Carbon-related assets place us at risk.
Our deposits
The money you deposit in the bank is pooled, and the bank may use that money to provide to its other clients or invest.
Our pensions and investments
Your pension fund or asset manager may invest your funds in one of South Africa’s banks.
Banks’ business
Banks provide finance, loans, and equity investments to companies from which they earn interest and fees.
This includes finance and services to high greenhouse gas emitting companies, which form part of a bank’s corporate loan portfolio.
The banks assessed in Full Disclosure 5 provide a number of solutions to corporate clients. Corporate banking services typically include:
- Corporate and transactional banking
- Providing loans and working capital requirements
- Financing commercial and industrial property development
- Investing in projects and infrastructure (through debt or equity)
Banks may provide financing, loans, or other financial services to companies that emit high amounts of greenhouse gases. Banks have, for example, provided funding to independent power producers who generate electricity to sell to Eskom.
A lack of information places banks at risk.
Banks need to assess the extent of their exposure to climate-related risks in their corporate and wholesale loan portfolios. A catastrophic climate-related event (physical risk), or unexpectedly rapid decline in commodity prices (transitional risk) that affects borrowers’ ability to repay the bank could potentially lead to bank failure depending on the extent of the bank’s exposure to affected sectors.
Companies that emit high amounts of greenhouse gases face physical and transitional risks as a result of their emissions. These risks are passed on to the bank: if emitters are unable to repay their debts to the bank, the emitters could default on their loans, placing banks’ corporate and wholesale loan portfolios at risk.
A lack of strategy places our funds at risk.
Climate change is not just an ESG issue, it is a financial issue. Transparent reporting which encourages good corporate governance and risk management practices can ensure that the banking sector avoids another global financial crisis.
The 2008 global financial crisis was sparked by a collapse of US banks which had provided loans to people who had difficulty repaying. A similar crisis could occur in, what is referred to by economists and the financial sector as, climate’s “Minsky moment”. According to UNCTAD’s Trade and Development Report 2019, “if financial portfolios are not aligned with climate policies, there could be a “climate Minsky moment” where a rapid system-wide adjustment to climate change threatened financial stability, in addition to wider impacts on productivity and growth.”
UNCTAD Trade and Development Report 2019Oliver Wyman – Climate Change: Managing a New Financial Risk