include information about possible risks and opportunities

associated with climate change 2

The securities filings disclose material risks or some sort of distinction/assessment

of the importance of different climate change risks

2

The securities filings disclose material opportunities or some sort of

distinction/assessment of the importance of different climate change related

opportunities

2

It is clear that attention is paid to the role of climate change and/or GHG

regulations in terms of risks and opportunities

2

I7 Public communications offer comprehensive, transparent presentation of response

measures. 10

Annual Report: Company discusses climate change risks, opportunities and

initiatives in most recent Annual Report e.g., CEO letter to shareholders, front

section or Management Discussion & Analysis.

1

Sustainability Report: Company publishes a Sustainability Report or equivalent

public document that discusses climate change risks, opportunities and initiatives.

1

GRI Accordance: Company‟s Sustainability Report is “in accordance” with

independent standards established by the Global Reporting Initiative (GRI).

1

Carbon Disclosure Project: The Carbon Disclosure Project (CDP) is a non-profit

organization that conducts an annual climate change survey on behalf of

institutional investors.

1

Member: The company actively supports CDP survey and on-line data collection

instrument.

1

2009 Signatory: Company signed letter requesting corporate responses to

CDP2009 survey.

1

CDP 2009: Company completed CDP2009 survey and did (or did not) publicly

release results.

1

CDP 2009 Risk Disclosure: Company assesses climate change-related risks in

CDP2009 response.

1

Public Policy Statements: The company expresses its views on climate change

regulatory proposals and related public policy measures. Disclosure of response

measures earns one point and a bonus point is earned if the financial implications

of the response measures are provided.

2


Emissions Accounting Total 14

I8

The company calculates and registers GHG emissions savings and offsets from

operations. The bank seeks renewable energy purchases and/or energy efficiency

savings to reduce GHG emissions and offset inventory totals. 3

Renewable Energy: The bank reports the percentage of electricity derived from

renewable energy sources in 2008.

1

Energy Efficiency Savings: The bank has calculated savings from energy

efficiency measures.

1

Certified CO2 Offsets: The bank has purchased certified emission reductions and

credits to offset company GHG emissions.

1

I9 Company conducts an annual inventory of GHG emissions and publicly reports

the results. 7

Scope 1: Direct GHG emissions from combustion in company-owned or

controlled sources (boilers, furnaces, vehicles, etc.)

1

Scope 2: Indirect GHG emissions from generation of electricity purchased for use

by company facilities.

2

Scope 3: Other indirect GHG emissions from company activities e.g. employee

commuter travel; business travel by air, rail or motor vehicles; other indirect

emissions from product use or supply chain.

2

Emission Forecasts: The company forecasts emissions trends.

1

Accounting Methods: Company documents accounting methods used for GHG

emissions inventory.

1

I10 The company has an emissions baseline by which to gauge future GHG emissions

trends. 2

Disclosure of baseline earns one point and a bonus point is earned if the baseline

was established prior to 2007.

2

I11 Company has third-party verification process for GHG emissions data. 2

Third party certification: Company employs third-party reviewer of GHG

emissions data.

2


Strategic Planning Total 30

I12 The company sets absolute GHG emission reduction targets for facilities, energy

use, business travel and other operations (including indirect emissions). 10

Overall Climate Change Related Targets: Award one point for disclosure of a

relative target, the scope of emission and the baseline year respectively. Award

two bonus points for disclosure of an absolute target.

5

Climate Change Related Financing and Lending Targets: The company has

established emission reduction targets for financing/lending operations.

Award one point for disclosure of a relative target, the scope of emission, a

projected timeframe respectively. Award two bonus points for disclosure of an

absolute target.

5

I13

The company participates in GHG emissions trading programs. Company

engages in voluntary or mandatory GHG emissions trading programs to offset its

own emissions and/or provides emissions trading services to others. 5

Company engages in voluntary or mandatory GHG emissions trading programs to

offset its own emissions.

2

The company has done so for more than 2 years 1

Company provides emissions trading services to others 2

I14

Company pursues business strategies to reduce GHG emissions, minimize

exposure to regulatory and physical risks, and maximize opportunities from

changing market forces and emerging controls. 15

Renewable Energy: Company purchases renewable energy for its own operations

and/or finances/invests in the renewable energy sector. Award one point for

disclosure of the type(s) of renewable energy project(s), the amount of energy

generated and the financial commitment made by the bank. A bonus point is

earned for the quality of information available for scrutiny.

4

Energy Efficiency: Company takes measures to improve energy efficiency of its

own operations and/or finances/invests in energy efficiency measures available to

clients. Award one point for disclosure of the type(s) of energy efficiency

initiatives, the amount of energy saved and the financial commitment made by the

bank. A bonus point is earned for the quality of information available for

scrutiny.

4

Other Climate-Related Investment Products: Award one point if the company

offers climate-related investment and/or retail products, the company provides

examples of climate-related investment and/or retail products; the company

provides examples of products that assist clients manage risks associated with

climate change.

3

Partnerships: The company engages with other organizations in a way that will

encourage mitigation of climate change risks and take advantage of opportunities

3


11 APPENDIX C

The following section tabulates the research results of HSBC (International Benchmark),

ABSA, Nedbank, FirstRand and Standard Bank as per the Ceres/RiskMetrics Climate Change

Governance Checklist Report Methodology.

Table C1: Sample Profile - HSBC Holdings (Adapted: Cogan, 2008, pp 36)

Company Information

The second-largest bank in the world by assets. HSBC Holdings is active in more

than 80 countries, providing consumer and commercial banking services, credits

cards, asset management, private banking, securities underwriting and trading,

insurance as well as leasing. Its North America operations include HSBC USA,

consumer lender HSBC Finance and HSBC Bank (Canada).

Contact Information

Chairman Stephen Green, Group Chairman

CEO Michael Geoghegan, Group CEO

Contact Tel: +442079918888

Address

8 Canada Square

London

E14 5HQ

United Kingdom

Board Oversight Score: 13/16

Board Committee:

Environmental Oversight Corporate Responsibility Committee

Committee Chair The Right Honourable Lord Butler of Brockwell

Board Committee:

Climate Change Corporate Responsibility Committee

Board Member: Climate

Change Stephen Green (Group Chairman)

Board Role Mr Green, Group Chairman, has ultimate responsibility for climate change

matters. At the board level, there are two committees that have responsibility for

climate change issues. The Group Management Board (GMB), which is chaired

by the Group Chief Executive, operates as a general management committee

under the direct authority of the board. GMB responsibilities include the firm‟s

2004 decision to become carbon neutral, emissions reductions project investments

and new business expansion relating to carbon market opportunities. The second

committee with board representation is the Corporate Responsibility Committee,

which is responsible for overseeing corporate responsibility and sustainability

policies.

In addition, reputational risks (including Social, Ethical and Environmental (SEE)

risks) are considered and assessed by the board, the GMB, subsidiary company

boards, board committees and/or senior management during policy formulation.

Board Training The Corporate Responsibility Committee (CR) gives guidance on the CR

component of director‟s induction and training programs as well as provides the

board with assurance that relevant executive training programmes, including

credit officer training courses contain appropriate CR Training.


Management Execution Score: 17/22

CEO

Leadership/Statements

Group Chairman, Stephen Green stated in a news conference to announce

HSBC‟s Climate Partnership in May 2007: “We believe we can tackle the causes

and impacts of climate change. Over the next 5 years HSBC will make

responding to climate change central to our business operations and at the heart of

the way we work with our clients across the world.”

Company Policy HSBC announced its Carbon Finance Strategy in June 2006. Although, the firm

said it will continue to support fossil fuel electricity generation, it pledged to seek

out new opportunities in key low carbon technologies (wind, solar, biofuels,

energy/transport efficiency, landfill gas/methane capture, geothermal energy) in

priority countries where government policy and fiscal regimes support early

adoption.

Head of Group Sustainable Development, Jon Williams stated at Ethical

Corporations Sustainable Finance Summit in September 2007: “We can finance a

shift to a low carbon economy…Climate change can be tackled at minimal

economic cost if we do it today.”

Chief Environmental

Officer

Jon Williams, Head of Group Sustainable Development.

Simon Martin, Head of Group Corporate Sustainability

Francis Sullivan, Deputy Head of Group Sustainable Development and Advisor

on the Environment, Group Corporate Sustainability

Levels to CEO 0

Climate Change

Executive

Nick Robins, Head of Climate Change Centre of Excellence.

HSBC announced the appointment of Mr Robins in July 2007. Mr Robins is

based in HSBC‟s London Office and reports jointly to David Burnett (Head of

Global Research) and Jon Williams (Head of Group Sustainable Development).

Further, HSBC appointed Sir Nicolas Stern as Special Advisor to the Chairman

on Economic Development and Climate Change. Mr Stern is the former World

Bank Chief Economist and author of the Stern Review on the Economics of

Climate Change. Mr Stern serves as an advisor on strategic issues for HSBC,

contributes to management development programmes and provides client advice

related to climate change and sustainable business strategies.

Executive Committee The Group Sustainability function is responsible, among other things, for

addressing risks and opportunities derived from climate change and for

embedding sustainability within the firm‟s mainstream operations from both a

risk and business development perspective.

Group Corporate Sustainability has 5 focus areas: business development, risk

management, footprint management, communications/reporting and internal

sustainable development advisory.

Further, HSBC created a Climate Change Centre of Excellence in Bangalore

(India) in 2006, to evaluate the implications of climate change for the HSBC

Group., its Global Research Division and other business units. The Centre is

intended to be a central source of climate knowledge and will support the

implementation of the firms Carbon Finance Strategy.


ESG Factors in Risk

Management/Financing

HSBC established an Environmental Risk Standard in 2003, which has been

adapted into a Sustainability Risk Framework.

HSBC is upgrading its risk approval systems to include sustainability risk ratings,

which will be gradually assigned to clients globally. It is working with a third

party to develop the underlying sustainability risk decision support tool. The risk

ratings will enable it to differentiate deal approval levels, the type of facility it

would offer a client and provide portfolio information. HSBC has a network of 27

environmental risk managers that support the Sustainability Risk Team in

London.

HSBC has issued 5 sector lending guideline reports with regard to financing.

These are reports on forest lands and products, fresh water infrastructure, the

chemicals industry, the metals and mining industry and the energy industry. The

Energy Sector Risk Policy Report issued in May 2006 stated: “HSBC supports a

transition to a lower carbon economy.” It says it expects its clients to abide by

regional or national laws to implement GHG reductions under the Kyoto Protocol

and the EU ETS. HSBC has also called on clients to disclose their carbon

emissions and mitigation strategies in a consistent manner.

Staff Training/Education HSBC added a climate change module in the Group Graduate Development

Programme in 2006, to inform participants about climate change and the role of

the bank in the issue.

Climate change issues are also considered in other training courses, including the

Chairman‟s Strategic Forum and Group Credit and Risk Training. All project and

export finance teams have been trained in the Equator Principles.

HSBC also staged a road show in China, Hong Kong, India, Malaysia and

Singapore to educate more than 100 employees on carbon finance and other

issues in 2006. The firm is also conducting a benchmarking survey of employee

engagement on sustainability issues and planning e-learning forums.

Further, HSBC launched in 2007 the HSBC Climate Partnership – a 5 year,

USD 100 M partnership between HSBC, the Climate Group, Earthwatch Institute,

Smithsonian Tropical Research Institute and WWF. HSBC will work in some of

the world‟s major cities to influence climate change policy and create employee

“climate champions” who will undertake field research on climate change issues.

The programme will involve carbon measurement in the world‟s forests and

protection of major rivers from the impacts of climate change.

External Initiatives The Bali Communiqué, G8 Gleneagles Initiative CEO Roundtable on Climate

Change, The Climate Group, Institutional Investors Group on Climate Change,

EPA Climate Leaders, Principles for Responsible Investment, Equator Principles,

Extractive Industries Transparency Initiative, UNEP-Finance Initiative.

Investment Research HSBC Investments launched a new SRI Team in 2006 covering environmental,

social and governance issues. The team consists of 6 SRI analysts based in

Europe, India and Brazil plus 2 product specialists.

HSBC Global Research, a division of the firm‟s Corporate, Investment Banking

and Market‟s Group, also offer coverage of alternative energy stocks.

Research Reports related

to Climate Change

None Identified.


Compensation Link HSBC‟s Group Corporate Real Estate is responsible for proposing environmental

targets and ensures delivery of these targets with the support of Purchasing and IT

Functions.

Incentives around sustainability performance are built into objectives and reward

structures for these units. More broadly, senior managers have CR objectives –

including objective related to climate change as part of their remit with reward

schemes recognising achievements.

As at 2007, the cost of procuring carbon offsets to maintain HSBC‟s carbon

neutrality is being borne by the regional offices responsible for the emissions,

providing an increasing incentive to manage the firm‟s total emissions.


Public Disclosure Score: 9/18

Annual Report

HSBC‟s Annual Report (2006) does not include a discussion of climate change.

However, it provides a broad overview of corporate social responsibility issues

and consideration of reputational risk issues arising from social, environmental

and ethical issues as part of its corporate governance policy.

Sustainability Report Title: 2006 Corporate Responsibility Report published May 2007; Website:

http://www.hsbc.com; GRI Accordance: 2002 CI

Carbon Disclosure

Project

Member: Yes; Signatory: Yes; CDP5 (2007): Answered Questionnaire (Public)

CDP 5 Physical Risk Disclosure: “climate change risk will need to be

increasingly factored in when performing equity valuations and making

investment decisions.” Customer related risk ranges from business disruptions to

slowed economic growth due to extreme climate events. In order to address

potential physical risks, HSBC is undertaking an internal assessment of insurance

coverage for facilities that may be impacted by extreme weather events or sea

level changes. The firm has also established contingency plans for environmental

risks.

CDP 5 Regulatory Risk Disclosure: HSBC reports that the firm is well positioned

to respond to future regulation regarding emissions limits and energy efficiency

standards due to its voluntary implementation of its carbon neutrality policy.

CDP 5 Reputational Risk Disclosure: HSBC also recognises the credit and

reputational risk the firm may face due to client exposure to regulatory changes.

Public Policy Statements HSBC stated in its CDP5 response: “Climate change is a challenge that will

require global solutions; collective action will be required from governments,

business and individuals to stimulate adoption of energy efficiency and clean

generation technologies to stabilise carbon dioxide emissions.” HSBC also states

that it supports an international cap and trade system to achieve global emissions

reduction targets.

Mr Williams, Head of Group Sustainable Development said at Ethical

Corporation‟s Sustainable Finance Summit that: “emissions trading needs to go

global.” He also suggested that a post-Kyoto global agreement could be

negotiated with 20 major carbon-emitting countries.

Further, HSBC signed the Bali Communiqué in November 2007, which calls for a

comprehensive, legally binding United Nations Framework to tackle climate

change.


Emissions Accounting Score: 7/14

GHG Emissions

Inventory

Year: 2006; Facility/Region: All Internal Operations; Protocol: GHG Protocol.

Emissions CO2e (Metric Tonnes)

Total Emissions 813,00053

Scope 1 [Direct]

Scope 2 [Indirect – Electricity] 634,00054

Scope 3

Travel 179,000

Leased Buildings -

Products -

Supply Chain -

Accounting Methods HSBC converts data on building energy use55

and employee business travel using

emission factors set out by the local environmental authority or the utility

supplier. If such information is unavailable, then factors from the International

Energy Agency and the U.K. Government‟s Department of Environment, Food

and Rural Affairs (DEFRA) are used.

Third Party Certification Det Norske Veritas Certification BV (DNV) verifies HSBC‟s direct

environmental performance. DNV conducted an audit of HSBC‟s CO2 emissions

and carbon neutrality.

Certification Year 2006

Emissions Savings and

Offsets

Renewable Energy Savings: 40%; 2006

Energy Efficiency Savings: None Calculated.

Certified CO2 Offsets: HSBC was carbon neutral for the first time in 2006. The

firm estimated the quantity of emissions that would cover all properties and

buildings (i.e. 100% of full-time employees) and then applied an additional 2.5%

to estimated emissions from electricity, 10% to estimated emissions from other

energy sources and 5% to estimated emissions from transport to account for any

uncertainty in estimates. In order to achieve carbon neutrality HSBC purchased

Verified Emissions Reductions (VER) from several renewable energy projects in

China and Taiwan.

53 Total Emissions offset in 2006.

54 This includes Scopes 1 and 2. Although, the vast majority of energy use is purchased energy (Scope 2), HSBC

also owns some on-site electrical generation facilities, but these were not tracked separately.

55 This is calculated by assuming building are 96% occupied by full-time employees.


Strategic Planning Score: 24/30

GHG Emissions Targets

Reduction

Targets

Baseline Year Target Year Region

Total

Emissions

5% 2004 2007 All Internal

Operations

Energy Use 7% 2004 2007 All Internal

Operations

Target Details HSBC‟s carbon neutrality is achieved thorough a Carbon Management Plan,

which involves reducing direct emissions, buying green electricity and offsetting

remaining emissions.56

HSBC has set 3 year reduction targets for energy, water, waste and CO2

emissions covering 90% of its product portfolio. HSBC is setting new targets for

the 2008-2010 period, including emissions intensity targets.

The firm also issued environmental target progress reports in 2005 and 2006. Its

2006 Corporate Responsibility Report stated: “During 2006, our CO2 emissions

per person, our key CO2 measure, increased due to a change in the type of energy

we were able to purchase and an increase in air travel. We have programmes in

place to reverse this trend. For a growing business, it is a challenge to reduce

emissions constantly.”

Emissions Trading All emissions reductions, including the bank‟s carbon neutrality goal, have been

on a voluntary basis. HSBC is also exploring options for participation in the

CDM and JI markets under the Kyoto Protocol.

In addition to traditional project financing structure, HSBC will increasingly look

at new finance structures incorporating carbon as a stream of repayment.

HSBC also plans to apply its own experience in the voluntary carbon markets to

address client needs in this area.

Renewable Energy A survey by Business Week and Climate Group ranked HSBC first in the Low

Carbon Finance and Investment Leaders Category in December 2006. The firm

provides debt financing for low carbon projects and technologies, as well as

equity capital for early stage project development.

HSBC purchases green electricity in the UK, the USA, Australia, Brazil, Ireland,

Luxemborg, Sweden and Switzerland. The firm has installed solar power panels

at offices in the UK and France, introduced a bio-diesel plant at its Global

Technology Centre (Pune, India) and installed micro wind turbines in the UK.

The firm was awarded the USA EPA “Green Power Partner of the Year”

recognition for renewable energy purchases.

56 These costs are now included as part of the firm‟s normal operating budget.



Energy Efficiency HSBC launched a Global Environmental Efficiency Programme in June 2007, a

commitment to reduce the firm‟s direct environmental impacts. The USD 90 M

commitment over 5 years will support renewable energy technology, water and

waste reduction programmes and employee engagement. Initiatives will include:

developing flagship buildings to benchmark environmental standards; footprint

management and innovation; environmental management systems to optimise

process efficiency.

Achievements include HSBC‟s first “zero carbon” branch in Greece, New York;

the building achieved Leadership in Energy and Environmental Design (LEED)

Gold Certification and optimises energy efficiency using a ground-source heat

pump.

HSBC is also committed to reducing the environmental impact of business travel.

The firm has conducted an employee green travel survey and invested in

video-conferencing technology.

Going forward, the cost of carbon will be more explicitly factored in real estate

capital expenditure projects and energy procurement decisions.

Other Climate Related

Investment Products

HSBC Corporate, Investment Banking and Markets (CIBM) launched the HSBC

Climate Change Benchmark Index in September 2007, encapsulating a family of

4 investable global climate change sub-indices. The Benchmark Index is designed

to provide exposure to firms that are best positioned to profit in the face of

climate change challenges. The sub-indices include:

- HSBC Climate Change Index,

- HSBC Low Carbon Energy Production Index57

- HSBC Energy Efficiency & Energy Management Index58

- HSBC Water, Waste and Pollution Control Index59

HSBC Investments launched a climate change fund in November 2007 that

invests in clean energy, energy efficiency, water, waste and pollution control

firms. The fund aims to out-perform the HSBC Global Markets in partnership

with HSBC Investments.

HSBC‟s Insurance Broking Division is developing risk consultancy services to

help customers assess and manage their physical exposures to climate change.

The division is also developing insurance products to facilitate the development

of renewable energy products and carbon markets.

HSBC has launched green marketing campaigns for its retail products in both the

UK and the USA. In addition, HSBC has conducted an international survey of

public attitudes on climate change – the HSBC Climate Confidence Index. The

research reveals more optimistic markets in Asia and Latin America, which could

mean that new products such as green mortgages are launched first in emerging

markets.

57 This includes solar, wind, biofuels and geothermal.

58 This includes fuel efficient autos, energy efficient solutions and fuel cells.

59 This includes water recycling, waste technologies and environmental pollution control.


Table C2: Sample Profile – ABSA Group Limited

Company Information

ABSA Group Limited is one of the largest financial services organisations,

serving personal, commercial and corporate customers in South Africa.

Contact Information

Chairman Ms Gill Marcus

CEO Ms Maria Ramos

Contact +27 (0) 11 350 4000

Address

3rd

Floor, ABSA Towers East

170 Main Street

Johannesburg

South Africa


Board Committee:

Environmental Oversight Environmental Steering Committee

Committee Chair

Not Identified. However, ABSA reported in an interview that this position is

occupied by a member of the ABSA Group Executive Committee (David

Hodnett).

Board Committee:

Climate Change Environmental Steering Committee


Change Not Identified.

Board Role ABSA reported in their response to the CDP 2009: "The Environmental Steering

Committee (ESC) has identified 6 key focus areas for ABSA of which Climate

Change and measurement of the carbon footprint is one. The ESC meets on a

quarterly basis and receives updates on progress of environmental performance

improvement initiatives and makes management decisions accordingly." ABSA

also reported in an interview that the board takes specific actions related to

climate change.

Board Training None Identified.



CEO


None Identified.

Company Policy None Identified. The bank does not have a Climate Change Position statement,

but its commitment to climate change issues forms a part of its Environmental

Positioning Statement.

Chief Environmental

Officer

None Identified.

Levels to CEO 2

Climate Change

Executive

None Identified.

Executive Committee ABSA identified in their response to the CDP 2009 that their Environmental

Steering Committee addresses issues on climate change, but the response was not

explicit with regard to whether the ESC is an executive body i.e. a committee

comprised of company executives at the highest levels in the organisation. ABSA

reported in an interview that their committee is comprised of executives at the

highest level but not all bank divisions are represented.

ESG Factors in Risk


ABSA reported in its Sustainability Review (2008): "The formal credit policy

pertaining to environmental matters, is to consider the general environmental

implications of all credit proposals. The credit policy applies to any product or

service offered by the Group that incurs credit risk. Environmentally sensitive

lending transactions are subject to environmental criteria stipulated in the lending

conditions dictated by the assessment of environmental risk by the mandate

holder. The Group requires independent environmental impact assessments to

support credit applications from customers. ABSA has acknowledged the

importance of environmentally sensitive lending decisions and the Equator

Principles are entrenched in the Group's Credit Policies."

ABSA also reported under GRI (FS8) in their Sustainability Review (2008):

"ABSA's products and services in general are not designed to deliver a specific

environmental benefit. However, ABSA subscribes to the Equator Principles that

guide financial institutions in socially and environmentally sensitive project

finance decisions."

Staff Training/Education None Identified. However, ABSA reported in an interview the firm uses the

ABSA Today Broadcast and ABACUS (Internal Magazine) Articles to raise

awareness on climate change issues.

External Initiatives JSE Social Responsibility Index and Equator Principles. ABSA also engages with

the National Business Initiative (NBI), a voluntary group of companies working

together to achieve sustainability in growth and development in South Africa on

issues such as climate change.

Investment Research None Identified.


to Climate Change

None Identified.

Compensation Link ABSA reported in their response to the CDP in 2009 that the responsibility for

management of environmental indicators has been assigned key performance

indicators, which when met have implications for employee salary increases and

bonuses.



Annual Report

ABSA's Annual Report (2008) does not have any specific statement on climate

change or sustainability. However, the bank does present its view on

sustainability in it Sustainability Review (2008): "ABSA is an integral part of the

colourful tapestry that is South Africa. It is believed that the largest contribution

ABSA can make to society is by operating a commercially successful business in

a responsible way. In achieving this, the Group must ensure value creation for its

stakeholders and the environment. This necessitates that ABSA accurately

identifies and manages economic, social and environmental issues across the

Group and contributes to the well-being of society. ABSA is firmly committed to

advancing the principles and practice of sustainable development and takes its

role as a leading and concerned corporate citizen seriously."

Sustainability Report Title: Sustainability Review 2008; Website: http://www.absa.co.za; GRI

Accordance: G3 Guidelines

Carbon Disclosure

Project

Member: No; Signatory: No; CDP 2009. Answered Questionnaire (Public)

CDP 2009 Physical Risk Disclosure: ABSA reported that its exposure to physical

risks predominates in Africa, where it has a diverse client base. It reported that

the potential physical effects of climate change that the bank has identified are

numerous and widespread across many sectors (e.g. rising sea levels affecting

harbours, coastal property and coastal farmland; potential increase of night time

temperatures which can affect the cold requirements for fruit production; and

changes in precipitation and evaporation which may affect South Africa‟s water

supply). ABSA stated in their response to the CDP in 2009: "The widespread

footprint of ABSA‟s lending and investment operations means that the potential

for risk exposure is high. The bank's credit profile is likely to require some

adjustments because clients may require revision of their business models as a

result of the impacts of climate change. Climate change may also affect the

sectors that the bank is likely to lend to - the agricultural sector may face

increased water stress and may be a required to implement technological

measures in order to adapt to these changes. The cost of these measures may be

prohibitive without further support from the banking sector. Similarly, heavy

industry – the larger emitters – is likely to face increased regulatory and fiscal

control measures being introduced." ABSA suggests that other potential risks

threatening the company could include: changes in operating costs; commodity

prices; weather patterns causing damage to fixed assets; as well as supply chain

disruptions.

CDP 2009 Regulatory Risk Disclosure: "various regulatory instruments are in

place to indirectly reduce emissions (such as energy efficiency requirements) this

will affect our property portfolio and in particular energy consumption and travel.

The impact of these requirements does not currently seem to be material to our

bottom line but with increasing regulatory pressure this situation may change.

Since Absa is a finance provider it has a wide spread of clients in various sectors

which may lead to indirect impacts from climate change for ABSA."

CDP 2009 Reputational Risk Disclosure: "In South Africa, in line with

developments in many other parts of the world, there is an ever increasing

awareness of environmental issues. People are beginning to make business

decisions based on the environmental performance of organisations. Therefore,

the onus is on businesses to ensure good environmental performance and in doing

so they manage their reputational risk."

Public Policy Statements None Identified.



GHG Emissions

Inventory

Year: 2008, Facility/Region: The information presented publicly covers the

activities of ABSA's South African operations and, where possible, the Group's

African entities in Tanzania, Mozambique and Angola. However, ABSA reported

that since 98% of the Group's earning originates from South African operations -

there is a predominant focus on operations in South Africa. Protocol: GHG

Protocol.



Scope 1 [Direct] 152


Scope 3

Travel 18,961

Leased Buildings -

Products -

Supply Chain -

Accounting Methods ABSA used the Greenhouse Gas Protocol Guidelines to calculate its Scope 2

Emissions. ABSA's carbon footprint was calculated using the Barclays Carbon

Accounting and Offsetting Protocol which is based on the World Resources

Institute's Report 'Hot Climate, Cool Commerce: A Service Sector Guide to

Greenhouse Gas Management' and DEFRA's „Environmental Key Performance

Indicators: Reporting Guidelines for UK Business‟. In addition, ABSA reported

that carbon accounting was carried out in accordance with DEFRA guidelines on

GHG Reporting.

Third Party Certification ABSA's carbon emissions have been verified by ICF as part of Barclays Bank's

Climate Action Programme.

Certification Year Not Identified.


Offsets

Renewable Energy Savings: None Identified.

Energy Efficiency Savings: 7% on Total Electricity Bill was saved.




Reduction

Targets


Total

Emissions


Operations


Operations

Carbon

Emissions

5000 T <

Baseline

2008 2009 All Internal

Operations

Water Use 4% 2008 2013 All Internal

Operations

Paper Use 10% 2008 2013 All Internal

Operations

Target Details ABSA has indicated that the bank plans to reduce energy consumed by 20%. This

includes reducing space occupied by 100 000 m2 and reducing business travel by

10%.

Emissions Trading None Identified.

Renewable Energy None Identified.

Energy Efficiency ABSA has adopted a phased approach to going carbon neutral, focusing on

improving energy efficiency and decreasing it dependence on coal-powered

energy sources. An energy centre, currently being installed, is scheduled to go

live in May 2010. The centre is powered by liquefied petroleum gas and has half

the carbon footprint of coal. The energy centre will generate all the electricity

requirements for ABSA's 8 campus buildings in Johannesburg (South Africa).


Investment Products

None Identified.


Table C3: Sample Profile – Nedbank Group

Company Information

Nedbank Group operates as one of the four largest banking groups in South

Africa. The bank offers a wide range of wholesale and retail banking services

through three main business clusters Nedbank Corporate, Nedbank Capital and

Nedbank Retail. The bank‟s principal services comprise business, corporate and

retail banking, property finance, investment banking, private banking, foreign

exchange and securities trading.

Contact Information

Chairman Dr Reuel Khosa

CEO Mr Thomas Boardman

Contact +27 (0) 294 4444

Address

135 Rivonia Road

Sandown

South Africa


Board Committee:

Environmental Oversight Group Transformation and Sustainability Committee

Committee Chair Group Executive for Enterprise Governance and Compliance (Mr Selby Baqwa)

Board Committee:

Climate Change The Transformation and Sustainability Sub-Committee


Change None Identified.

Board Role The Chief Executive Officer takes overall responsibility for Climate Change. The

Group Executive responsible for Enterprise, Governance and Compliance,

champions the Climate Change Position Statement and the Environmental,

Reputational and Corporate Responsibility policies. A central Sustainability

function is housed within the Enterprise Governance and Compliance cluster,

which is supported by a number of resources/champions throughout the various

business units.

The Group Transformation and Sustainability Committee is responsible for

monitoring and refining environmental policies and ensuring that these are

integrated into the Nedbank Group philosophy and practice.

Nedbank reported in their response to the CDP 2009: "progress in terms of our

climate change initiatives, including progress against our intensity reduction

targets aligned our Climate Change Position Statement, are monitored and

reported to the Group Environmental Forum. The Sustainability function within

Enterprise Governance and Compliance reports progress in this regard to the

Group Operational Committee and the Group Executive Committee (where

relevant) on a monthly basis, and quarterly reporting is done to the

Transformation and Sustainability Board Sub-Committee."




CEO


Group Chief Executive, Tom Boardman stated in a media release in September

2009: "Nedbank is proud to be able to play a part in contributing towards the fight

against global climate change. Through our involvement in the Princes Rainforest

Project (PRP) we are actively contributing towards the preservation of Africa's

rainforests by seeking forestry offsets on the continent.

Company Policy Nedbank revealed its Climate Change Position Statement in September 2009. The

statement outlines a strong commitment to dealing with climate change matters

and involves employees, clients, government and other stakeholders.

Chief Environmental

Officer

None Identified.

Levels to CEO 2

Climate Change

Executive

None Identified.

Executive Committee Nedbank suggests in their response to the CDP 2009 that the Group

Environmental Forum has responsibility for climate change issues and that it is

chaired by the Group Executive for Enterprise, Governance and Compliance.

However, it was unclear whether the Group Environmental Forum is an executive

body i.e. a committee comprised of company executives at the highest levels in

the organisation. Nedbank indicated in an interview that the GEF is comprised of

persons representing the chief executives of various business clusters.

ESG Factors in Risk


Nedbank has decided to embed the principles contained in its environmental and

corporate responsibility policies by including specific focus areas and

deliverables in a Corporate Responsibility Framework in 2008. However, it is not

clear how the bank is incorporating ESG Factors into Risk Management or

Financing.

Staff Training/Education Nedbank has introduced a Sustainability eLearning platform to enhance general

awareness of carbon emissions among their employees.

External Initiatives The National Energy Efficiency Accord (RSA), Equator Principles, UNEP-

Finance Initiative African Task Force, UN Global Compact, UN Climate Neutral

Network (Founding Member), National Business Initiative Sustainable Futures

Advisory Committee, Banking Association of South Africa (Sustainable Finance

Committee) and UNISA Climate Change Advisory Committee.

Investment Research Nedbank is a participant in the Old Mutual Group Utilities Project, which is

aimed at identifying energy savings and energy efficiency savings.


to Climate Change

None Identified.

Compensation Link Nedbank does not report any employee incentives related to sustainability

performance in their Annual Report. However, it does recognise employees who

are making significant changes to their lifestyle in an effort to curb global

warming thorough its annual Green Trust Staff Awards Programme.



Annual Report

Nedbank's Annual Report (2008) states: "climate change remains a core focus

area and the Nedbank Group believes in playing its part in increasing energy

efficiency and reducing carbon emissions." However, it does not include any

statements on the potential risks or opportunities that the bank faces as a direct

result of climate change issues.

Sustainability Report Title: Sustainability and Transformation Report 2008; Website:

http://www.nedbankgroup.co.za; GRI Accordance: G3 Guidelines

Carbon Disclosure

Project

Member: No; Signatory: No; CDP 2009. Answered Questionnaire (Public)

CDP 2009 Physical Risk Disclosure: Nedbank has experienced incidences of

branch closures due to unstable energy supply/blackouts, water restrictions in

certain areas and even extreme weather events such as flooding. All insurance

policies are reviewed annually to ensure cover against any growing risks,

including those associated with possible impacts arising from climate change.

The physical risks of climate change have the potential to impact on our

employees who themselves face the increasing challenges of energy supply

blackouts; resulting communicating challenges and the cumulative impact of such

on both time and performance management. Nedbank has accordingly

implemented flexible work practices.

CDP 2009 Regulatory Risk Disclosure: Nedbank‟s direct exposure to regulatory

instruments for emissions reduction impacts mainly through our investment

banking and property portfolios with some increased pressure on our operational

costs in respect of energy in particular. Nedbank acknowledges that it could incur

indirect exposure to a broader range of regulatory risks through potential impacts

on our existing and future client base.

CDP 2009 Reputational Risk Disclosure: Nedbank is currently a member of the

Dow Jones World Sustainability Index and JSE Social Responsibility Index, and

faces the possibility of our ranking on these indices being eroded if we are unable

to respond appropriately to the climate change challenge. Nedbank believes that

there is a clear reputational and brand equity risk associated with not addressing

climate change issues proactively and that this will translate into reduced

shareholder value. Nedbank continues to identify and manage these risks

proactively through our Enterprise-Wide Risk Management Framework in order

to avoid any negative reputational exposure with resulting decreases in

shareholder value.

Public Policy Statements Nedbank Chairman, Dr Reuel Khoza, stated in Nedbank Group's Sustainability

and Transformation Report (2008): “embracing our role in addressing climate

change has been a central focus of our group in 2008. Nedbank acknowledges

that the challenges of climate change extend beyond the environment and also

impact the economic and social arenas. In promoting a sustainable agenda we

hold ourselves accountable and we have taken action to address climate change

by setting reduction targets in respect of our energy, water, paper usage and travel

so as to begin to minimise our carbon emissions and our impact on the

environment.”



GHG Emissions

Inventory

Year: 2008; Facility/Region: The information made publicly available relates

only to the 13 head office and regional office buildings managed by Nedbank

Group Property Services. Protocol: GHG Protocol.



Scope 1 [Direct] 1,222


Scope 3

Travel 29,751

Leased Buildings -

Products 3,179

Supply Chain -

Accounting Methods Nedbank uses the Greenhouse Gas Protocol - Corporate Accounting and

Reporting Standard (revised edition). In addition, they specify that

air-conditioning and refrigeration gas calculations used are wholly dependent

upon data from external service providers. Excluded from the reporting boundary

are: leased and rented South African retail outlets and any unlisted regional

offices; non-South African offices (e.g. Nedbank London); South African and

Non-South African wholly or partially owned subsidiary companies; Imperial

Bank and emissions associated with the operation and service of Automated

Teller Machines (ATM‟s), Self Service Terminals (SST‟s), Point of Sale (POS)

and other remote devices. The bank also reports in their response to the CDP

2009 that DEFRA and ESKOM Emission Factors are used for Scope 1 and

Scope 2 Emissions respectively.

Third Party Certification Ernst and Young performed an audit on Scope 1, 2 and 3 Emissions reported by

Nedbank.



Offsets


Energy Efficiency Savings: Nedbank was able through better housekeeping

efforts to reduce energy consumption in their Head Office by 6% in purchased

electricity - a cost saving of R 1.9M which equates to an emissions reduction of

1.88% from 2007.




Reduction

Targets


Total

Emissions

- - - All Internal

Operations


Operations

Carbon

Emissions


Operations

Water Use 5% 2005 2010 All Internal

Operations

Paper Use 10% 2007 2010 All Internal

Operations

Target Details Nedbank reported in their response to the CDP 2009: "Further reductions in

energy consumption will be achieved through technological interventions, such as

replacement of air-conditioners with more efficient technology, computer

virtualization and changing to energy efficient lights, e.g. CFLs or LEDs. This

will feed into a CDM project for energy efficiency in buildings. Water-saving

initiatives were introduced that resulted in reduced consumption as well as

reintroducing a natural dam and cleaning alien vegetation at Nedbank's training

facility at Olwazini in the Cradle of Humankind. Paper consumption is carefully

monitored and printers have been adjusted to print on both pages as a default

setting. Another measure introduced to reduce paper wastage is secure printing

where a password is required to print documents in the print-queue. Unprinted

documents at the end of the day are then deleted from the queue, reducing paper

wastage."

Emissions Trading Nedbank is actively pursuing opportunities to monetize carbon credits for itself

and its clients, both CERs and VERs. Nedbank regards the Clean Development

Mechanism of the UNFCCC, and consequential carbon trading, as the most

visible regulatory opportunity at this stage. Although renewable energy and low

carbon technology markets are heavily influenced by regulation, they also have

other fundamental drivers such as technology advances and energy security

concerns. Nedbank‟s position as one of the leading South African banks, together

with our strategic focus on Sub-Saharan Africa, provide us with a unique

opportunity to advise clients of the opportunities that CDM affords, and to assist

them to attain those benefits through adopting a low carbon approach to realising

project goals (CDP, 2009, pp 34).



Renewable Energy Nedbank has investigated renewable energy options in 2008 such as building

integrated photovoltaic (BIPV) panels on its roof and the possibility of wheeling

clean energy to Nedbank. However, these technologies are considered expensive

and in the current economic environment do not warrant the capital outlay needed

for their implementation (CDP, 2009, pp 38).

Nedbank hosted the National Renewable Energy Conference, a multi-stakeholder

event to stimulate widespread support for rapid national development of

renewable energy industries as well as appropriate financing strategies. Following

the conference, a member of Nedbank Capital‟s Carbon Finance team joined a

working group aimed at lobbying government for the introduction of renewable

energy feed-in tariffs and to generally support/promote the development of

renewable energy technologies. As a result, the National Energy Regulator of

South Africa (NERSA) approved Renewable Energy Feed-In Tariffs (REFIT) on

31 March 2009.

Energy Efficiency Nedbank rolled out a Group-wide Energy Efficiency Campaign (Power2U). The

campaign encouraged employees to reduce their carbon footprint both at work

and at home. Employees were invited to exchange their old, energy intense light

bulbs for energy-saving bulbs, free of charge, at their head offices and branches.


Investment Products

Nedbank reports in their Sustainability Report (2008) that it has established a

dedicated Carbon Finance Team to view carbon dioxide and other emissions

holistically. The team looks at emissions end-to-end, using a 5 pronged approach

that draws on cross-functional expertise in finance against the backdrop of a value

proposition comprising the following: sustainability, carbon advisory and

footprint services as well as identification and development of energy efficient

projects.

Nedbank is committed to developing innovative financing solutions to facilitate

investment in clean energy and energy efficiency projects. Nedbank‟s energy

project finance team is financing a number of renewable energy projects and will

increase investments in this sector and other clean technologies. Nedbank has set

up a carbon finance team, which is involved in the origination of clean

development mechanism projects under the framework of the Kyoto Protocol.60

60 Source: Nedbank Climate Change Positioning Statement (2009)


Table C4: Sample Profile – FirstRand Group

Company Information

FirstRand is the only fully integrated financial services group in South Africa. It

is also the only „owner-managed‟ firm among the four major retail, commercial

and investment banking groups in South Africa.

Contact Information

Chairman Mr G Ferreira

CEO Mr S Nxasana

Contact +27 (0) 11 282 1808

Address

4th

Floor

4 Merchant Place

Cnr Friedman Drive and Rivonia Road

Sandton

South Africa


Board Committee:

Environmental Oversight

Audit, Risk and Compliance Committee reports the activities of the Group

Environmental Forum to the Board.

Committee Chair

Not Identified. However, FirstRand indicated in an interview that the Group

Environmental Forum is chaired by the Environmental Health and Safety

Manager (Ms M Ronquest).

Board Committee:

Climate Change FirstRand Board of Directors


Change Sizwe Nxasana (Chief Executive Officer)

Board Role Mr Nxasana, Chief Executive Officer, is responsible for environmental issues, the

approval of international and national submissions and FirstRand's Climate

Change Strategy.

FirstRand reported in their response to the CDP 2009: "The Group Environmental

Forum was mandated by the Board in 2007 to set strategic objectives for and

direction on environmental issues. The Forum, is attended by representatives

from the major operating divisions across the Group, addresses issues of

relevance to FirstRand as a financial services group." FirstRand reported in an

interview that the board takes specific actions related to climate change.




CEO


Group Chief Executive, Paul Harris, stated in the Group's Abridged Sustainability

Report (2008): "The need for open and honest communication, value-for-money

products and services, transparent pricing and solutions to assist our customers in

these tough economic times is now even more important than ever before. While

economic and social development requirements are possibly more prominent in

our macro landscape at this current time, it is important to be mindful of the

potential impact of climate change on our world." Mr Harris is quoted in the

bank's response to the CDP in 2009: "“We continue to work actively at reducing

the environmental impact of our operations. We measured our carbon footprint,

continued reducing our consumption of resources and worked towards attaining

ISO 14001:2004 certification for a number of our large buildings. As a large

financial services provider, we continue to maintain environmental and social risk

vigilance in our financing and lending activities, while working toward helping

the market implement solutions to climate change by developing suitable

financial products."

Company Policy None Identified. However, the bank has indicated in their response to the CDP

2009 that it is currently developing a Carbon Management Strategy. It also

reported in its Sustainability Report (2008): "All business units are expected to

clearly understand and monitor the cost and revenue as well as social and

environmental implications of all actions. The extent to which such actions do or

do not add value must be understood."

Chief Environmental

Officer

None Identified.

Levels to CEO 1

Climate Change

Executive

Mr Nxasana, Chief Executive Officer, is responsible for environmental issues, the

approval of international and national submissions and FirstRand's Climate

Change Strategy.

Executive Committee FirstRand suggests in their response to the CDP 2009 that there are three

executive committees that report on the efforts of the Environmental Forum.

These are the Operational Risk Committee, Regulatory Risk Management

Committee and the Risk Audit and Compliance Committee. The bank does not

provide a definitive statement that indicates explicitly whether oversight on

climate change issues is provided by these executive committees. However,

FirstRand indicated in an interview that the Environmental Forum is an executive

committee and deals specifically with climate change issues.

ESG Factors in Risk


RMB is targeting Clean Development Mechanism projects to generate emission

reduction credits, maintaining an environmental risk policy aligned to the Equator

Principles and ensuring that clients complete an Environmental Impact

Assessment on projects prior to obtaining finance.

Staff Training/Education None Identified. However, FirstRand reported in an interview that it runs a

compulsory online environmental awareness training programme (incorporating

climate change aspects) as well as performing induction training which includes

climate change, general environmental and sustainability awareness issues. The

awareness training is extended for a select number of employees with

environmental responsibilities who are given have a online interactive,

compulsory training course covering climate issues.



External Initiatives JSE Social Responsibility Index, Equator Principles, Clinton Climate Initiative

Building Retrofit Programme and UN Global Compact.



to Climate Change

None Identified.

Compensation Link FirstRand does not provide incentives for individual management of climate

change issues. However, it reported in its response to the CDP 2009 that it has

introduced a special category in its annual Innovators Campaign, Sustainable

Innovations, to reward individual innovation with regard to social and

environmental benefits for the organisation.



Annual Report

FirstRand's Annual Report (2008) does not have any specific reference to climate

change, but does provide a broad overview their view on sustainability. The

report stated: "The FirstRand Group continues to strive fo the highest possible

standards in good, corporate citizenship and reporting in respect of sustainable

business practices. It recognises that it has a duty not only to its shareholders, but

to its many other stakeholders. These include the environment and the

communities in which we operate, our customers, employees, suppliers,

government and our regulators."

Sustainability Report Title: Sustainability Report 2008; Website: http://www.firstrand.co.za; GRI

Accordance: G3 Guidelines

Carbon Disclosure

Project

Member: No; Signatory: Yes; CDP 2009. Answered Questionnaire (Public)

CDP 2009 Physical Risk Disclosure: "The impact of climate change on our

operating territories in Africa and vulnerable segments of our client market (e.g.

CO2-intensive industries, energy or water-dependent consumers e.g. farmers, high

impact sectors such as chemical manufacturers) may affect their own business

position, thereby affecting their financial attractiveness. Through our exposure to

at-risk clients, suppliers, communities and other key stakeholders operating in

environmentally-vulnerable areas (e.g. areas prone to coastal flooding) or

utilising valuable environmental services (e.g. water-intensive mining,

manufacturing and agricultural operations), we face an indirect business risk."

South African Environmental Fiscal Reform: A number of environmental

pronouncements that could inform taxation and incentives were made by the

Minister of Finance in February 2009. The items that could have a material direct

or indirect impact in our business include: incentives for firms to invest in

energy-efficient technologies and cleaner production; implementation of the

electricity levy; reforms on motor vehicle excise duties to include carbon

emissions; introducing a new tax on energy intensive light bulbs; making certified

emission reduction credits subject to capital gains tax.

CDP 2009 Regulatory Risk Disclosure: “South African Climate Change policy

positions informed by Long Term Mitigation Scenario (LTMS) and the National

Climate Change Policy Framework: The Focus of the Long Term Mitigation

Scenario61

is to ensure the ultimate reduction of national Greenhouse Gas

emissions. This is supported by limits which are yet to be determined. The

Minister of Environmental Affairs and Tourism has also indicated that voluntary

emissions reporting may make way for mandatory reporting. Consequently, there

is a significant focus on climate change, sustainable development, energy

efficiency, and new and scaled-up environmentally-friendly technology

investment at both a national and international level. This may pose an impact

indirectly on FirstRand‟s business, where clients in CO2-intensive sectors face

increased costs or try to transition to lower CO2 options.

CDP 2009 Reputational Risk Disclosure: FirstRand recognises that legal,

reputational and market risks shall increase as a result of changing consumer

expectations. The bank suggests that it potentially faces the risk of being less

attractive to their target market if they do not innovate and develop financial

solutions that assist customers to manage their own environmental impact e.g. do

not offer financing for environmentally friendly solutions.

61 Source: Discussion Document (March 2009)



Public Policy Statements Nedbank Chief Executive, Mr Paul Harris, stated in the bank's response to the

CDP 2009: "We continue to work actively at reducing the environmental impact

of our operations. We measured our carbon footprint, continued reducing our

consumption of resources and worked towards attaining ISO 14001:2004

certification for a number of our large buildings. As a large financial services

provider, we continue to maintain environmental and social risk vigilance in our

financing and lending activities, while working towards helping the market

implement solutions to climate change by developing suitable financial products."


GHG Emissions

Inventory

Year: 2008; Facility/Region: The organisational boundary includes the following

companies and divisions under the control of FirstRand Ltd: FirstRand Bank Ltd;

First National Bank; Rand Merchant Bank; Momentum Group; Wesbank and

Ebucks Ltd. FirstRand followed the consolidation approach that covered all

divisions, entities and businesses in the reporting boundary. The consolidated

approach included companies and building over which FirstRand has operational

or financial control as well as leased facilities. Protocol: GHG Protocol.





Scope 3

Travel 5,201

Leased Buildings 173,631

Products 1,759

Supply Chain -

Accounting Methods FirstRand uses the Greenhouse Gas Protocol - Corporate Accounting and

Reporting Standard, 2006 IPCC Guidelines for National Greenhouse Gas

Inventories. The establishment of the carbon footprint was done in line with

principles of good carbon reporting practice as contained in the Greenhouse Gas

Reporting Protocol.

Third Party Certification FirstRand did not get third party verification of their Scope 1, 2 and 3 emissions

reporting. However, they report that Price Waterhouse Coopers performed the

calculation of their carbon footprint.

Certification Year Not Applicable.


Offsets


Energy Efficiency Savings: ZAR 7,516,351 was saved.




Reduction

Targets


Total

Emissions62


Operations


Operations

Carbon

Emissions


Operations

Water Use - - - -

Paper Use - - - -

Target Details FirstRand reported in their response to the CDP 2009 with regard to their plans

for achieving reduction targets that: "lighting retrofits and motion sensors are to

be implemented in all FirstRand buildings; all remaining CRT computer screen

are to be replaced by LCD screens; energy saving settings and remote shutdown

of all computers, including Linux 7590 computers is to be implemented; the use

of newer technologies such heat pump water heaters is being investigated; power

factor correction is being implemented where necessary and server virtualization

using blade server technology is currently being implemented in their computer

centres."

OUTsurance has committed to a 30% reduction in paper used is recycled.

Wesbank has committed to determining the impact of offsetting CO2 emissions

generated by motor sport events. All business units are committed to FirstRand's

Group Climate Change Strategy Development and to extend Baseline of Carbon

Footprint Assessment.

Emissions Trading FirstRand has reported that it has a carbon trading desk to trade CO2 and support

CDM projects that will generate emission credits.

Renewable Energy FirstRand has signed an energy performance contract as part of the Clinton

Climate Initiative aimed at uniting businesses and institutions in battling climate

change by greening facilities. The firm also reports involvement in experimental

self-generated and renewable energy projects in a small number of areas.

Energy Efficiency None Identified.


Investment Products

None Identified.

62 Source: Interview with FirstRand on Tue, 10 November 2009.


Table C5: Sample Profile – Standard Bank

Company Information

Standard Bank is a universal bank offering transactional banking, saving,

borrowing, lending, investment, insurance, risk management, wealth management

and advisory services.

Contact Information

Chairman Mr Derek Cooper

CEO Mr Jacko Maree

Contact +27 (0) 11 636 9111

Address

9th

Floor, Standard Bank Centre

5 Simmonds Street

Johannesburg

South Africa


Board Committee:

Environmental Oversight Group Risk and Capital Management Committee

Committee Chair

Not Identified. However, Standard Bank indicated in an interview that it is Martin

Shaw.

Board Committee:

Climate Change None Identified.


Change

None Indentified. However, Standard Bank indicated in an interview that there is

no single person appointed on the board to hold climate change responsibility, but

there are various persons on the board addressing this issue.

Board Role Standard Bank reported in the response to the CDP 2009: "The Group Risk and

Capital Management Committee, is the appropriately delegated risk oversight

body on behalf of the Board and has ultimate responsibility for environmental

risk.

Board Training None Identified. The board has received awareness training around climate

change, but not detailed training according to an interview with Standard Bank.



CEO


None Identified.

Company Policy None Identified. However, the bank reported in their Sustainability Report

(2008): "Standard Bank is a market leader in carbon finance and trading. We

apply a number of quality criteria to the emissions reduction projects we finance

or purchase carbon credits from, which ensure that they deliver real and

permanent emissions reductions, and make a positive contribution to sustainable

development."

In addition, the bank reported in their response to the CDP 2009: "Standard Bank

is developing a fully integrated business around climate change. The business will

provide support to regulated companies and countries as well as help develop

projects that reduce green house emissions at the lowest marginal cost. Standard

Bank participates as a financial intermediary in trading schemes around the world

to ensure we have global coverage for our client base."

Chief Environmental

Officer

None Identified.

Levels to CEO 1

Climate Change

Executive

Karin Ireton (Director - Group Sustainability Management) is directly involved

with Climate Change issues.

Executive Committee Standard Bank indicates in their response to the CDP 2009 that the Strategic

Issues Forum is an executive body addressing climate change issues.

ESG Factors in Risk


Standard Bank views climate and environmental risk in the same cluster

according63

- the Chairman of the board participates in a monthly strategic issues

forum and is informed on climate issues at this forum. Standard Bank trades

ERUs, CERs and EUAs as a business activity in itself as well as in support of risk

management of their financing activities.

Staff Training/Education None Identified. However, Standard Bank indicated in an interview that training

is offered at various levels including at their leadership college where at executive

level one-tenth of the time spent is dedicated to global issues - chief among them

is climate change. The middle to junior level managers get sensitivity training

pertaining to climate change issues.

External Initiatives JSE Social Responsibility Index, Equator Principles, Carbon Markets and

Investors Association, Green Building Council (SA). Standard Bank also engages

with the National Business Initiative on issues pertaining to climate change.



to Climate Change

None Identified.

Compensation Link Standard Bank does not incentivise individual management of climate change

issues.

63 Source: Interview with Standard Bank on Wed, 11 November 2009.



Annual Report

Standard Bank's Annual Report (2008) does not have any specific statement on

climate change or sustainability. However, the Sustainability Report (2008)

indicated: "The group continues to focus on a wide range of sustainability-related

initiatives across economic, social and environmental dimensions, which are

comprehensively discussed in this sustainability report. We believe it is important

at this time to focus on sustainable development opportunities as this can assist in

mitigating broader business risks such as social instability caused by loss of

income and employment as well as the depletion of resources."

Sustainability Report Title: Sustainability Report 2008; Website:

http://sustainability.standardbank.com; GRI Accordance: G3 Guidelines

Carbon Disclosure

Project

Member: Yes; Signatory: Yes; CDP 2009. Answered Questionnaire (Public).

CDP 2009 Physical Risk Disclosure: Standard Bank stated that projects or

institutions financed by the firm may be exposed to the physical risks of climate

change, particularly in relation to extreme weather risks linked to global climate

change.

CDP 2009 Regulatory Risk Disclosure: Standard Bank indicated that "potential

risks may arise from the regulation of financing of emission-intensive activities

through Project Financing - projects that are subject to challenge become less

economic as CO2 emissions targets become more stringent". In addition, carbon

market regulation, including regulation of the nature and type of trading, poses a

risk to the bank." The lack of an agreed and transparent regime post-2012 places

considerable constraint on, and risk in the Bank‟s ability to channel capital into

emission reduction projects. Effectiveness of the regulatory regime surrounding

existing carbon markets, in particular the institutions and practices in

administration and regulation of the Clean Development Mechanism (CDM) and

Joint Implementation (JI). As a participant in these markets, regulatory

uncertainty over the lack of consistency in the processes and practices of the

CDM Executive Board expose Standard Bank to considerable regulatory risk."

CDP 2009 Reputational Risk Disclosure: Standard Bank recognises the

reputational risks related to climate change and financing of high impact

industries as a possible threat to their business.

Public Policy Statements None Identified.



GHG Emissions

Inventory

Year: 2008; Facility/Region: All South African Operations; Protocol: GHG

Protocol.





Scope 3

Travel 3,492

Leased Buildings -

Products -

Supply Chain -

Accounting Methods Standard Bank has used the Greenhouse Gas Protocol – Corporate Accounting

and Reporting Standard. The firm confirmed use of the following calculation

tools: CO2 emission from business travel; CO2 emissions from fuel use

combustion; CO2 emissions from transport mobile services and individual CO2

emissions from purchased electricity, heat and steam. The calculation was based

on 34944 employees and specifically excludes: combustion of fuel in boilers or

furnaces; business travel in corporate jets (Standard Bank does not own such

aircraft); combustion of diesel in generators associated with leased properties;

business travel related to car rental and hotel accommodation; emissions from

employee commuting; emissions resulting from paper consumption or emissions

arising from end-user use of services sold by the reporting company.

Third Party Certification Ernst and Young performed an audit on Scope 1, 2 and 3 Emissions reported by

Standard Bank.



Offsets


Energy Efficiency Savings: None Identified.




Reduction

Targets


Total

Emissions

- - - -

Energy Use 10% 2007 All Internal

Operations

Carbon

Emissions

- - - -

Water Use - - - -

Paper Use - - - -

Target Details Currently, Standard Bank focuses on energy reduction through various initiatives

such as joining the Green Building Council of South Africa. This will ensure that

all new buildings are designed built and operated in an environmentally

sustainable way. Standard Bank uses the Green Star SA rating system when

designing new buildings. This system also takes into account energy and water

consumption, materials used and site emissions of buildings (CDP, 2009, pp 26).

Standard Bank reported in their response to the CDP 2009 that they intend to

meet reduction targets by: "implementation of an environmental control program

in buildings in accordance with energy management initiatives (transport, natural

air circulation, solar heating, building insulation technology, waste water re-

cycling, recycling of building materials, land-use & ecology, reducing CO2

emissions, innovation etc); higher efficiencies on air-conditioning such as ice

storage technology, high pressure refrigerant and dual cycle air-conditioning

systems; load management systems to efficiently sustain and operate critical

premises by reducing and smoothing of electricity demand profiles to obtain

lowest electricity cost; central remote monitoring and management of energy

consumption of critical equipment of all sites including branch network and solar

installations where economically feasible.

Emissions Trading Standard Bank reports in its Sustainability Report (2008) that it is actively

involved in efforts to promote the development of carbon markets - the bank has

developed relationships with the European Commission, Clean Development

Mechanism and governments to pursue this goal. Standard Bank trades Certified

Emission Reduction and Emission Reduction Units, the finances against them and

European Union Allowances. The company is also actively considering

involvement in other compliance based markets. Standard Bank also indicated

that it is a signatory investor in the Carbon Disclosure Project, with the intention

to use data acquired there to develop products linked to carbon management.

Renewable Energy None Identified.

Energy Efficiency Standard Banks reports on their website that it is currently investigating solutions

to reduce energy consumption in its main buildings and older branches. However,

the bank has various initiatives in place to optimise energy usage of their air-

conditioning systems. These include load monitoring systems, the use of new

control technologies that reduce energy consumption as well as replacing old air-

conditioning chillers with modern units that are more energy efficient. The bank

also reported the installation of power factor correction panels, which reduce

electricity demand, at the main computer centre at the head office.


Investment Products

None Identified.


Climate Change and the Role of Banks: A Study on the Corporate Response from the Major Banks in South Africa

Documents

climate change table

problem of climate change

challenge of climate

research report

climate actions

global climate

climate change related

south africa research