Nedbank, SA’s fifth-largest bank by market value, is targeting renewable energy projects as a major growth driver as it seeks to capitalise on the global transition to a more environmentally sustainable economic system.
The lender, which has been almost entirely unbundled from Old Mutual apart from a 7.2% stake, has positioned itself as SA’s leading green financier thanks to the R30bn worth of projects it has already financed as part of SA’s highly successful Renewable Energy Independent Power Producer Procurement Programme (REIPPP). Nedbank’s board has increased its appetite for renewable projects by a further R20bn, taking its total commitment to the green energy sector to R50bn.
It has also committed to provide another R2bn to finance embedded self-generation projects by end-2022 after President Cyril Ramaphosa raised the threshold for private companies to generate their own electricity without a licence to 100MW. Nevertheless, no further announcements on that threshold limit have been announced, leaving industry in a quandary about whether to invest.
“Looking forward, I think the largest growth opportunity lies in the energy transition that our country and many other countries will undergo,” Nedbank CEO Mike Brown told Business Day in an interview. “I think this transition of our energy sector over time is a multiyear opportunity for growth.”
Nedbank’s focus on renewables comes at a time when SA’s financial institutions are facing scrutiny over their role in financing carbon-intensive projects ranging from thermal coal mines to oil and gas projects. Earlier this week the UN Intergovernmental Panel on Climate Change (IPCC) published a report described as a “code red” warning for humanity to take more stringent action to ensure a sustainable future.
Brown says the bulk of the additional R20bn Nedbank has approved to finance renewable energy projects has already been earmarked for four projects with combined generation capacity of 500MW as part of SA’s Risk Mitigation round, which in turn consists of eight projects, that were awarded preferred bidder status by the government with a combined generation capacity of 1,845MW. The total project finance Nedbank has earmarked for these projects, which include solar, wind, liquefied natural gas (LNG) and battery storage, totals R16bn including derivatives.
“At this stage the R50bn is the current board approved limit,” says Brown. “However, moving towards 2045 the level of funding allocated to renewal energy will likely be materially higher to support the transition towards zero exposure to fossil fuel-related activities by this date. The board will consider this limit in due course.”
As part of its energy policy, Nedbank has pledged to restrict its funding for thermal coal mines or any infrastructure and trade related to thermal coal to less than 1% of its gross loans and advances and to further reduce that to 0.5% of gross loans by 2030. It has also undertaken to not directly finance any new gas exploration projects unless they play a key role in facilitating the global transition towards net-zero carbon emissions by 2050. In fact, Nedbank is targeting zero exposure to all activities related to fossil fuels by 2045.
But like its competitors, Nedbank still has to face the reality of having to provide a return on its investments in a pandemic-hit economy that is also grappling with record unemployment and a volatile sociopolitical climate that recently erupted in widespread unrest. Then there’s also the nasty fact that SA, which has been battling electricity shortages for more than a decade, relies on coal to generate about 90% of its power needs.
“It doesn’t help anyone to run out of electricity and we already don’t have enough,” said Brown. “That’s the balancing act.”
Brown said the recent unrest in SA, coupled with the Covid-19 pandemic, had hastened Nedbank’s transition towards becoming a more digitised lender. Though he declined to say how many of Nedbank’s 546 branches and 4,242 ATMs might be affected by the digitisation drive, he said the effect was likely to be greater on its branch network
“ATMs are becoming increasingly intelligent and are being used for multiple transacting activities,” said Brown, adding that Nedbank was likely to continue with a “hybrid” model that retained some physical presence while gradually growing its digital offerings.
“All you have to do is go to one of Nedbank’s branches at month end and you will see that there is still very strong foot traffic through many of those branches,” said Brown.
Correction: August 13 2021
A previous version of this story said Nedbank had approved financing for eight renewable energy projects with a combined generation capacity of 1,845MW. The bank has since corrected this, saying it approved financing for four projects with combined capacity of 500MW as part of SA’s Risk Mitigation round, which comprises eight projects with a combined generation capacity of 1,845MW.
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