FirstRand, which operates FNB, RMB and WesBank, approaches climate risk integration systematically and thoroughly, shareholder activist group Just Share says, but its efforts to mitigate climate risk lack urgency.
The nonprofit group said in a report issued in April that what FirstRand refers to as its fossil fuel financing limits allow the financial services group to increase its financing to thermal coal by at least three times and to upstream oil and gas by five times.
The bank asserts that these limits don’t constitute its financing goals, Just Share said in its report. “However, making long-term commitments to climate goals, including to be net zero by 2050, while continuing to allow for an increase in financing for fossil fuels in the short- and medium-term, is not aligned with climate science. It undermines the bank’s commitment to climate action and its own recognition of climate risk as a principal risk.”
Sam Moss, head of investor relations at FirstRand, countered that the group has put limits in place for sectors with elevated climate risk such as fossil fuels to protect against stranded asset risk.
A stranded asset is one that suddenly loses its value or becomes unusable — a predicament for which climate change is becoming a cause. Stranded assets can lead to significant losses for companies and investors because they no longer offer a means of making a return.
Against global benchmarks FirstRand’s limits and actual exposures are at conservative levels, Moss said. In the group’s most recent climate change strategies report, the existing limits on thermal coal sit at a maximum 2% of group loans and advances, with oil and gas having a maximum of 2.5% of group loans and advances.
“There is headroom in these limits to cater for fluctuations in working capital cycles of these sectors, and to enable us to provide financing into these sectors in support of their transition journeys to lower carbon business models,” Moss said.
FirstRand’s report said transition pathways and financed emissions ranges will be developed for oil and gas and other sensitive sectors, and allocated to businesses to operate within, to ensure that the emissions from these portfolios diminish over time in a manner consistent with the group’s commitments.
FirstRand’s position on gas remains disconnected from its long-term goal of net zero by 2050, and from its own recognition of the limited role for gas in the energy transition
— Just Share
But, Just Share said, FirstRand hasn’t set a science-based base case transition path or made short-, medium- and long-term commitments. The commitments FirstRand has made do not constitute emission reduction targets, it said.
Just Share added: “Crucially, the bank reports that thermal coal currently makes up 0.3% of its total group advances (0.1% for thermal coal mines and 0.2% for power generation). According to this, even by its lowest limit in 2030, FirstRand can still increase its financing for thermal coal by more than three times what it is now, and that is if the group’s total advances remain the same — which is unlikely.”
The bank may have set a limit of 2.5% of the group’s total advances when it comes to oil and gas, but Just Share said this applies only to upstream oil and gas and there’s no limit on downstream oil and gas or on natural gas. There’s also no timeline for reducing this limit in line with the bank’s climate commitments and it allows for an increase in financing for upstream oil and gas, which currently accounts for 0.5% of total group advances, Just Share said.
“FirstRand’s position on gas remains disconnected from its long-term goal of net zero by 2050, and from its own recognition of the limited role for gas in the energy transition.” Just Share gave the group credit for linking its climate strategy to executive remuneration, but noted FirstRand’s exposure to high and elevated levels of transition risk rose to R194.4bn in 2023 from R176.6bn a year earlier.
FirstRand is not the only bank to have been scrutinised by Just Share. The nonprofit said late last year in a report called “How Cool is Your Bank?” that Absa and Standard Bank lagged, due largely to their performance in the categories for emission reduction targets and governance and strategy.
None of the big five banks is tackling climate risk robustly when assessed against the goals of the Paris Agreement and what is required by climate science to achieve them, according to Just Share.
In an assessment report in 2023, the Intergovernmental Panel on Climate Change (IPCC) said there is a rapidly closing window of opportunity to secure a liveable and sustainable future for all, and that “the choices and actions implemented in this decade will have impacts now and for thousands of years”.
The IPCC’s report reiterates that climate change is driving widespread loss and damage to nature and people, Just Share said. “In spite of all evidence, including increasingly severe and unpredictable weather events which are having catastrophic impacts across the globe, financial institutions continue to fund new fossil fuels, and to resist setting clear science-aligned emission reduction targets. In addition, finance flows fall far short of the levels needed to meet climate goals across all sectors and regions.”
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