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Climate Change Risk Reporting is a Necessity


The way companies report on environmental, social and governance issues in their Integrated Reports is a major concern to investors and other stakeholders. Recently, in South Africa, some shareholder activists and lobby groups picked up placards and picketed outside of a Standard Bank AGM. Their concern? A voting resolution requiring the banks to do more in terms of dealing with the climate crisis and as a meaningful start should report on how exposed the bank’s lending, financing and investment activities are to climate risks.

South Africa is one of the continent’s worst polluters, being home to several large companies in carbon-intensive industries such as mining. Like many African countries, it is still reliant on fossil fuels to meet its energy needs. Banks’ financing choices have a major role to play in promoting carbon reduction since bank lending and investments make up a significant source of external capital for carbon-intensive industries.

The resolution proposed would not have required Standard Bank to change any of its policies, the bank would merely have to report on the business’s exposure to climate risks. Ultimately this resolution was voted down by 60% of shareholders, while another was passed forcing the company to disclose its coal financing policies.

Difficult issue

Another big South African bank has been taking a proactive approach to climate risk reporting. Absa Chairwoman Wendy Lucas-Bull gave a speech at the company’s AGM, saying, “It’s a very difficult issue to navigate and we realise we exert a significant influence on who and what we fund, as well as how we partner and advocate with various governments.”

This would ultimately result in Absa developing policies that would help the banking giant decide how it would employ its R1.2-trillion balance sheet to finance activities that could positively contribute to, or mitigate against, climate change.

The Task Force on Climate-related Financial Disclosures (TCFD), a market-driven initiative, was established in 2015 to develop a set of recommendations for voluntary and consistent climate-related financial risk disclosures in mainstream filings.

The Climate Disclosure Standards Board (CDSB) was founded in 2007 and is an international consortium of nine business and environmental NGOs committed to advancing and aligning the global mainstream corporate reporting model to equate natural capital with financial capital. It does so by offering companies a framework for reporting environmental and climate information with the same rigour as financial information.

The Sustainability Accounting Standards Board (SASB) connects businesses and investors on the financial impacts of sustainability. An independent, standard-setting organisation founded in 2011, SASB’s mission is to help businesses around the world identify, manage and report on sustainability factors that matter to investors. SASB standards are developed based on extensive feedback from companies, investors and other market participants as part of a transparent, publicly documented process.

Climate Risk Transparency

FirstRand’s Notice of Annual General Meeting, released on 8 October 2019, includes two climate risk shareholder resolutions proposed by the RAITH Foundation and non-profit shareholder activism organisation Just Share.

FirstRand is the second South African company to table climate risk-related shareholder resolutions. The first was Standard Bank in April 2019. FirstRand’s ordinary resolutions 5 and 6[1], if passed with more than 50% of shareholder votes at the company’s 28 November AGM, would require the bank to report on its assessment of its exposure to climate-related risks, and to adopt and publicly disclose a policy on fossil fuel lending.

Tracey Davies, executive director of Just Share, says: “Banks’ financing choices have a major role to play in promoting carbon reduction, as bank lending and investments make up a significant source of capital for carbon-intensive industries.

As shareholder activists, investors and society at large increasingly seek out and consider financially material information about how companies manage climate change risks, impacts and opportunities, TCFD recommendations following the review will continue to gain traction as a useful resource to guide effective disclosure for companies. SASB and CDSB have materials in place to help companies make decision-useful, effective TCFD disclosure in their integrated reports.