Banks falling short on key climate-related reporting framework, Just Share says

Just Share has analysed the latest climate risk-related disclosures of SA’s traditional big five banks and has concluded that they are largely falling short on one of the world’s key frameworks for reporting climate-related information.

The shareholder activist group assessed the climate risk disclosures of Investec, FirstRand, Standard Bank, Nedbank and Absa against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). While Just Share acknowledged that SA banks were still largely in the early cycles of adopting TCFD recommendations, it found that they all had “a way to go” in making adequate disclosures, particularly when it came to risk management.

“While the assessed banks tick some of the boxes required by the TCFD’s detailed guidance, there are many recommended elements of reporting which none, or at best a few, of the banks provide,” Just Share said on Wednesday when it released its findings.

“All of the banks perform best on the metrics and targets section in terms of attempting to comply with most of the detailed guidance points required under each disclosure, and worst on the risk management section.”

SA banks and asset managers are coming under increasing pressure by activists and lobbyists to curb financing for carbon-intensive projects such as coal mines and oil pipelines as developed nations in particular push for a transition towards more sustainable energy use. Though SA and other emerging markets have argued that they need time to make a so-called just transition towards less carbon-intensive economic systems, critics argue they could be doing more to build more sustainable power and energy systems.

The TCFD recommendations were created by the Financial Stability Board in 2015 to help financial services firms improve their disclosure of climate-related information by using a more universal reporting framework. The World Wide Fund for Nature (WWF) has stated that the TCFD framework is rapidly becoming the global best-practice reporting mechanism for organisations seeking to integrate climate-related risk analysis into their operational and governance processes.

Just Share’s analysis of banks’ climate-risk-related disclosures were assessed against the four thematic areas as categorised by the TCFD recommendations. These areas are governance, strategy, risk management, and metrics and targets.

While the banks performed best in setting metrics and targets, they fell short in other areas, notably in the realm of risk-management disclosures. Just Share said two requirements that none of the assessed banks attempted to meet in the area of risk management were the disclosure of processes for assessing the potential size and scope of identified climate-related risks, and the disclosure of processes for prioritising climate-related risks.

Strategy disclosure was another of the TCFD categories in which banks fell short, with all the assessed lenders other than Investec — which partly met the necessary criteria — failing to describe the processes they used to determine which risks and opportunities could have a material financial effect on their organisations.

While the assessed banks performed somewhat better under governance disclosures, Just Share said their general practice was to simply provide a nonspecific overview of the board’s role in providing oversight for climate-related risks while omitting the details required by the TCFD guidance. In particular, Just Share said, banks performed disappointingly on providing information on the processes by which management was informed about climate-related issues and how management monitored such risks.

Nevertheless, Just Share did point out that the TCFD reports it assessed did not reflect the same time frames given the different reporting periods provided by the banks in question. For Investec and FirstRand, their 2021 TCFD reports were analysed, whereas all the other banks’ reports were dated from 2020 as those were the latest available at the time of assessment.

theunisseng@businesslive.co.za