Johannesburg - South Africa’s banks continue to bankroll coal investments to the tune of billions every year, risking leaving investors with stranded assets in future.
Tracey Davies, head of the Centre for Environmental Rights’ (CER) corporate accountability programme, said Nedbank, Standard Bank, ABSA and Rand Merchant Bank (RMB) appear to have no problem funding new projects that will fuel climate change, despite public commitments and the fact that climate change will place these very projects at risk.
Nedbank, Standard Bank, ABSA and Rand Merchant Bank are all listed as contributing to the financing of the independent Thabametsi coal-fired power station near Lephalale, Limpopo.
CER believes that the controversial project could be the first casualty of inconsiderate investment in South Africa, after the Pretoria High Court set aside the environmental approval for Thabametsi. The court cited inadequate consideration of the project’s significant climate change impacts.
Campaigners against fossil fuel investments argue that companies spending trillions of rands building fossil fuel infrastructure, is a danger to both the environment and investors’ capital.
The World Bank has also warned that action to cut carbon emissions would devalue fossil fuel investments, while leading financial groups such as Citigroup and Standard & Poor’s have issued warnings of the risk posed to fossil fuel investments going into the future. According to an analysis done by Citigroup there could be $100trn potential stranded assets in the fossil fuel industry in the coming years.
Thabametsi is set to be the largest single financed project in the South African market to date. Looming in the background however, is the Paris Agreement, which requires South Africa to make a rapid shift away from the burning of coal and the building of any new coal-fired power plants.
Thabametsi scheduled commissioned date is only in 2021. The station has a proposed lifespan of 40 years, creating a very real risk that Thabametsi will not be able to operate for its full-expected lifespan, Davies argued.
She said the Thabametsi judgment highlighted how new coal-fired power stations carry major risks not only for the climate and the communities in which they are situated, but also for the investors in such projects, and for the banks that finance them.
This week leading independent investment bank and financial services provider Fieldstone Africa told the Botswana Resource Sector Conference that it was increasingly hard to raise finance for coal projects.
Fieldstone acted as an adviser for the Thabametsi project over the last two years. Mining Weekly reported that Fieldstone Africa MD Jonathan Berman said while the company would get Thabametsi done, it was a close call, owing to financial institutions shying away from funding coal projects.
Banks carefully select projects
In response to questions on investing in fossil fuels both Absa and Nedbank told Fin24 that they selected their investments and funding opportunities with due care, skill and diligence. Both banks cited their investment in renewable energy in South Africa as examples.
Nedbank spokesperson Joanne Isaacs said with any funding that Nedbank undertakes in respect of large infrastructure or industrial projects, no capital is advanced unless the project has obtained all requisite environmental authorisations, consents, licenses and permits which are required by law for the implementation of such project.
These authorisations are confirmed by means of an independent environmental review due-diligence, Isaacs told Fin24.
An ABSA spokesperson said the bank was well aware of the role that large financial services providers can play in facilitating economic and environmental sustainability through lending, investing and procurement practices. "Funding opportunities that do not meet these stringent internal requirements and standards will not receive support.”
Davies said the CER alerted the four banks to the judgment against Thabametsi and the banks’ involvement in financing. “We highlighted the discrepancies between these banks’ public commitments on climate change and the fact that they are nevertheless financing new coal.”
Standard Bank told the CER that it “is committed to a balanced approach to meeting Africa’s energy needs while reducing negative impacts.” It stated its projects was in line with its environmental and social risk management systems, policies and standards.
RMB parent company FirstRand responded that the bank agrees that the Thabametsi judgment is an important one, but was concerned about South Africa’s “challenges in energy security”. It remains “committed to act according to best practice principles and will abide by the applicable laws”.