Climate Change and The Role of Banks: A Study On The Corporate Response From The Major Banks in South Africa

CLIMATE CHANGE AND THE ROLE OF BANKS
A Study on the Corporate Response from the Major Banks in

South Africa
Research Report
The Graduate School of Business
University of Cape Town
in partial fulfilment
of the requirements for the
Masters of Business Administration Degree
Dinesh Naidoo
03 December 2009
Supervisor: Jonathon Hanks

ABSTRACT
The challenges posed by climate change are fast emerging as one of the primary concerns for
firms, investors and governments. The banking sector is considered an influential
intermediary within the economy, capable of mitigating the economic risks arising from
climate change and promoting a shift toward a low carbon economy. This study examines the
corporate response of major banks in South Africa to the problem of climate change. It
employs two different assessment metrics to evaluate the nature of the climate actions taken
by these banks and evaluates the quality of these actions in comparison with international
banking benchmarks.
The report finds that that the major local banks are sufficiently aware of their role and
responsibilities in mitigating the effects of climate change; evidence of their commitment to
climate change was found in their sustainability reports and media releases, as well as
inferred from their involvement in national and international projects addressing climate-
related issues. The financial institutions profiled in this study have invested in reducing their
carbon footprint and have pledged realistic greenhouse gas emission and/or energy reduction
targets, which suggest that they recognise their responsibility to mitigate their own impact on
the global climate.
The report reveals that the major local banks have made a good start in meeting the challenge
of climate change. However, the shift to a low carbon economy requires that banks do more
than only managing their own greenhouse gas emissions. The report argues that the local
banks should stimulate a market response to climate change through government lobbying
activities, collaborative research with clients, strategic investment in early-stage technologies
and increasing supply chain awareness of climate change issues. It is also argues that the
local financial institutions may not have adequately explored the best practice initiatives of
international banking benchmarks. On this basis the report concludes that the while the major
banks in South Africa are aware of their roles and responsibilities in addressing climate
change issues, the nature of their corporate response is not currently sufficient.
KEYWORDS
south, africa, role, response, banks, climate, change

DECLARATION
This report is not confidential. It may be used freely by the Graduate School of Business,
University of Cape.
This work, unless indicated, is my own work and has not been submitted in whole or in part
for the award of any degree at another University or Institution. I declare that each significant
contribution to this research report from the work, or works, of other people has been cited
and accurately referenced.
Dinesh Naidoo
December 2009
ACKNOWLEDGEMENTS
I would like to acknowledge the following people and organisations for their contribution to
this study.
Mr J. Hanks Thank you for giving me the opportunity to undertake

this study and for trusting me to complete it.
Mr A. Dane Thank you for your patient support and invaluable advice
throughout the development of this body of work.
Dr L. Ronnie I am extremely grateful for your insights and influence

on my work.
ABSA Group Limited
FirstRand Group
Standard Bank
Nedbank Group
NCI Pty Ltd
AMEC Limited
I dedicate this work to the spirit and vision of my parents
Papiah Naidoo
Panjasaram Govender
“only a life lived for others is worth living”
(Albert Einstein)
CONTENTS
1 Introduction 1
1.1 Research Area 1

1.2 Problem Statement 2
1.3 Purpose of the Research 2
1.4 Research Scope 3
1.5 Research Ethics 3
1.6 Chapter Organisation 4
2 Literature Review 6
2.1 The Science and Economics 6

2.2 Institutional Investor Interest 8
2.3 The Role of Banks 13
2.4 International Benchmarks 21
2.5 South African Banking Sector 25
2.6 The Regulatory Environment 32
2.7 Conclusion 34
3 Research Questions 36
4 Research Method 37
4.1 Objective 37
4.2 Approach 38
4.3 Research Design 38
4.4 Sampling 39
4.5 Data Collection Methods 39
4.6 Data Analysis Methods 40
4.7 Reliability 40
4.8 Transferability 40
4.9 Research Limitations 41
5 International Banking Best Practice 42
5.1 Climate Change Policy Framework 43

5.2 Internal Banking Interventions 44
5.3 Financial Products and Services 50
6 South African Banking Response 58
6.1 Summary of the Research Findings 59

6.2 Review of the Research Findings 62
6.3 Limitations to an Effective Climate Change Response 81
6.4 Guidance for an Effective Climate Response Strategy 82
7 Conclusions 85
7.1 General Findings of the Research 85

7.2 Major Findings of the Research 88
7.3 Recommendations 89
8 References 91
9 Appendix A 95
10 Appendix B 98
11 Appendix C 107
LIST OF TABLES
Table 1: Climate Change Related Risks and Opportunities for Banks 15
Table 2: The Potential Value in Investing in Climate Change 16
Table 3: The Size of the Private Banking Sector in South Africa 27
Table 4: Perceived Risk Level by Sector 28
Table 5: Schedule of Climate Policy Implementation 34
Table 6: HSBC Emission Reduction Targets 47
Table 7: Summary of Research Results - CDP 2009 59
Table 8: Summary of Research Results - RiskMetrics/CERES 2009 61
Table 9: Differences in the Response of the Local Banks 63
Table A1: CDLI Results Summary – Nedbank Group 96
Table A2: CDLI Results Summary – FirstRand Group 96
Table A3: CDLI Results Summary – Standard Bank 96
Table A4: CDLI Results Summary – ABSA Group Limited 97
Table A5: CDLI Results Summary – HSBC Holdings 97
Table B1: Governance Checklist - Scoring Methodology 101
Table C1: Sample Profile - HSBC Holdings 107
Table C2: Sample Profile – ABSA Group Limited 115
Table C3: Sample Profile – Nedbank Group 120
Table C4: Sample Profile – FirstRand Group 126
Table C5: Sample Profile – Standard Bank 132

LIST OF FIGURES
Figure 1: Total Assets held by all Banks in South Africa 27

Figure 2: Asset Ownership by the Major Banks in South Africa 28
1 INTRODUCTION
Climate change poses a major risk to the global economy: it affects the wealth of societies, the
availability of resources, the price of energy and, arguably, the value of companies. In this
context, it can be argued that the financial sector has a two-fold responsibility: firstly, it needs
to prepare itself for the negative effects that climate change may have on its business and those
of its customers; secondly, it can significantly help to mitigate these economic risks and to
promote the low-carbon economy by providing appropriate products and services. The
companies that banks decide to finance will be critical in slowing the negative effects of
climate change and in moving the world economy away from fossil fuels and into cleaner
technologies (Cogan, 2008).
1.1 RESEARCH AREA
There is growing evidence that international banks are responding to the climate challenge
(Gledhill et al., 2008). Prominent international banks such as Barclays and Merrill Lynch are
addressing climate change as a risk management issue and working toward better disclosure as
an “essential first step to embracing a changing regulatory and economic environment”
(Cogan, 2008, pp 2). A survey of mainstream financial institutions in 2002 had indicated that
many banks were unaware of the climate change issue or had adopted a „wait and see policy‟1.
These attitudes were compounded by practical issues like the lack of information on carbon
emissions and delays in finalising the regulations of the new greenhouse gas markets.
The South African government, through what was then the Department of Environmental
Affairs and Tourism, has “outlined different scenarios of mitigation action to inform long term
national policy and to provide a solid basis for its position in multilateral climate negotiations
on a post 2012 climate regime” (ERC, 2007, pp 1). One possible strategy is to use the market
to promote the uptake of low carbon technologies and climate-friendly social practices through
1
Source: http://www.unep.org, retrieved Sat, 02 May 2009.
Climate Change and the Role of Banks 1

incentives and taxes, which could shift patterns of domestic investment. A growing need for
domestic investment could potentially attract more climate-related involvement from the local
banking sector. The banking sector can be considered the backbone of our national economy,
providing/attracting capital for innovation, infrastructure and job creation. In addition, the
domestic financial sector is recognised as world class in terms of its skilled workforce, capital
resources infrastructure, technology and its regulatory and supervisory environment, which
suggests that it could easily exploit the opportunity presented by a shift to a low carbon
economy (van Zyl et al., 2003).
However, the stance of our local banking sector toward climate change is unclear and the
sufficiency of its response where this has already occurred is largely unknown making this an
interesting area for new research. Further, it is suggested that this study could encourage the
local banking sector to examine more closely the activities of an increasing group of forward
looking financial institutions that are currently addressing the challenges of climate change
(Bergen, 2008; Cogan, 2008).
1.2 PROBLEM STATEMENT
“The banking industry is not itself a high-impact sector of carbon usage, but it is potentially
much more so as a result of its policies of lending to and investing in high-impact sectors”
such as the energy industry (Smith, 2007, pp 3). It can be argued that the traditional view of
the banking sector as a low-impact sector, has reduced the motivation of the local banking
industry to accept that climate change is a real threat on the scale suggested by Stern (2006)
and to ensure that the leading institutions within this sector recognise their role in effecting
change in our emerging market economy.
1.3 PURPOSE OF THE RESEARCH
This study reviews the operations and climate change related activities of the „big four‟ banks
in South Africa namely Standard Bank, FirstRand, Nedbank Group and ABSA Group Limited.

Banks produce carbon dioxide (CO2) and other greenhouse gas (GHG) emissions2 directly
from their operations and indirectly by financing clients who generate their own greenhouse
gas emissions. The primary aim of this study is to review the current policies and practices of
the selected banks within the context of policy developments and international benchmarks on
climate change. Further, this study aims to increase awareness of the special role and
responsibility of banks with regard to climate change issues. Finally, the purpose of the
research is to encourage the introduction of formal policies within the banking sector that
address climate change in a more systematic way.
1.4 RESEARCH SCOPE
The scope of this report is limited to a review of the corporate governance practices of major
banks in South Africa within the context of national and international climate change policy
developments. Specifically, the research explores the actions (internal and external) of these
banks in managing climate change risks by using two different assessment metrics developed
by the Carbon Disclosure Project and the CERES Investor Group respectively. Finally, the
research benchmarks the initiatives of these financial institutions against those of international
banks and provides recommendations for an improved response to climate change issues (as
appropriate).
1.5 RESEARCH ETHICS
There is an ethical risk to the respondents of the proposed survey. However, this risk shall be
minimized by keeping the identities of each participant secret while their answers to the
survey shall be used only with their written consent.
2
The Kyoto Protocol identifies six greenhouse gases. Carbon dioxide is considered the most important. In order
to compare these gases accurately, they are each converted into CO 2 equivalent units. Therefore, the term CO2
emissions shall be used in this report to mean CO2 equivalent emissions of greenhouse gases.

1.6 CHAPTER ORGANISATION
Diagram 1 illustrates the proposed organisation of the Chapters within the Thesis. Chapter 2
[Literature Survey] provides an overview of the current knowledge about climate change, as
well as the role of commercial and regulatory institutions within the context of climate change
issues. Chapter 3 [Research Questions] presents the key questions that the research aims to
address. Chapter 4 [Research Method] describes the important details of the research
methodology that is to be followed in the collection and analysis of data. This chapter also
discusses research design, sampling, reliability, transferability as well as research limitation
issues. Chapter 5 [International Banking Best Practice] offers insights into the corporate
response to climate change from the best performing international financial institutions.
Chapter 6 [South African Banking Response] provides an overview of the current practice of
the four major banks in South Africa with regard to their internal and external policies,
strategies and sustainability reporting on climate change. In addition, the chapter also
benchmarks the response of the major local banks against the best practice activities of
international banks. Finally, Chapter 7 presents the conclusions and recommendations of this
study.

CLIMATE CHANGE
Chapter Organisation
INTRODUCTION
LITERATURE SURVEY
RESEARCH QUESTIONS
RESEARCH METHOD
RESEARCH FINDINGS
Banks: Internal Response
Comparison Against
Banks: External Response
Benchmarks
CONCLUSION
RECOMMENDATIONS
Diagram 1: Organisation of Chapters.

2 LITERATURE REVIEW
This chapter presents and examines an increasing body of knowledge pertaining to: the
science and economics of climate change; the growth of institutional investor interest in the
climate problem; the role of banks and other organisations in ensuring an adequate response to
climate-related challenges; and the potential implications of policy developments in both the
domestic and international regulatory environment to business stakeholders.
2.1 THE SCIENCE AND ECONOMICS
The problem of climate change is widely regarded as the most serious environmental
challenge facing the modern world. The science behind climate change suggests that there are
increasing concentrations of carbon dioxide (CO2) and other greenhouse gases in the earth‟s
atmosphere as a result of human activities. This has been shown to contribute to increased
global atmospheric temperatures (global warming) and related changes in the world‟s climate
system. A strong argument in support of the effect of human activities on climate change was
presented in a report by the United Nations Intergovernmental Panel on Climate Change
(IPCC), which concluded:
 The earth‟s surface temperature has increased 0.74 C, mostly in the last 50 years –
possibly making this the warmest period of the past 1300 years.
 Carbon dioxide emission and temperature trends are at the high-end of the range
forecasted by the IPCC, with the global average temperature increasing approximately
0.1 C per decade.
 The rate of sea level rise has increased 70 percent since 1993 compared to the previous
30 year period.
 The frequency of heat waves, forest fires and heavy precipitation events has increased
globally since 1950 (Pachauri et al., 2007).
The potential economic impacts of climate change were brought into sharp focus with the
publication of the Stern Review (Stern, 2006). The report discussed the effect of global

warming on the world economy firstly by examining the evidence on the economic impacts of
climate change and thereafter exploring the economics of stabilising greenhouse gases in the
atmosphere, and secondly by considering the complex policy challenges involved in managing
the transition to a low-carbon economy and in ensuring that societies can adapt to the
consequences of climate change.
The Stern Review suggested that human action relating to climate change, over the ensuing
decades, could create risks of major disruptions to economic activity and that costs of extreme
weather conditions could reach between 0.5 and 1 percent of global GDP per annum by the
middle of the 21st Century. Sir Nicolas Stern has more recently suggested that climate change
mitigation would cost 2% of global GDP per annum, double his estimate proposed in 2006
(Jowit and Wintour, 2008). He has also since stated that “the damages were under-estimated
by the Stern Review and the costs of inaction are even bigger than previously argued” (Smith,
2009, pp 1). Crucially, he contends that the cost of inaction could be as high as 30% from his
previous estimate of 20% in 2006. Therefore, it is not surprising that “cost impacts from
extreme weather events and greenhouse gas (GHG) regulation are emerging as risk factors in
pricing securities and assigning credit and asset valuations” (Cogan, 2008, pp 11).
Africa is seen to be extremely vulnerable to physical change impacts – a problem compounded

by limited adaptive capacity (Cogan et al., 2009). Box 1 presents some arguments in support
of this view.
Box 1: Climate Change – The Vulnerability of Africa (Adapted: Conway, 2009, pp 14)
 The dependence of most countries on natural  Poor countries and communities tend to have a
resources and their agricultural sector implies that higher share of their wealth locked in natural
shifts in weather conditions that damage the resource and environmental assets; anything that
agricultural sector will have a major impact on damages this natural resource base will certainly
incomes and livelihood. affect these countries more.
 Most people operate at low levels of income with  Governments and institutions are weak and poorly
limited reserves and in the absence of formal resourced forcing people to cope without support.
insurance cover. The brain drain of well-qualified people exacerbates
the problem of their limited capacity.

2.2 INSTITUTIONAL INVESTOR INTEREST
The evolution of investor and/or financial sector interest in climate change has been a gradual
process. The following section presents a brief chronology of the growing awareness of
different participants in the financial sector to climate change issues.
1980 to 1990
A review of the literature revealed that scientific evidence supporting climate change
increased from the middle of the 1980s. The establishment of the Intergovernmental Panel on
Climate Change in 1988 and the publication of its first Assessment Report in 1990 helped to
launch climate change onto the political stage (Leggett, 2000). “The initial press coverage on
climate change showed a peak around this time and some companies such as Du Pont started
setting emission reduction targets and began exploring new business opportunities focused on
energy efficiency” (Pfeifer, 2008, pp 252). However, institutional investors3 showed limited
interest in climate change during this time. Nevertheless, the period also saw the birth of
Socially Responsible Investment (SRI), with some fund managers including climate change
issues within their SRI activities. Sparkes (2002) reported that the Jupiter Ecology and NPI
Global Care Growth Funds were the first to use screened approaches to avoid investments in
large oil and coal companies by seeking to invest in organisations providing solutions to the
problem of global warming. Despite these developments, the vast majority of institutional
investors were inattentive to climate change matters during this period.
1990 - 1995
This period saw the holding of the UN Earth Summit (1992), which was arguably the start of
many of the global debates on environmentally sustainable development. One of the important
outcomes of the Earth Summit was the signing of the UN Framework Convention on Climate
Change (UNFCCC). This period was also marked by the launch of the UNEP Finance
Initiative (1991) by a group of commercial banks (Deutsche Bank, HSBC, NatWest, Royal
3
These are large organisations such as banks, finance companies, insurance companies, labour union funds,
pension funds, mutual funds or unit trusts, which have significant amounts of cash for investment.

Bank of Canada and WESTPAC) in collaboration with UNEP. The aim was to catalyse
awareness among the banking sector on environmental issues4.
1995 to 2000
During this period the IPCC released its second Assessment Report (1995) and the Kyoto
Protocol was signed (1997). The political debate arising from the Kyoto Protocol resulted in
another wave of increased press coverage on the climate issue and in an increase in companies
publicly discussing climate change mitigation. Despite the rising profile of climate change, the
mainstream financial community – other than a few in the insurance sector – generally seemed
to overlook the issue of climate change.
2001 to 2004
This period saw the start of several collaborative initiatives to address investment risks and
opportunities associated with climate change. These “initiatives include the Carbon Disclosure
Project (CDP) and the International Investor Group on Climate Change (IIGCC), which aimed
at increasing awareness and research into the financial implications of climate change as well
as improving disclosure of corporate greenhouse gas emissions” (Pfeifer, 2008). It was also
during this period that banks working in the in the project finance5 sector became involved in a
process of developing a common and coherent set of environmental and social policies
(including guidelines) that could be applied to all industry sectors globally. These banks
(CitiGroup, Barclays, ABN AMRO and WestLB) in consultation with the World Bank‟s
International Finance Corporation (IFC) developed a banking industry framework for
addressing environmental and social risks in financing, which was referred to as the Equator
Principles (2003)6. The principles are intended to assist banks assess, mitigate, document and
monitor credit and reputational risks associated with financing development projects and
through collaboration establish best practices. The Equator Principles do not explicitly address
climate change, but is considered by many as a “first step at integrating environmental
4
Source: http://www.unepfi.org, retrieved Sun, 29 November 2009.
5
Project financing is a method of funding in which the lender looks primarily at the revenues generated by a
single project both as the source of the repayment and as security for the exposure.
6
Source: http:.//www.equator-principles.com, retrieved Sun, 29 November 2009.

considerations into project finance – increasing the likelihood that signatory banks develop
robust climate change governance policies” (Cogan et al., 2009, pp 13).
The view that climate change was of strategic business importance was more prevalent within
the insurance and reinsurance business than in any other segment of the financial services
industry. In fact, a survey7 on climate change found that “77% of respondents believed that
there would be significant effects for their market within 20 years – expected responses from
the insurance industry ranged from price increases and cover charges to increased losses, more
difficult reinsurance terms and withdrawal from high hazardous areas” (Whittaker, 2002, pp
17). The reinsurance companies Munich Re and Swiss Re were considered leaders in the
industry with regard to their climate modelling work and commitment to greenhouse gas
emissions trading markets respectively.
However, commercial banks lagged behind in their response to the challenge of climate
change. The “responsibility for developing bank policy and best practice on climate change
was situated within the corporate environmental risk function, which may not have wielded
sufficient influence in senior management circles where bank policy was decided” (Whittaker,
2002, pp 19). Whittaker (2002) also reports that limited efforts were made to explore the
opportunities offered from greenhouse gas emissions trading within banking institutions with
commodity trading functions. Deutsche Bank and Rabobank were leaders in the banking
sector using their individual asset management division‟s involvement with the World Bank‟s
Prototype Carbon Fund to gain considerable experience in carbon finance fundamentals.
Further, this period witnessed a surge of other players entering the climate change debate. The
Carbon Trust published a series of reports on the climate problem and NGOs also tried to
encourage mainstream investors to incorporate climate change policy into their engagement
and investment strategies (Pfeifer, 2008).
7
The survey was performed by the Chartered Insurance Institute in the United Kingdom (2001). The CII is a
professional organisation for those working in the insurance and financial services industry in the UK. The CII
survey formed a part of a detailed report prepared by a team of researchers investigating all aspects of climate
change and its impacts on insurance. The study followed-similar research performed by the CII in 1994 as well
as research commissioned by the UK government.

2005 to 2008
There was significant progress made by institutional investors during this period in the manner
in which they dealt with climate change. There was an increase in the number of investors
actively trying to use their influence as shareholders to encourage companies to adopt more
proactive approaches to managing risks and opportunities arising from climate change. In
2006 the United Nations introduced their Principles of Responsible Investment (PRI). The PRI
stemmed from a recognition that while investors were developing an awareness of investment
risks associated with Environmental, Social and Governance (ESG) issues.8 They did not
possess a common set of guidelines that enabled them to work on these issues with the firms
in which they were investing. In addition, it was recognised that firms taking proactive
measures on ESG issues were insufficiently rewarded by markets (Sharma, 2006, pp 480).
The European Union (EU) initiated the Emission Trading System (ETS) 9 to ensure it would
meet the national Kyoto targets while “institutional investors started to show renewed interest
in renewable energy as a result of policy incentives, the increasing costs of conventional
energy and the falling costs of alternative energy technologies. However, the size of
investments in clean technology funds or firms remained relatively small” (Jeuken, 2006).
The promising news was that annual investments from banks in clean technology was
increasing dramatically – Cogan (2008, pp 14) reported that of the “40 largest publicly traded
banks in the world profiled in the CERES study, 29 had documented their involvement in the
renewable energy market through everything from private equity and fund investments, to
underwriting of initial public offerings, debt financing and even direct ownership stakes in
some companies.” In fact, annual investment in renewable energy globally exceeded the USD
100 billion in 2006 (Greenwood et al., 2007). Nevertheless, Cogan (2008) advised that the
investment in traditional fossil fuels far exceeded that of renewable technologies and few
banks had indicated their intention to scale back their funding of carbon intensive energy
sources such as tar sands and conventional coal-fired power plants by 2007.
8
Climate change is widely accepted as forming a essential part of ESG risks.
9
This system covers 12,000 major industrial plants across Europe or 45% of European emissions. Participants are
given allowances to generate specified levels of emissions and must find ways to keep emissions below their
permitted level or buy credits/allowances from another participant in the market should they be short of
allowances.

2008 to 2010
Cogan et al (2009, pp 17) report that in “response to growing expectations for financial
institutions to address climate change through their lending and investment activities, a
number of major firms have been successful in developing standards for climate risk
management.” For example, CitiGroup, JP Morgan Chase and Morgan Stanley launched the
Carbon Principles (February 2008) while Credit Agricole, HSBC, Munich Re, Standard
Chartered and Swiss Re announced their adoption of the Climate Principles (December 2008),
which was developed by the Climate Group.
The banking signatories to the Carbon Principles commit to using an enhanced due diligence
process when financing carbon intensive projects such as coal-fired power plants. This
standard does not preclude such projects from the banks‟ lending portfolios; it does ensure a
more rigorous evaluation of the environmental and regulatory risks associated with financing
such projects. In comparison, the Climate Principles offer a broader set of best practice
guidelines that include:
 developing financial products and services to help clients manage climate risk and
opportunity;
 incorporating climate change issues into research activities;
 consideration of practical ways to assess the carbon and climate risks of lending and
investment activities; and
 a commitment from banks to request their project finance clients disclose their
greenhouse gas emissions as well as pursue emissions reductions for projects that
release 100,000 tonnes CO2-e or more per year10.
The next major event on the climate change timeline is the 15th Conference of the Parties to
the UNFCCC to occur in Copenhagen (December 2009), tasked with developing a global
climate agreement governing the post-Kyoto commitment periods.
10
The largest coal-fired coal-fired power plants release approximately 20 Million tonnes of carbon dioxide per
year (Cogan, 2009, pp 17).

2.3 THE ROLE OF BANKS
Although not initially obvious, banks present an opportunity for the mitigation of climate
change. As the primary lenders of capital to the global economy along with their expertise in
risk management – banks are capable of effectively combating climate change. A report by the
Global Reporting Initiative and KPMG (Vijn et al., 2006, pp 22) indicated that “a company‟s
exposure and response to climate change can be used by the financial services sector as a
differentiator in investment decisions and asset allocations. Companies that anticipate
regulatory developments and changes in consumer demand related to climate change, and that
respond by developing new products, services and other opportunities could provide fund
managers and investors with higher returns.”
An interesting finding of the KPMG study was that most companies surveyed did not report
on the “financial implications of risks or opportunities related to climate change such as the
expected costs of complying with future regulations or anticipated profits from the sale of new
climate change related products/services” (Vijn et al., 2006, pp 33). This survey result lends
support to the argument that banks have a significant role to play in the climate change
campaign from the perspective of reducing their own financial risk as well as capitalising on
the opportunity to assist companies dealing with the financial implications of new regulatory
controls.
Cogan (2008) suggests that banks can factor in a market price for carbon dioxide as
carbon-reducing policy and carbon emissions trading expand globally. He also argues that
banks will need to re-assess their treatment of fixed income assets, which could be affected by
inflationary pressures attributable to weather-related losses and climate regulations that will
make carbon emissions exceedingly expensive. In addition, Cogan (2008, pp 13) posits that
“government securities may be called to cover climate-related risks that the private sector is no
longer able / willing to finance or insure”. Finally, he suggests that banks could benefit from
the demand of climate protection products / services with the creation of new markets
supporting efficient risk sharing of increasingly vulnerable infrastructure.

A similar viewpoint was argued in a report by the Allianz Group and World Wide Fund for
Nature, which states that “price volatility in carbon markets (CO2, oil, gas and coal) and
climate related commodities leads to uncertainty in financial projections” (Dlugolecki and
Lafeld, 2005, pp 7). The report outlined an “agenda for actions” that banks taking leadership
for climate change issues should focus on and argues that banks:
 need to review and optimise their own carbon risk management and develop
assessment tools applicable to carbon risks and carbon risk reduction strategies e.g. by
using carbon related economic analysis for sectors or companies;
 must define clear risk requirements for clients regarding carbon risk reduction and
market strategies;
 should facilitate the finance for public programmes that foster the introduction of
carbon technologies; and
 should invest in the development of carbon risk hedging products such as derivatives.
Smith (2007, pp 3) argues that banks could also consider using ethical lending guidelines such
as the Equator Principles to decline finance to projects with the greatest potential to damage
the climate, but cautions that “even if banks accept the premise they must perform product
life-cycle analyses on their client‟s climate change impact, but the real influence they can
exert on their project-financing recipients is questionable.” The argument raised by
Smith (2007) is valid since banks cannot be expected to manage a potentially endless chain of
responsibility because it is ultimately global dependence on carbon-based energy and other
products that significantly contributes to climate change.
The Allianz report identifies some important risks and opportunities for banks (refer: Table 1),
which when considered in conjunction with the potential value of climate friendly projects /
opportunities (refer: Table 2), makes a compelling argument in favour of increased bank
involvement in climate change issues.

Table 1: Climate Change Related Risks and Opportunities for Banks (Allianz, 2005)
Banking Class Type of Risk Type of Opportunity
1. Corporate Banking and Project 1.1 Reduction in competitiveness 1.5 Risk management services for
Financing and GHG intensive business Clients affected by carbon
Clients due to higher mitigation emission trading schemes.
costs.
1.2 Higher costs for energy 1.6 Carbon trust services.

consumers due to new mitigation
policies.
1.3 Price volatility in carbon 1.7 Carbon project finance

markets and carbon-related services.
products.
1.4 Reputational risks due to

investments in controversial
energy projects.
2. Investment Banking and Asset 2.1 Investment in immature 2.3 Trading services in carbon
Management. technologies. emissions trading schemes.
2.2 Additional costs following 2.4 Establishment of carbon trusts

changing weather patterns such as and fund custody.
in the utilities sector.
3. Retail Banking 3.1 Direct losses due to drought, 3.3 Microfinance for climate
precipitation, soil erosion and friendly activities.
flood.
3.2 Policy changes such as the 3.4 Advisory service in the field of
termination of subsidies for loans for small renewable energy
renewable energies. projects.

Table 2: The Potential Value in Investing in Climate Change (Deutsche Bank, 2007)
Potential Value [USD Billions] Opportunity
500 The value of low-carbon energy markets by 2050
100 The demand for projects generating GHG Emission Credits by 2030
100 The global investment in clean energy by 2009
18 to 23 The estimated revenues from the solar industry by 2010
The cumulative net savings from energy efficient products in USA by

84
2012
2.3.1 Why should financial institutions take climate change

seriously?
The short answer as to why financial institutions should engage in the climate change issue is
that the consequences of climate change have gone far beyond its effects on the natural
environment. In a relatively short period of time the dynamics of the issue has changed
drastically – media coverage and public awareness is increasing, while government and
corporate action suggests that the issues have clearly entered the political and economic arena.
This is only the tip of the iceberg – add the financial implications of direct weather-related
impacts on property investments and insurance claims or the indirect costs arising from the
increased credit risk of vulnerable clients then the business case for banks and other financials
becomes irrefutable. In this context, the following section provides an overview of the
financial implications of climate change and the reasons why institutional investors such as
banks should be interested in the economic implications of climate change.
Physical Risks
According to the IPCC, companies will be affected by weather-related impacts of climate
change as a result of droughts, floods, storms and rising sea levels including the increasing
unpredictability of weather patterns. Perroy (2005) suggests that weather-related impacts are
most likely to affect investments in the agricultural, forestry, fishery, health care, insurance,
tourism, water and property sectors. The more obvious consequences include damage to
property from extreme weather events, increased insurance premiums and asset losses.

Consequently, banks face the possibility of credit default on projects impacted by such
scenarios.
However, the implications of these physical risks are not always obvious. KPMG (2008,
pp 26) suggests that the “less obvious risks include the impact on workforces such as
heat-related illness or disease, enforced relocation of operations and increases in commodity
prices. It is possible that some companies may be protected from these risks by insurance
products, but there is still a danger that newer forms of risk might be passed onto the private
sector.” KPMG ranked the financial sector within the “danger zone” of their risk preparedness
framework primarily because of the wide variation in preparedness among banks to deal with
climate change issues. This observation suggests that banks may need to reduce their actuarial
risk by introducing adequate protection measures or, in the extreme, reassess their entire
project financing business models.
Regulatory Risk
Whittaker (2002, pp 19) reports that “environmental specialists within commercial banks show
a keen awareness that climate change may influence their behaviour towards larger corporate
clients considered to be most at risk”. At the time the future of government legislation on the
matter was not certain and banks could afford to be complacent, but in recent years “climate
change has increasingly been seen as a serious market failure that must be corrected by some
sort of government intervention” (KMPG, 2008, pp 30). Pfeifer (2008, pp 250) warns that
“companies will be affected by government policies to internalise the cost of greenhouse gas
emissions – the specific financial impacts relating to the scale of emissions from their own
facilities, indirect emissions in the supply chain and embedded in the products” Although, the
sectors most likely to be affected are the energy intensive sectors, banks should be alert to the
knock-on effects on a wider range of sectors including their own.
Competitive Advantage
Lash and Wellington (2007, pp 2) argue that “companies that manage and mitigate their
exposure to climate change risks while seeking new opportunities for profit will generate a
competitive advantage over rivals in a carbon-constrained future.” Climate change presents an
opportunity for organisations to develop new technologies, products or services to meet

potential changes in demand. They can also “implement measures that reduce the need for
greater expenditures in the future to deal with new policies or the physical impacts of climate
change” (Pfeifer and Sullivan, 2006, pp 251). Hence, banks can benefit by prudently selecting
companies chasing climate change opportunities and thereby mitigating their own risk to
climate change impacts and differentiating themselves from their competition.
Litigation Risks
Banks should also recognise that their clients could potentially be held liable for damages
associated with the physical effects of climate change. This introduces the possibility of
climate effects impairing the ability of companies to service their debt and increasing the
bank‟s potential for financial loss arising from companies being bankrupted through
regulatory non-compliance costs.
Reputational Risks and Opportunities

Potential reputational risks arise from companies being viewed negatively by consumers, staff
and shareholders due to their actions on greenhouse gas emissions and responses to climate
change (Lombard, 2005). Whittaker (2002, pp 19-20) reports that the “reputation of banks
could be tarnished should it become associated with climate damaging activities and the
possibility of being held legally liable for meeting the greenhouse gas obligations of debtors
such as the delivery of emissions reduction credits.” He argues that banking associations have
failed to rouse interest on the issue among their members because of a lack of perceived
immediacy and more compelling evidence of its relevance to commercial banking. In the
current context, KPMG (2008) conclude that banks face an increasing risk to their reputation
as consumer awareness and expectations of a responsible corporate response to the threat of
climate change grows. Nevertheless, there are also reputational benefits for banks if they adopt
a proactive stance on climate change.

2.3.2 Why have banks delayed in engaging with climate change
issues?
In 2008, CERES and RiskMetrics released a report evaluating 40 of the world‟s largest banks
on their governance practices pertaining to the risks and opportunities arising from global
climate change. The report findings indicated a range of responses from significant to minimal
to non-existent (Cogan, 2009, pp 16). The report also found that many of the positive actions
from banks have occurred recently despite compelling evidence of the problem being known
since 2006. A review of the local banking response to climate change suggests a similar trend.
Currently, none of the major banks have a climate change policy – a notable exception being
Nedbank which released a climate change policy statement as at March 2009.
In general, the local banking industry has responded more positively than some of the other
sectors such as real estate and food products, but not as quickly as other financials such as the
insurance sector which is more seriously affected by climate change. It can be argued that the
response of the local banking industry is slower than expected, but there are reasons for such a
response. Dlugolecki and Loster (2003) suggest that four types of barriers have prevented the
financial sector from engaging with climate change: cognitive, political, analytical and market
related operational barriers.
Cognitive Barriers
It can be argued that the mainstream financial world generally regards environmental and
social issues like climate change as marginal to a firm‟s financial performance. Nevertheless,
“internally climate change potentially cuts across nearly all financial functions, creating a
sense of shared responsibility that deters any one group from taking the initiative” (Dlugolecki
and Loster, 2003, pp 389). Crucially, it is the lack of a sustainable connection between climate
change and financial risk as well as the slow pace of price realisation for carbon that has
blinded the financial sector from noticing the financial benefit of addressing climate change
issues.

Political Barriers
There has been a considerable delay in creating “political conditions under which international
carbon management and climate mitigating measures can be assigned a stable value by the
financial sector”. Further, there has been “uncertainty about the commitment of regulators to
the consistent enforcement of long-term emission reduction targets” by firms. Finally, some
“developing markets place numerous restrictions of foreign financial institutions” making it
difficult for banks and other commercial sector participants to engage with climate change
issues. (Dlugolecki and Loster, 2003, pp 389)
Analytical Barriers
It seems that there is a low level of awareness about climate change among key finance and
insurance sector advisors, which is resulting in insufficient information and analysis being
provided to the commercial sector. Sullivan and Kozak (2006) suggest that this situation is
compounded by the “general inadequacy of corporate disclosures”. Pfeiffer and Sullivan
(2008) suggest that initiatives such as the Carbon Disclosure Project are addressing the
problem of disclosure. These authors conclude that even if the challenges in investment
analysis could be corrected, the long-term impact horizon for some climate change impacts
would result in these impacts being ignored in current invest decisions. Consequently, banks
would not be sufficiently incentivised to act since their risk and cost/benefit analyses would
not predict a clear threat to their business.
Market Operational Barriers

Banks are potential investors in clean technologies and as such are motivated by the presence
of “tax incentives, guaranteed market shares and renewable energy certificate trading schemes
that provide them with a clear commercial advantage. However, the inefficiencies in the
present greenhouse gas emissions trading markets deter them from getting more involved”
(Dlugolecki and Loster, 2003, pp 390).

2.4 INTERNATIONAL BENCHMARKS
The barriers to financial sector engagement with climate change issues may have prevented
most financial institutions from responding appropriately, but some have adopted proactive
strategies to meet the threat. Jeuken et al. (2006, pp 37) reveals that a select number of “major
international banks have a climate change policy or a clear environmental statement. These
banks include Bank of America, J.P. Morgan Chase (USA), HSBC (United Kingdom) and
Goldman Sachs.” However, these market leaders have, in recent years, been joined by a
number of new banking institutions in climate-friendly initiatives as a result of the work
performed by the Carbon Disclosure Project (CDP) and the CERES Investor Group.
2.4.1 The Carbon Disclosure Project
The CDP is an independent non-profit organisation which holds the largest database of
corporate climate change information in the world. The data is obtained from responses to the
organisation‟s annual information requests issued on behalf of institutional investors,
purchasing organisations and government bodies. It was established in 2000 and has become
the benchmark for carbon disclosure methodology and process, providing primary climate
change data to the global market place (CDP1, 2009).
Mission and Target Participants

The CDP‟s aim is to collect and distribute high quality information that motivates investors,
corporations and governments to take action to prevent dangerous climate change. The
information requests are issued to more than 3,700 corporations across the globe on behalf of
475 institutional investors, more than 35 purchasing organisations and government bodies in
the United Kingdom. The CDP plays a vital role in encouraging private and public sector
organisations to measure and manage their greenhouse gas emissions such that climate change
impacts are minimised (CDP1, 2009).

Data Collection Methodology
An integral part of its mission is to review and assess the action and disclosure of firms against
what is considered as a best practice response to the challenges of climate change. It manages
this process through the issue of „information requests‟ to a broad range of companies from
different sectors. The information requests are made through the issue of a questionnaire to the
various participants. The questionnaire for all CDP programmes covers four major areas:
 management‟s views on the risks and opportunities that climate change presents to the
business;
 greenhouse gas emissions accounting;
 management‟s strategy to reduce emissions / minimise risk and capitalise on
opportunity; and
 corporate governance with regard to climate change.
In addition, three other areas are included for the CDP‟s Supply Chain and Public
Procurement programmes:
 greenhouse gas emissions split by business category;
 management‟s engagement with its suppliers; and
 greenhouse gas emissions over the lifecycle of goods or services.
The results of the company responses to the questionnaire are assessed and the firms with the
best disclosure practices are profiled on the Carbon Disclosure Leadership Index (CDLI). The
leading banks featured on this index are widely accepted as financial sector benchmarks with
regard to their response to climate change. Box 2-1 reveals some of the more prominent global
financial institutions (including their CDLI scores) that have responded to the CDP 2009.

Box 2-1: The CDLI 2009 – Financial Sector Respondents
HSBC Holdings 92
Bank of Montreal 87
National Australia Bank 82
Lloyds Banking Group 80
WESTPAC 80
Royal Bank of Scotland 77
Barclays PLC 74
JP Morgan Chase 74
Influence in the Financial Sector

The institutional investors such as banks, pension funds and insurance companies, who sign
the information requests, are known as „Signatory Investors‟. Currently, the Carbon Disclosure
Project has 475 Signatory Investors, which include global investment/finance houses such as
Barclays, HSBC, Goldman Sachs, Merrill Lynch, Mitsubishi UFJ, Morgan Stanley, National
Australia Bank, Nedbank, FirstRand and Standard Chartered PLC11. The influence of the
organisation is growing as the results of their Investor Research Project (Riddell, 2007)
revealed:
 60% of signatory investors interviewed reported that they methodically identified

which companies in their portfolio either were not responding to the CDP or were
providing poor or trivial answers.
 26% of the signatory investors interviewed filed shareholder resolutions requesting
better disclosure of climate related risk.
 13% of the signatory investors interviewed encouraged their investment bankers to use
CDP data when making new lending decisions.
 100% of the investors interviewed agreed that the CDP data is a valuable resource and
incorporated it into their decision-making process at some level.
The use of carbon data by international banks seems to be increasing. However, the influence
of the Carbon Disclosure Project on the financial sector in South Africa is relatively unknown.
11
ABSA Group was not listed as a signatory to the CDP 2009 (CDP 2, 2009). However, ABSA is owned by
Barclays (55.4%), which is a signatory to the CDP 2009.

2.4.2 CERES
CERES is a national coalition of investors, environmental groups and other public interest
organisations working with firms to address sustainability challenges such as climate change.
It was established in 1989 and has become a prominent campaigner for the well-being of
human society and the protection of the earth‟s biological systems and resources by leveraging
the collective power of these investors and stakeholders.
CERES also launched and directs the Investor Network on Climate Risk (INCR), which is
group of more than 80 institutional investors from the United States and Europe. The purpose
of the INCR is to promote better understanding of the risks of climate change among
institutional investors (Cogan et al., 2009). Probably, its most notable achievement is its
development and launch of the Global Reporting Initiative (GRI), which is in effect the
current international standard for corporate reporting on environmental, social and economic
performance.
Data Collection and Methodology

CERES produces numerous business sector reports on corporate governance and climate
change. It works in partnership with the RiskMetrics Group for the production of these reports.
RiskMetrics is a leader in the disciplines of risk management, corporate governance and
financial research and analysis – RiskMetrics in consultation with CERES developed the
Climate Change Governance Checklist to analyse corporate responses to climate change. This
assessment metric has been previously used to rank some of the largest publicly traded banks
and financial services in the world.
Data for these reports are collected from a host of sources that include securities filings,
company reports, company websites, media accounts and third party questionnaires. The
checklist has 14 indicators to evaluate corporate governance in five main areas – these are
board oversight, management execution, public disclosure, emissions accounting and strategic
planning. In each of these areas, numerous sub-factors are considered to generate a score of
proactive company measures to address climate change (Cogan, 2008, pp 5).

The checklist applies to a broad range of industries, but was adapted for the banking sector to
reflect the particular circumstances of the industry (refer: Appendix B). In particular, the
banking checklist places greater emphasis on board and management strategies to address
climate change as well as integrate the associated risks/opportunities in lending, investment
and brokerage operations. The checklist also makes scoring adjustments for different classes
of financial services companies. Diversified Banks12 are scored according to a 100 point scale,
Asset Managers according to an 80 point scale and Investment Banks according to a 97 point
scale. Box 2-2 presents some of the more prominent financial institutions assessed by
RiskMetrics/CERES.
Box 2-2: RiskMetrics 2008 – Financial Sector Ranking

HSBC Holdings 70
ABN AMRO 66
Barclays PLC 61
HBOS PLC 61
Deutsche Bank 60
Royal Bank of Scotland 55
UBS AG 52
JP Morgan Chase 43
2.5 SOUTH AFRICAN BANKING SECTOR
The banking sector in South Africa is of great importance to the country‟s economy. The
significance of the sector can be examined in terms of the size of its assets13. Hawkins (2004,
pp 180-190) reports that the value of bank assets exceeded RSA GDP – an observation that
still holds true in 200914. Therefore, it could be argued that the size of these assets relative to
GDP underlines the importance and potential influence of the banking sector to the economy.
12
A diversified bank is engaged in the full spectrum of financial service activities. The local banks profiled in
this study fit the broad definition of a diversified bank.
13
The assets held by banks are predominantly loans and advances to the private non-bank and government
sectors.
14
Statistics SA reported that RSA GDP in 3rd Quarter 2009 was R 617 Billion, which places the estimate of the
nation‟s Annual Nominal GDP at R 2,468 Billion. Kruger (2008, pp 1) reports that banking sector assets
amounted to R 3,170 Billion. The assets of the top four banks were estimated at R 2,676 Billion as at 31
December 2008.

However, in the context of climate change the economic strength of the major banks
reinforces the notion that the sector could be a serious proponent for sustainable change.
2.5.1 Structure
South Africa operates a “four pillar policy” with regard to the banking industry. “This relates
to having a minimum number of substantial banks (so called “pillars”) on which the domestic
banking industry relies and the discouragement of mergers between any of those four banks.
The primary reasons for such a policy relate to the maintenance of minimum levels of
competition, in the interests of prudential and systemic stability, in order to avoid the spread of
risk and to promote reliance on a broader platform of institutions” (Mboweni, 2004, pp 4).
South Africa's banking industry is dominated by four major commercial banking 15 groups:
ABSA, First National Bank, Standard Bank and Nedbank (Henderson, 2008). These provide
retail and investment banking services in competition with a wide range of niche commercial
banks. Mboweni (2008, pp 55) indicates that “the size and broad structure of the banking
sector was unchanged, from the previous year, as at the end of June 2008 with 35 registered
banks in South Africa and 46 representative offices of foreign banks.” Further, Brand South
Africa (2009) reported that European, Malaysian and USA banks with licences to operate in
South Africa have concentrated on corporate rather than retail banking. Nevertheless, the
“dominance of the four major banking groups and their control of 84% of the total sector
assets remain unaltered” according to (Mboweni, 2008, pp 55).
15
A commercial bank is defined as an institution operating a business that involves the acceptance of deposits of
money which are drawn by cheque, draft, order or electronic means, these deposits in turn being made
available as loanable funds. They are still engaged in retail (individual) services, but their emphasis is
increasing to wholesale (corporate) services” (van Zyl et al., 2003, pp 79)

2.5.2 Size of the Industry
Table 3 provides some key indicators reported by the Reserve Bank on the private banking
sector in South Africa. Figures 1 and 2 illustrate the size of the banking sector measured by
total assets and the control of these assets by the major banking groups in South Africa
respectively.
Table 3: The Size of the Private Banking Sector in South Africa (Adapted: Mboweni, 2008)
Total Assets
Number of Institutions
Type of Institution [R in Billions]
2007/2008 June 2007 June 2008
Locally Controlled Banks 14 2126 2715
Foreign Controlled Banks 5 9 10
Mutual Banks 2 1 1
South African Branches of Foreign Branches 14 173 227
Total Registered Banks 35 2309 2953
Total Assets
2005 2006 2007 2008
Figure 1: Total Assets held by all Banks in South Africa. The chart reveals that the value of
banking assets has been increasing over the past few years to R 3.6 Billion (Source: McGregor
BFA, 2009).

2006 2007 2008
21% 19% 18%

30% 32% 33%
16% 17%
16%
14% 14% 13%

19% 19% 19%
Standard Bank Nedbank ABSA

Other FirstRand
Figure 2: Asset Ownership by the Major Banks in South Africa. The chart reveals that 82% of
banking assets were held by the four dominant banks in 2008 (Source: McGregor BFA, 2009).
2.5.3 The Corporate Clients
Bergen et al. (2008, pp 45) investigated the perceived business risk of various industry sectors
– the research “revealed that almost every sector is, at a minimum, exposed to one high or
medium level risk from climate change.” Table 4 shows the spread of risk across various
industry sectors.
Table 4: Perceived Risk Level by Sector (Adapted: Bergen et al., 2008)16

Industry Sector Regulatory Risk Physical Risk Reputational Risk Litigation Risk
Agriculture
Automotive
Aviation
Property
Chemicals
Construction
Financial
Food + Beverage
Forestry
Health Care
Manufacturing
Mining + Metals
Oil + Gas
Pharmaceuticals
16
Table 4 shows the “perceived risk level by sector for the four types of climate risk according to 50 reports
analysed by KPMG. The score pertaining to each risk category was calculated as the average of the risk
assessments from the reports discussing the sector” (Bergen et al., 2008, pp 45).

Industry Sector Regulatory Risk Physical Risk Reputational Risk Litigation Risk
Insurance
Retail
Telecommunication
Tourism
Transport
Utilities
Legend High Risk Med Risk Low Risk Not Mentioned
An important feature of the financial reports of AMB AMRO, Rabobank and Fortis in the
Netherlands is that they each disclose the breakdown of their commercial loan portfolio per
industry sector. These breakdowns make it clear as to how their financing is geared toward
their greenhouse gas emitting clients and helps them gauge their risk levels A review of
literature pertaining to the local banking sector did not reveal similar information, which
suggests that the local bank exposure to climate risk from corporate clients is possibly largely
unknown.
2.5.4 Sustainability Reports
The emergence of non-financial sustainability reporting occurred primarily to address

environmental issues in the period prior to 1999 (White, 2005). However, it has since become
a mainstream practice to report not only on a firm‟s environmental impacts, but also its
responsibilities to the improvement of society and achievement of economic goals. In fact,
sustainability reports have become a crucial source of information that is used by both internal
and external decision makers of firms. Therefore, it is not surprising that the demand for
focused and effective reporting on the business implications of climate change led to a change
in the way socially conscious firms prepared their sustainability reports.
These reports cover a firm‟s economic, environmental and social activities. However, not all
firms use the same indicators to measure their activities - making it difficult to perform
comparisons across companies. Therefore, to address this problem of consistency the GRI

(Global Reporting Initiative)17 developed sustainability reporting guidelines to help
standardize the reports prepared by firms.
Diagram 2 illustrates the structure of the GRI reporting principles, which has become a
minimum standard for firms reporting on sustainability issues. The increasing expectation by
stakeholders that firms disclose information about the business implications of climate change
was reflected in the inclusion of a new indicator “EC2 – Financial Implications, Other Risks
and Opportunities for Organization‟s Activities due to Climate Change” (Vijn et al., 2006,
pp 8).
The State of Sustainability Reporting in South Africa

Sonnenberg and Hamann (2006, pp 310) indicated that “South African companies that are
leaders in sustainability reporting have moved towards systematic reporting and are beginning
to provide an increasing range of quantitative and comparable data for stakeholders to assess
their progress – where numerical data is inappropriate leaders are beginning to explain in a
more systematic manner their strategies and programmes for addressing key issues.”
Consequently, these leaders became part of a growing international trend in sustainability
reporting (Elkington, 2004). In 2006, many companies in the services, financial and retail
sectors did not report on their environmental activities. Firms that discussed environmental
activities tended to “report at a generic and selective level, reflecting their assumption that
their impacts were limited to direct ones such as office-based resource consumption. The
awareness of these firms with regard to their indirect impacts and activities to mitigate or
manage these impacts was very limited even among the largest financial institutions in the
country.” (Sonnenberg and Hamann, 2006, pp 315)
17
The GRI was established by the Collation for Environmentally Responsible Economies (CERES) and the
Tellus Institute in 1997. It entered into partnership with the United Nations Environmental Programme
(UNEP) soon after its inception. It became independent in 2002 (Woods, 2003).

Transparency
Reporting Principles Reporting Principles

[Defining Content] [Ensuring Quality]
Materiality Accuracy Balance
Inclusiveness Timeliness Comparability
Sustainability Context Clarity Reliability
Completeness
Diagram 2: Defining the Content and Quality of Sustainability Reports (Adapted: Global Reporting
Initiative, 2006)
In addition, reporting in accordance with the GRI guidelines was a minority activity - only a
third of the companies participating in the JSE SRI18 index used the GRI as basis for reporting,
but these firms did not necessarily report „in accordance‟ with the GRI. Currently, it is not
clear how well the banking sector has responded to the trend for better sustainability reporting.
However, an examination of the “GRI Report Lists” revealed that Standard Bank and Nedbank
have declared their reporting levels, while ABSA and FirstRand have undeclared reporting
positions19. The declaration of a reporting level is not indicative of non-compliance, but it does
suggest that Standard Bank and Nedbank are leading the major South African banking
18
The JSE (Johannesburg Stock Exchange) was the first bourse in an emerging market to develop a sustainability
index for its top (160) listed companies. The JSE SRI (Socially Responsible Investment) Index was launched
in 2004 (Sonnenburg and Hamann, 2006, pp 305).
19
An organization self-declares a reporting level based on its own assessment of its report content against the
criteria in the GRI Application Levels. Declaring an Application Level results in a clear communication about
which elements of the GRI Reporting Framework have been applied in the preparation of a report (GRI, 2006,
pp 5).

institutions in issues of sustainability reporting – a component of which relates directly to
climate change issues.
2.6 THE REGULATORY ENVIRONMENT
The role of government is to provide leadership on mitigation measures through the

introduction of policy and regulatory structures within which solutions for climate change can
operate. It is crucial that government place a price on carbon and stimulate demand for
products in the emissions trading market and to communicate a clear message to the financial
services industry that climate change demands a serious commitment in time and resources.
2.6.1 Long Term Mitigation Scenario
The RSA Government “commissioned a process in 2006 to examine the potential mitigation
of the country‟s greenhouse emissions. The process was to be informed by the best available
information. The process aimed to produce Long Term Mitigation Scenarios (LTMS) that
would provide a scientific analysis from which the government could draft a long-term climate
policy” (SBT, 2007, pp 1). The key findings of the LTMS process were:
 South Africa could grow without carbon constraints and benefit economically, but this
will be concomitant with increasing carbon emissions. It is proposed that a four-fold
increase in our emissions by 2050 would not be tolerated by the international
community.
 There are certain quantifiable strategic mitigation options which are immediately
implementable. These include: energy efficiency primarily in industry; electricity
supply options; carbon capture and storage (CCS); transport efficiency and shifts and
people-orientated strategies supported by awareness.
 South Africa can choose both regulatory and economic instruments. However, neither
of these completely addresses emissions reductions sufficient to meet the “required by
science” targets. Nevertheless, with an escalating carbon dioxide tax, economic
instruments are the most effective by almost 75%.

The LTMS conclusions were taken to Cabinet in July 2008. Thereafter, a number of decisions
were taken that provided an overarching framework for the development of a Climate Change
Response Policy for South Africa.
2.6.2 South African Climate Policy
The decisions taken by government and which were reported in the National Climate Change
Response Policy included the following (DEAT, 2009):
 Greenhouse Gas Emission Reductions and Limits: South Africa intends to pursue a
peak, stabilization and decline greenhouse gas trajectory over the next 60 years. This
would mean that emissions will peak during the period 2025 to 2035, will stabilize
within the 2050 to 2060 period and thereafter decline.
 Expand, Strengthen or Scale-up Existing Initiatives: The government aims to deepen,
extend and scale-up existing initiatives around energy efficiency, renewable energy,
the development of “green” industries, current research into climate friendly business
methods in order to achieve a greater impact.
 Implement the Business Unusual Call for Action: South Africa intends to prioritize
investment into research and technology development that would make a major impact
on greenhouse gas emissions. This would include investments in R+D for electric and
hybrid vehicles, new solar technologies, clean coal technologies, carbon capture and
storage as well as participation in a range of other national and international initiatives
that could achieve breakthroughs in achieving low carbon ways of doing business.
 Vulnerability and Adaptation. South Africa recognizes its vulnerability to the impacts
of climate change. Consequently, it commits to improving awareness across
government and society on the potential impact of climate change and is prepared to
meet the resultant challenges.
 Preparing for the Future: Government has decided to launch a policy development
process that would result in a national Climate Change Response Policy in the form of
a White Paper.

Subsequently, a “National Climate Change Response Policy Development Summit” was held
from 03 to 06 March 2009 (Midrand, South Africa), which laid the foundations for a
participatory process that is to culminate in a Policy White Paper on Climate Change by 2010.
The translation of this policy into a legislative, regulatory and fiscal package is expected by
2012. Table 5 presents the timetable that was proposed to guide the process.
Table 5: Schedule of Climate Policy Implementation (DEAT, 2009)

Milestone Deadline
Sectoral Policy Development Initiatives September 2009
Post-2012 UNFCCC Negotiation Positions August 2009
Post-2012 UNFCCC Negotiation Complete December 2009
National Policy Revised in Alignment with International Commitments March 2010
Publication of Green Paper for Public Comment April 2010
Publication of National Climate Change Response Policy December 2010
Translation of Policy into a Regulatory, Legislative and Fiscal Package Present - 2012
2.7 CONCLUSION
The current body of scientific evidence seems to indicate that unlimited energy use and
resource extraction are resulting in climate change through the release of greenhouse gas
emissions. The “new climate reality” suggests that business leaders cannot ignore the threat to
the environment and the socio-economic issues arising from it. The banking sector plays a
crucial role as a financial intermediary between households and firms – “by providing finance
to most of the world‟s industries, the banking industry is a microcosm of all industries and
society as a whole” (LCCP, 2006, pp 16). Therefore, it can be argued that banks are subject to
the operational risks and costs arising from climate change.
The insurance industry has already begun reorganizing itself to address the threat of climate
change in anticipation of physical and regulatory risks to its business. Similarly, certain
international banks have taken the lead in establishing climate-friendly policies and market
positions. The actions of HSBC, Bank of Montreal, National Australia Bank and Barclays
PLC are setting the benchmark for the banking industry with regard to responsible

climate-friendly practices. The momentum started by these international banks has shifted to
other parts of the world. Nedbank and Standard Bank have joined the ranks of these market
leaders through their proactive stance on climate change issues. It could be argued that this is a
strategic move performed in anticipation of local climate policy interventions. Nevertheless,
government has embarked on a path to address climate change, which means banks and
business cannot afford to be complacent about their contribution to the climate problem.

3 RESEARCH QUESTIONS
In the context of the literature reviewed it is posited that:
I The major banks in South Africa are not sufficiently aware of their role and
responsibilities in mitigating the effects of climate change.
II The corporate response from the major banks in South Africa, who are aware of their
roles and responsibilities, is insufficient in addressing climate change issues.
In order to assess the corporate response of the banking sector to climate change, the following
research questions are proposed:
 What are the implications arising from national and international policies and related
developments on climate change for the banking sector in South Africa?
 What governance practices have major banks in South Africa adopted to respond to
climate change?
 How does the climate change response of major banks in South Africa compare with
international banking benchmarks?
 What screening protocols are banks using or intend to use in order to evaluate new
projects with regard to climate change risks and how is this process being managed?
 What active steps are banks taking to develop their products or services that ensure
climate-friendly practices from their clients?
 What is the extent to which banks require corporate borrowers to demonstrate that they
have identified and incorporated climate change impacts on their business model,
including value chains?

4 RESEARCH METHOD
There is a “large amount of information available to stakeholders in sustainability reports

covering a range of climate related issues and implications” (Vijn et al, 2006, pp 10).
However, these reports range significantly in their level of quality and focus. Smith (2007)
supports this view, suggesting that banks could present more accessible information in their
sustainability reports. Nevertheless, these sustainability reports are probably the best source of
publically available information for evaluating the climate response from banks, but they are
not the only source.
This study also relied upon the responses to the Carbon Disclosure Project from participating
banks (local and international), personal interviews and other publicly available research
material as useful sources of information for addressing issues on climate change. This study
is mainly a qualitative investigation into the climate response from the major banks, but also
incorporates some quantitative research elements for the analysis of the CERES Climate
Survey.
4.1 OBJECTIVE
The research uses sustainability, CDP and CERES reports as a basis for evaluating the quality
of the climate response from the major banks in South Africa. The primary aim of the research
is to assess the climate governance practices of the major local banks by comparing their
climate-related response against those banks ranked top in the Carbon Disclosure Project‟s
Leadership Index.

4.2 APPROACH
The approach to this study is inductive and consists of the following phases20:
 A literature survey of recent reports and studies on climate change.

 The selection and review of a sample of sustainability and CDP reports prepared by
banks in South Africa, the United Kingdom, the USA and the Netherlands21, as well as
any other climate-related publications produced by these banks.
 The identification of criteria to score banks in South Africa against international
banking sector benchmarks.
 The analysis of the corporate response of the major local banks to the challenge of
climate change using methodologies prescribed by the CDP and RiskMetrics/CERES.
 The execution of a set of structured interviews to assess the corporate response of the
major local banks to climate change issues.
 Identification of similarities and/or differences between banks being surveyed against
the international banking sector benchmark.
4.3 RESEARCH DESIGN
The aim of the research is to assess the variation in the response of the major local banks to
climate change, where each bank is considered a single case, and then comparing these
responses to those of international banks. Further, the collection of data on the quantifiable
variables of interest shall be performed more or less at the same point in time through the use
of a standardised questionnaire issued to each bank. Consequently, the proposed research
design corresponds with the definition of survey research. Bryman and Bell (2007, pp 56)
define survey research as “comprising a cross-sectional design in relation to which data are
collected predominantly by questionnaire on more than one case and at a single point in time
20
The process of induction involves drawing generalisable inferences out of observations (Bryman and Bell,
2007, pp 14).
21
A review of a 2006 Dutch Banking Sector Report about climate-related developments in that country revealed
similarities with the financial sector‟s climate-related position in South Africa. The researcher considers that
the experience of Dutch Banks in response to climate change issues is relevant to the local context.

in order to collect a body of quantitative or quantifiable data in connection with two of more
variables, which are then examined to detect patterns of association.”
4.4 SAMPLING
The set of structured interviews was limited to a few senior persons from the major banking
institutions – the banks profiled included Standard Bank, FirstRand, Nedbank and ABSA. The
individuals interviewed were pre-selected according to their involvement with climate related
issues on behalf of their respective organisations – this form of sampling is commonly termed
“purposeful sampling” (Patton, 1990, pp 169). The aim of the survey research was not to
obtain statistically verifiable data, but rather to obtain a snap-shot view of the banking sector
response to climate change. Consequently, the sample size for the survey was small (less than
10 persons).
4.5 DATA COLLECTION METHODS
The indicators used in the research to assess the climate response of banks in South Africa
were derived from indicators used in similar international studies22. Hence, questions posed in
the structured interviews were designed to extract identical and/or similar information from
respondents as those posed to participants in previous international surveys.
This study relies on publicly available sustainability reports from each of the major banks as a
primary source of information or data. The secondary sources of information/data include
annual company reports, company website-based information, company responses to the CDP
2009, academic papers and articles as well as information gathered from the structured
interview process.
22
The previous international studies being referenced in the research include Jeucken et al. (2006), Bergen et al.
(2008) and Cogan (2008).

4.6 DATA ANALYSIS METHODS
Two different assessment methods have been employed to evaluate the climate-related
response of the major local banks.
 CDP Assessment: The scoring methodology prescribed by the Carbon Disclosure

Project 2009 has been used without amendments.
 CERES/RiskMetrics Assessment: A scoring system based on that described by Cogan
(2008) was employed for the analysis of the sustainability reports.
4.7 RELIABILITY
The reliability of the indicators used in this study is consistent. The use of these indicators
requires the researcher to exercise personal judgement in the interpretation of source
information, which introduces a level of subjectivity into the assessment process.
4.8 TRANSFERABILITY
The survey research did not involve a large number of peoples from the major banking
institutions. In fact, the pool of respondents totalled five persons from all the major local
banks. The survey questions were designed to obtain a general view of the bank‟s position on
climate change. The questions were generic in nature and offered some scope for subjective or
opinion-based answers. This survey approach was considered useful to ensure easy
comparisons across responses from the different banking organisations both domestically and
internationally. However, no claims of transferability are made in this study because “with a
small number of individuals in a certain organisation being interviewed or surveyed it is
impossible to know how the findings can be generalised to other settings” (Bryman and Bell,
2007, pp 423).

4.9 RESEARCH LIMITATIONS
It is not the intention of the author to provide detailed quantitative information in the research.
Nevertheless, the findings of this study could be developed to inform analyst research and
financial sector decision making.
The research is limited by confidentiality restrictions on information from the major financial
institutions. In order to avoid constraints placed on the publication of this study, only
information available in the public domain was used.
It was assumed that the participants in the bank climate survey had sufficient knowledge of the
climate change problem, their institution‟s stance on climate-related matters and were in a
position to offer an informed response to the questions posed. However, the research findings
could be limited by the survey participants‟ access to climate change relevant information or
biased by their personal opinions on the matter.

5 INTERNATIONAL BANKING BEST PRACTICE
It is difficult to refute the evidence supporting global climate change and as such it will
become increasing more difficult to overlook the impact that climate-related issues are having
on the business environment in South Africa. It has been suggested that the business that best
understands and prepares for this imminent reality shall be the most successful in the future
(CDP2, 2009, pp 28). It is also suggested that firms can benefit from developing or adopting
effective climate change strategies that correspond well to current „best practice‟ responses. In
this context, some essential elements of an effective climate change strategy are described
(refer: Box 3).
Box 3: Elements of an Effective Climate Change Strategy [Adapted: CDP2, 2009, pp 29]
Executive/Board Level Commitment- it is important Emissions Accounting - provision must be made for
that there is a clear understanding and strong a detailed assessment of the firm‟s carbon footprint –
commitment to climate-related issues at the highest this involves:
levels of the organisation. The risks and opportunities  identifying relevant and significant sources of
presented by climate change must receive sufficient GHG Emissions;
attention from the leadership so that climate-related  using or defining a common set of metrics for
business drivers are appropriately integrated into monitoring, calculating and reporting on
company strategy and policy. This commitment emissions;
involves:  ensuring the quantification of emissions as
 ensuring appropriate board oversight on climate Scope 1, 2 or 3 as appropriate; and
change; and  ensuring third party verification of emissions
 ensuring climate-focused statements are made in data.
annual reports, media releases, sustainability
reports and public policy statements.
Strategic Planning - the firm should set and update Management Execution – it is important that firms
GHG reduction targets by: identify and implement appropriate emissions
 evaluating potential action options that are reduction and adaptation measures by:
informed by a risk/opportunities assessment  assessing and implementing internal
covering the firm‟s value chain, by the outcome opportunities relating to energy efficiency,
of the emissions accounting process and by an renewable energy, logistics and internal
emissions forecast; behavioural change;
 ensuring that the targets are linked to an agreed  better supply chain management and client
baseline, reference scenario and target date; and advisory services;
 integrating these targets within internal key  assigning management responsibilities &
performance indicators and decision making integrating climate change performance into
processes. incentives;
 identifying opportunities & developing products  identifying & realising opportunities for
associated with emissions trading & CDM partnerships with relevant stakeholders,
Projects; participation in external initiatives such as the
CDP, Clinton Initiative; and
 engaging in positively in policy development.

An effective climate change strategy provides clear direction for a firm determined to address
climate-related issues in a sustainable way – a firm equipped with an understanding of its
essential elements would be in a position to develop their own strategy following an
examination of the climate-related activities of international benchmarks. This chapter aims to
accelerate that research and development process by first discussing the essential elements of a
climate change policy framework, by providing insight into how prominent international
banks are reducing their direct emissions and by describing how these benchmarks are
contributing to a reduction in the emissions of their clients through the use of their financial
products and services.
5.1 CLIMATE CHANGE POLICY FRAMEWORK
A common characteristic of the climate-relevant value propositions offered by banks such as

HSBC, Barclays PLC and National Australia Bank is that they are all supported by a
comprehensive climate change policy statement either as a stand alone document or integrated
into existing environmental policy frameworks. Jeucken et al. (2006) identified five important
elements of a good policy statement when investigating the climate change policies of Bank of
America, Citibank, J.P. Morgan, HSBC and Goldman Sachs. Jeucken et al. (2006, pp 37)
highlighted that these major international banks:
 strongly emphasise that climate change, specifically the reduction of carbon emissions,
is a major challenge to society, business and politics; and that good cooperation
between all involved stakeholders is necessary to address the challenge;
 recognise the special role that government must play with regard to the provision of a
sound policy framework which provides the basic conditions for a market-driven
mechanism;
 recognise that voluntary actions alone are insufficient and that regulations, enforced by
incentives and/or penalties, are necessary for action;
 view themselves as mediators between different stakeholders with a special role in the
promotion of energy efficiency and emission reduction within their organisations as
well as in the activities of their clients and the government; and

 assume that substantial reduction targets for energy consumption and carbon emissions
is possible.
Morgan Stanley provides a good example of a clear Environmental Policy Statement (EPS).
Morgan Stanley‟s EPS commits the bank to assisting clients in greenhouse gas intensive
industries to: develop financial strategies for responding to emerging regulatory policies;
devote resources toward renewable sources of energy; provide investment research that
improves understanding of the impacts of climate change and carbon constraints on business;
encourage clients to evaluate the problem of greenhouse gas emissions as well as promote an
investment in and use of emerging environmental technologies.
The public disclosure of a clear climate change statement or policy forms part of the
assessment criteria used by Ceres and the Carbon Disclosure Project when evaluating the
commitment of firms such as Morgan Stanley to addressing climate-related matters.
Therefore, it can be argued that a carefully prepared climate change statement presented in the
sustainability or annual company report not only helps raise the competitive ranking of the
firm, but more importantly sends a strong message to all stakeholders that climate-related
issues are important to the organisation. Hence, it is not surprising that the banks ranked
highest in the CDP Leadership Index (2009)23 have a well-defined, publicly available climate
change policy statement.
5.2 INTERNAL BANKING INTERVENTIONS
Although, banks are not significant direct emitters of greenhouse gas on the scale of utilities or
heavy industry, they can still contribute to climate change mitigation by managing their own
emissions more effectively. The measures being adopted by major international banks to
address climate change issues include:
23
HSBC [Rank 1], Bank of Montreal [Rank 2] and National Australia Bank [Rank 5] performed the best among
financial institutions in the CDP Global 500 Leadership Index

 leadership making strong, well-informed public statements on their commitment to
climate-related issues;
 adopting formal emissions accounting and management systems;
 altering their energy procurement policies in favour of renewable energy sources;
 integrating green building principles into real estate management;
 placing stricter limits on business travel;
 introducing climate-related training for employees;
 engaging with a plethora of external climate change lobbying activities;
 implementing in climate-friendly procurement practices; and
 increasing the quality of their public disclosure activities.
Executive/Board Level Commitment

It was difficult to obtain details about climate-related corporate governance practices
employed by the major international banks, from their annual company or sustainability
reports, because they do not report extensively on these issues in these publications24. A richer
source of information in this regard was found to be their responses to the CDP 2009. Almost
all the major international banks have instituted board level oversight for climate change
issues affecting their business. Their boards are informed on internal and external
climate-related developments by executive committees and their corporate executives express
a strong commitment to climate change concerns in their public statements (refer: Box 4).
Box 4: Public Commitment to Climate Change from the International Benchmarks

“NAB is very serious about climate change, and one “I believe Barclays can lead the financial sector in
of the most significant and visible commitments we’ve producing products and services that allow
given thus far is becoming carbon neutral ourselves increasing numbers of people to choose to invest in
by 2010.” environmental products, which in turn, will drive the
reduction in carbon emissions.”
Mark Joiner Marcus Agius

Group Chief Financial Officer Group Chairman
National Australia Bank Barclays PLC
24
HSBC was a notable exception to this finding.

Emissions Accounting
A common characteristic noticed across the major international banks, addressing climate
change issues, is their adoption of the Greenhouse Gas Protocol for measuring energy-related
emissions from their office buildings and retail branches. Cogan (2008, pp 22) found that “28
of the 40 banks profiled in his study calculated and disclosed their GHG emissions.” He
indicates that many banks have “gone beyond conducting GHG emission inventories by
setting emission reduction targets and regularly reporting on their progress to interested
stakeholders.” The setting of emission reduction targets cannot be over-emphasized since
these is critical for sustainable greenhouse gas management, but it is not always obvious what
constitutes a good target. Box 5 presents some guidelines that local banks might consider
when evaluating the effectiveness of targets set by benchmarks or when establishing targets
for their own firms.
Box 5: Characteristics of Effective GHG Reduction Targets [Adapted: CDP2, 2009, pp 48]
Scope of Emission Sources – a minimum Geographic and Organisation Boundaries – it is
requirement for any reduction target should be the important that firms exclude those regions or
inclusion of all Scope 1 and 2 emissions. Scope 3 business areas that do not have reliable GHG
emission targets should be established as is relevant inventories in their reporting. However, such
to the sector in which the firm operates – an example exclusions should be a temporary measure until the
would be the expected inclusion of logistics-related firm is better able to monitor, calculate and report on
emissions in Retail Sector, but not Financial Sector the emissions emanating from these business areas.
targets; while both sectors should ideally set business
travel targets.
Absolute or Emissions Intensity Targets – the short Establishing a Baseline and Target Dates – it is
argument is that absolute targets are more effective at recommended that an emissions baseline be
addressing the needs of climate change than emission established for the most recent year for which reliable
intensity targets. emission data is available. The target year should not
be set more than ten years following the base year.
Identification of the Type of GHG Emission – Nature of the GHG Reduction Commitment – The
ideally provision should be made for any of the target needs to clearly and ambitiously address the
greenhouse gases that a firm releases. In principle, it issues of climate change as required by science, but
is acceptable to exclude those gas emissions that also achievable within the proposed timeframe. It
form a low percentage of the total Scope 1 and 2 should be informed by the firm‟s scenario/strategic
emissions. However, it is expected that these planning assumptions that include company growth
exclusions shall be mentioned. rates, electricity sources, infrastructure changes,
property management issues and efficiency levels. In
addition, the target should exclude emission
reductions achieved through offsetting or emissions
trading initiatives.

An analysis of the emission reduction targets, set by some of the banks ranked top on the
CDLI, revealed that many of the reported targets meet most of the recommended criteria. In
particular, their emission reduction targets satisfy the required conditions for scope of
emission sources, organisational boundaries, declaration of absolute targets, establishing a
baseline and appropriate target dates. The best example of reduction target information was
noticed in the sustainability reports prepared by HSBC and WESTPAC Group. Table 6a
reveals how HSBC reported their emission targets.
Table 6: HSBC Emission Reduction Targets (Adapted: HSBC Sustainability Report, 2008)
Group Targets (excl. Data Centres) Reduction Targets per FT Employee (2008-2011)
Energy Use from Buildings -8.0 %
Carbon Dioxide from Energy Use in Buildings -6.0 %
The bank also clearly defined its „geographic and organisation reporting boundary‟ by stating
that “the new four year targets set in 2008 apply to HSBC offices and branches in 23 countries
and territories where 91% of our employees are located as well as to our global service and
technology centres. Data centres are excluded.25” Further, HSBC declared that the bank had
set new three-year targets for business air travel which start in 2009. The bank committed to
initially achieving a 10% reduction in carbon dioxide emitted per employee from combined
long and short-haul flights based on a 2008 baseline. In addition, HSBC stated that it seeks to
attain a further 5 percent reduction in carbon emissions per year for the period 2010 to 2011.
Similarly, WESTPAC has ambitiously declared that it is targeting a 30% reduction of

electricity-related emissions (Scope 2) without the use of offsets by 2013. The bank also aims
to maintain the 20% reduction in air travel emissions (Scope 3) achieved in 2009 over the next
four year period.
Energy Efficiency
Jeucken et al. (2006) suggests that “reducing energy consumption by changing behaviour can
be a cost-effective measure for reducing carbon emissions.” NAB reported in their 2008
Corporate Responsibility Review that “the environment initiatives underpinning the success of
their energy efficiency programme at their Head Office in Leeds (United Kingdom) included
25
Source: HSBC Sustainability Report (2008, pp 21)

an investment in infra-red sensor lighting throughout the building, new air-conditioning and
plumbing, improved recycling facilities and 100% accredited green renewable energy
purchases.” The Bank of Montreal indicated that the bank achieved an energy consumption
reduction of 526 kW26 through the elimination of 409 servers, 40 peripheral devices and 2
storage sub-systems. HSBC also reported similar initiatives to reduce energy use – the bank
suggests that “for those parts of Group where targets have been set, excluding data centres,
energy use was reduced by 4.6% when normalised by the number of full-time employees in
2008. This was achieved by the installation of intelligent lighting systems, efficient air
conditioning and heating systems as well as through the use of renewable technologies such as
ground source heat pumps, solar thermal and photovoltaic panels and micro wind turbines.27”
Carbon Neutrality/Offsets
Cogan (2008) reported that a number of international banks have declared targets to achieve
carbon neutrality28. Although banks can reduce carbon emissions from energy consumption by
using renewable energy sources, they still can generate carbon emissions from other activities
such as paper consumption, business travel and commuting. This creates opportunities for
offsetting their emissions through the purchase of carbon credits or through an investment in
Joint Implementation or Clean Development Mechanism (CDM) projects.
Barclays PLC has embarked on a phased approach to becoming carbon neutral. The bank has
been offsetting emissions from their UK and European operations since 2006 and 2007
respectively - it has purchased 416,000 tonnes of carbon credits including both Certified
Emissions Reductions (CER) and Verified Emissions Reductions (VER) – the cost of the
carbon credits is allocated to Barclays Business Units on the basis of their carbon emissions.
Barclays PLC suggests that this cost allocation mechanism creates a strong financial incentive
within the bank to invest in energy efficiency29. HSBC has also pursued a similar strategy –
the bank reports purchases of VERs from high quality projects in 2008 such as industrial
26
BOM suggest that this is the energy 430 average-sized homes would consume in a single year.
27
Source: HSBC Sustainability Report (2008, pp 23).
28
A bank is considered carbon neutral if it does not produce direct carbon dioxide emissions on a net basis.
29
Source: Barclays Sustainability Review (2008, pp 15).

efficiency projects in India and China, a biomass project in Hungry and several small hydro-
electric projects in China. These projects have all been approved by the UN Clean
Development Mechanism (CDM) and the offsets assured by the Voluntary Carbon Standard.
The cost of the offsets is charged to the HSBC entity concerned thus incentivising HSBC
Offices to consistently reduce their emissions.
The Bank of Montreal has also worked hard to consistently reduce their carbon footprint in an
effort to become carbon neutral. The bank encourages employees to use teleconferencing as an
alternative to non-customer facing meetings in other cities; the use of public transit systems
are promoted through BOM partnerships with municipal transit authorities whereby
employees are offered monthly transit pass discounts for using public transport; and the bank
is working to ensure that they use the most fuel efficient vehicles whenever possible e.g. the
bank has mandated that all newly leased vehicles in Canada must be hybrids.
NAB reports the production of monthly intranet based air travel reports for each business unit
located in Australia to encourage behavioural changes and assist each business unit to better
manage travel. The initiative has not achieved the targeted 20% reduction in air travel, but it
demonstrates the commitment of NAB to climate change issues.
Awareness Training
A large number of the leading international banks have invested significantly into creating
greater awareness among their employees on climate change matters. HSBC has trained
approximately 350 employees from 50 countries at their regional Climate Centres on an
intensive training programme climate change and sustainability. These individuals are the
bank‟s designated Climate Champions responsible for initiating change within their business
areas. The National Australia Bank (NAB) hosts a voluntary green team community
comprising approximately 640 employees, which has been used to raise awareness about the
impacts of climate change and implementing campaigns to support the firm‟s commitment to
carbon neutrality.

Supply Chain Management
Banks can play a pivot role in influencing the reduction of their indirect climate-related
emissions through effective supply chain management activities. It is suggested that close
collaboration between the banks and their suppliers on climate change mitigation strategy
could benefit both parties mitigate their individual impacts. Barclays PLC operates a group-
wide sourcing process which includes criteria for measuring and assessing their supplier‟s
sustainability. Barclays administers a tendering process for relevant categories whereby
suppliers are required to provide data on the product or service‟s environmental footprint.
Barclays reported that in 2008, the firm engaged directly with a supplier in South Africa,
Striata, with regard to the provision of e-statements. The initiative resulted in an estimated
saving of 50,000 tonnes of carbon emissions.
The Bank of Montreal and HSBC both reported in their respective sustainability reports for
2008 that they have added environmental sustainability to their list of evaluation criteria for
potential suppliers. In particular, HSBC has piloted a programme to rate their potential
suppliers on a weighted scorecard that includes social and environmental criteria. The bank
reported that a full-time post was established with a global remit to roll out the project,
co-ordinate management of sustainability in the supply chain and drive improvements in their
supplier‟s performance – in order to support this process, a purchasing and sustainability
working group was established with participants from across HSBC‟s operational regions.
5.3 FINANCIAL PRODUCTS AND SERVICES
It has been argued that in a carbon constrained economy banks can motivate their clients to
address climate change and in this way influence the reduction of their own indirect carbon
emissions. It can also be argued that their level of influence on the client is dependent on the
type of financial product, the competition the bank faces for a client and on the inherent
profitability of reducing greenhouse gas emissions. Currently, critics debate the pressure banks
can bring to bear on their clients with regard to climate change matters. Nevertheless, a
significant number of international banks have embraced their role and responsibilities in

addressing the issue of climate change and have introduced formal policies to manage these in
a systematic manner (Jeucken et al., 2006, pp 13).
Debt Financing
The interest rates that banks can charge for loans are probably the simplest method available
to banks to leverage clients to respond appropriately to climate-related issues. Banks provide a
wide-range of loans including personal loans and mortgages to consumers, commercial loans
and financing for large projects. Jeucken et al (2006) suggests that banks can integrate the cost
of carbon emissions in their financial risk assessment of a loan. This would necessitate that
clients report their expected carbon emissions pertaining to the asset (machine or plant) for
which the client is seeking finance. The Bank of Montreal (BOM) reported that it updated its
lending guidelines by introducing questions on due diligence specifically related to climate
change30. In addition, the bank reported that “it is their intent to avoid dealing with borrowers
who have a poor track record for environmental risk management.” Therefore, BOM has
guidelines in place to evaluate the environmental impact of the loans they finance and the
projects in which they participate – “all eligible borrowers for commercial and corporate loans
are subject to an environmental risk assessment process.”
The responsible lending initiatives undertaken by the Bank of Montreal resemble the risk
management policies or lending procedures addressing climate change offered by other major
international banks. Citibank incorporates the potential costs of carbon in the firm‟s financing
of power generation. The Royal Bank of Canada has undertaken a carbon risk analysis of its
lending portfolio and has developed a proposal to incorporate carbon risk into the credit and
risk rating methodologies of the entire firm. Cogan (2008) reported that the Bank of America
has established a “specific target to reduce greenhouse gas emissions associated with its
lending portfolio. Its policy applies to its utility corporate finance portfolio, where it is seeking
a 7% reduction in the rate of greenhouse gas emissions relative to electricity produced by 2009
– in order to achieve this goal the bank is changing its portfolio mix to add customers with
lower carbon emission profiles.” HSBC is developing micro-finance products for borrowers in
developing economies to enable them to adapt and mitigate against the impacts of climate
30
Source: BMO Corporate Responsibility Report and Public Accountability Statement 2008

change – it is working through microfinance institutions to provide credit, wholesale lending,
cash management, remittances, foreign exchange handling to provide these products and
services - as such the bank is able to demonstrate both a commercial return and positive social
impact.
Renewable Energy Finance

Cogan (2008, pp 27) reports that “while most banks are quiet about their financing of the
fossil fuels industry, 29 of the 40 banks surveyed in his research have highlighted their
involvement in the renewable energy market.” This trend seems to be unchanged with the
National Australia Bank (NAB) stating in their 2008 Corporate Responsibility Review “we
continue to lend significantly to renewable energy projects – we support customers who wish
to invest in cleaner technologies such as wind power or lower carbon, fossil fuel-based power
generation.” NAB revealed that the bank is financing a wind farm project in Yorkshire,
England (12 turbines, 2.5 MW each with an energy yield of 74.5 GW hours per annum). The
bank believes that their approach to project finance can help improve their customers
environmental and social performance while also recognising the significant impact they can
have in influencing more responsible lending through the projects and organisations to which
they provide financing. Similarly, Barclays PLC reported in their 2008 Sustainability Review
that 18 of the 31 projects financed were non-fossil fuel power generation projects. An example
of their effort in the renewable energy sector is their funding of a 4 year, GBP 1.3 M project to
make small-scale solar power accessible to rural communities in Kenya31.
The commitment from major international banks to renewable energy is strong if you consider
the money being spent on projects. The Royal Bank of Scotland provided USD 2.6 Billion in
capital to renewable energy projects making it the leading lender in 200632; BNP Paribas
contributed USD 1 Billion to 8 renewable energy projects in 200633 while Bank of America
announced a USD 20 Billion, 10 year programme to support environmentally sustainable
business activity to address climate change.
31
Barclays PLC is working with a not-for-profit organisation called SolarAid.
32
Source: Infrastructure Journal R&A.
33
Source: New Energy Finance.

Mortgage Financing
It can be argued that mortgages are the most important loan category. Therefore, banks could
play an important role in contributing to reduced carbon emissions by encouraging property
owners to increase energy efficiency in their homes and/or work premises. It is also posited
that banks can improve the energy efficiency of a building through life-cycle assessments e.g.
by taking maintenance and energy costs into account in the design and selection of building
materials prior to the start of a development (Jeucken et al., 2006, pp 17). Société Générale in
partnership with ADEME34 is offering “ecological mortgages‟ – these are loans offering
preferential rates to customers in financing of energy-efficient/low-impact homes. Cogan
(2008, pp 30) reports that “Mitsubishi UJF Financial Group, Mizuho Financial Group and
Sumitomo Financial Group also offer preferential rate loans – typically 0.5% below posted
rates – for small and medium enterprises that meet specific environmental standards. Mizuho
has extended this loan programme to residential customers installing photovoltaic generation
equipment and is providing life-cycle assessments of environmental products for its corporate
clients.”
Investment and Insurance Products

Banks can establish special climate change funds, which only invest in firms that have a clear
carbon reduction programme. There is a wide array of possibilities for such funds ranging
from plain share funds to very sophisticated derivative funds. BMO Mutual Funds recently
launched two sustainability products in response to growing demand from customers seeking
to invest in firms that demonstrate an ability to effectively meet the challenge of sustainability
issues35. The BMO Sustainability Climate Class provides investors with exposure to equities
related to products and services that could reduce/delay the effects of climate change. The
bank‟s second product offering, the BMO Sustainability Opportunities Class provides
exposure to equities related to a wide range of themes including water, alternative energy and
climate control.
34
ADEME is the French Agency for Environment and Energy Management
35
Source: BMO Corporate Responsibility and Public Accountability Statement (2008)

Investment funds are a good way for banks to pool investments to reduce risk as well as offer
these as financial products e.g. climate-related funds/indices. In 2007, HSBC Corporate
Investment Banking and Markets (CIBM) introduced the “Global Climate Change Benchmark
Index along with a family of four investable global climate change sub-indices. The
Benchmark Index was designed to provide exposure to firms that are best positioned to profit
in the face of climate change challenges – the bank now offers a climate change fund based on
the index” (Cogan, 2008, pp 29). Similarly, Barclays Global Investors (BGI) offers clients a
variety of products with different investment strategies including Active, Index and Model
Driven Funds. In 2008, Barclays PLC launched several new index funds based on
environmental or social indices for both institutional and retail investors. A notable example is
the iShares S&P Global Clean Energy ETF, which is based on an S&P Index to track 30
global companies in clean energy production as well as clean energy technology and
equipment36. Other innovative investment offerings include the five climate-related products
from UBS:
 UBS Global Warming Index, which is a tradable benchmark for global investments in
the weather derivatives market,
 UBS World Emissions Index, offers index-linked products that allow clients to
participate in the index‟s performance which is linked to tradable derivative
instruments referencing emissions allowances,
 UBS Diapason Global Biofuel Index,
 UBS Climate Change Strategy Certificate, which is an actively managed basket of 25
shares that includes firms developing solutions in renewable energy and energy
efficiency, and
 UBS Equity Fund – Global Innovators, that includes investment themes such as
renewable energy, mobility, water, nutrition and healthcare.
In the insurance product sphere, HSBC has firmly established sustainability and environmental
initiatives as a strategic priority. The bank has launched consumer life, vehicle, home and
travel insurance products linked to forest protection and a clean air initiative – primarily in
36
Source: Barclays PLC Sustainability Review (2008)

South America (Mexico, Brazil and Argentina). In addition, their insurance brokers have
developed climate risk consulting and renewable energy project insurance to promote
climate-friendly practices.
Asset Management Services

Banks manage financial assets such as shares, bonds and funds for their own purposes and on
behalf of third parties. The asset management activities of a bank differs from its direct
investment activities such as buying shares in a firm, in that the former activities can include
short-term buy and sell strategies while the latter is more strategic by nature (Jeucken et al.,
2006). It can be argued that banks can use their “voting rights” to elevate the importance of
climate change on the agendas of the firms in which they choose to invest; they can promote
carbon emission reduction by integrating emission risks/opportunities in their financial models
and can motivate financial analysts that provide investor advice to include carbon emission
costs in their reports.
Barclays PLC supports this view and comments in their 2008 Sustainability Review that “the
bank evaluates Environmental, Social and Governance (ESG) issues in the same context as
any other investment idea or insight. ESG issues are assessed from within the firm and from
external sources such as academic literature and industry information. These ideas are use in
the best economic interest of the fund performance, which is consistent with our overall
investment strategies. Voting decisions are made in a careful and considered manner taking
into account internal and external research and, where appropriate, communicating directly
with senior management and/or dissident shareholders of the relevant company – we report all
our voting activity to our clients as well as publicly presenting our voting activity on behalf of
mutual funds and exchange traded funds through our website”
Carbon Trading Services

Cogan (2008, pp 30) suggests that banks that “engage in commodities trading and brokerage
services are faced with a huge growth opportunity arising from greenhouse gas emissions
trading.” This is assessment is plausible considering that trading volumes on the European

Union Emissions Trading Scheme (EU-ETS)37 has increased from EUR 5 Billion (2005) to
EUR 14.6 Billion in 2006 - this market trend is expected to continue based on evidence
provided by the United Nations Framework Convention on Climate Change (UNFCCC), who
estimated that a global carbon market demand for greenhouse gas emission credits could be
worth as much as USD 300 Billion by 203038. It can be argued that the development of
emissions trading exchanges is inevitable considering that many international firms are
developing greenhouse gas emission trading strategies in anticipation of climate change
related regulation – this means banks with emissions trading capabilities would be in a strong
position to assist these firms in sourcing offset projects and hedging against future regulation.
Cogan (2008, pp 31) suggests that there are three main opportunities available to banks with
regard to emissions trading: the brokerage of greenhouse gas emissions allowances and
credits; the financing and development of carbon offsetting projects as well as speculative
investing and derivative offerings in emissions credits. Barclays PLC established the first
carbon trading desk for the EU-ETS in the United Kingdom. Subsequently, Barclays Capital‟s
Emissions Trading Desk is the largest intermediary in the carbon market. Morgan Stanley,
Credit Suisse, JP Morgan Chase and Merrill Lynch initiated the formation of the Green
Exchange on the New York Mercantile Exchange (NYMEX) in 2007. The exchange offers a
range of environmental futures, options and swap contracts for climate-focused markets.
Similarly, NAB reports that the bank has participated in consultation processes with the
government, relating to the development of emissions trading in Australia and the United
Kingdom, in 2008.
The research on international banking activities suggests a clear move by major investment
banks to take a leading role in supporting emissions trading mechanisms and new risk
management products. The growing demand for climate-related financial products and
services is leading international banks into new markets and it can be argued that major banks
in South Africa from following similar business models.
37
Currently, the EU-ETS is the only regulated exchange for greenhouse gas emissions trading.
38
Sandhovel, A., et al. (2007). CEO Briefing – Carbon crunch: Meeting the cost. Genève: UNEP Finance
Initiative. This study assumed a price of USD 50 per tCO2e in 2030.

Lobbying and Other Activities
It has been suggested in this study that financial institutions have a twofold responsibility in
addressing the challenges of climate change. Their first task involves managing the negative
climate effects arising from their own actions and those of their value chain – and this has
been covered by the discussion in the preceding sections. The other important responsibility
involves the promotion of a low carbon economy, partly through the provision of appropriate
products and services, but also through lobbying and investment research activities.
The National Australia Bank reported that it has invested time consulting government and
non-government stakeholders in the development of carbon inventory policy. The bank
suggests that the consultation process is their way of developing knowledge while
simultaneously assisting government and industry progress their own understanding of the
issues. HSBC is active in this space having launched the HSBC Climate Partnership in 2007,
which brings together their Climate Group, Earthwatch, Smithsonian Tropical Research
Institute and the WWF to combat climate change by inspiring individuals, business and
governments worldwide. The bank also reported that their Climate Change Centre for
Excellence invests in research activities identifying the economic risks and opportunities of
climate change.
Conclusion
This chapter has presented a concise view of some of the main actions taken by the major
international banks in managing their internally generated greenhouse gas emissions. In
addition, it has described how these financial institutions are fulfilling their responsibility to
external stakeholders in promoting the shift to a low carbon economy through the provision of
„green‟ financing/insurance solutions, asset management and carbon trading services. The
developments on the international banking scene provide a solid foundation for an assessment
of local banking interventions pertaining to climate change.

6 SOUTH AFRICAN BANKING RESPONSE
Cogan (2008, pp 34) suggests that climate change is a “mega trend” that will affect all facets
of the financial services industry. The notion of a climate “mega trend‟ is reasonable
considering the rapid climate-related changes occurring in the international banking scene, but
it is not clear whether a similar trend has entrenched itself within the financial sector in South
Africa. This chapter explores the possibility that the major local banks are responding to the
challenge of climate change by critically examining evidence gathered from sustainability
reports, company annual reports and local bank responses to the CDP 2009. In addition, this
chapter provides critical insight into the value of the Carbon Disclosure Leadership Index and
CERES Ranking to encourage climate-friendly practices from banks in South Africa.
Methodology
The analysis of the corporate response from the major local banks has been performed using
two different assessment methodologies, which have been developed by the Carbon
Disclosure Project (CDP) and RiskMetrics Group.
The researcher used the CDLI Scoring Methodology to independently score each of the major
local banks prior to performing a comparison of these scores against those obtained by Incite
Sustainability. Incite Sustainability is the local policy and strategy consultancy who initiated
the Carbon Disclosure Project in South Africa. In addition, the researcher consulted Incite
Sustainability on a number of issues related to the outcome of their scoring in an effort to
understand the reasons behind differences in the scores achieved by the different banks. This
assessment used the publicly available response to the CDP 2009 provided by each of the local
banks as the only information source for scoring purposes39. A high-level summary of the
scoring results for each of the local banks as well as some important details about the CDLI
Methodology is presented in Appendix A.
39
This approach was consistent with that recommended by the CDP and followed by Incite Sustainability.

The researcher also employed the Climate Change Governance Checklist, developed by
RiskMetrics in consultation CERES, to evaluate the corporate response of the major local
banks to climate change. This alternative to the CDP scoring system was adopted because it
places a greater emphasis on performance rather than disclosure activities by responding
firms. A breakdown of the scoring method followed for this assessment is provided in
Annexure B. Further, the information sources used in this assessment was not restricted to the
local bank‟s responses to the CDP 2009 – the information used to score the different financial
institutions was gathered from their sustainability reports, annual company reports, website
publications as well as their response to the CDP 2009. The detailed information captured for
this exercise is presented per bank in Appendix C.
6.1 SUMMARY OF THE RESEARCH FINDINGS
Table 7 and Table 8 present the results from the independent assessment of the major local
banks using the CDP and RiskMetrics/CERES Scoring Methodologies respectively.
Table 7: Summary of Research Results - CDP 2009 (CDLI Scores Assessed by Researcher)
Assessment Areas Nedbank FirstRand Standard Bank ABSA HSBC
Risks and
Opportunities 31 30 15 17 28
Emissions
Accounting 44 17 19 16 45
Verification and
Trading 25 10 26 14 25
Performance 31 25 12 11 36
Governance 12 9 10 12 14
Final Score40 89 57 50 44 90
Nedbank received the highest score among the local financial institutions, which is largely due
to their leading disclosure practices and demonstration of an awareness of the risks associated
with climate change. The bank achieved a score of 90 from the CDP, which when compared to
international benchmarks such as HSBC (92) and BOM (87) is a very creditable achievement.
40
The final score is calculated as per the CDLI Methodology after incorporating all score adjustment factors.
Consequently, the final score is not a direct summation of the scores achieved under the various assessment
areas.

This result is in line with Nedbank‟s high profile efforts to position itself as the country‟s
leading “green” bank. .
Overall, the CDLI results – at face value – suggest that “emissions accounting” is an area that
is poorly addressed by all the major banking institutions (except Nedbank). Although these
results are supported by a rigorous scoring methodology, it is important to bear in mind that
the CDLI was developed to identify companies with outstanding disclosure practices and thus
that it should not necessarily be seen as an accurate reflection of the commitment or
performance of the participating banking institutions. It is also important to consider the
following issues when reviewing the scores presented in Table 7:
 The CDLI is based entirely on the disclosure information provided by the firm in their
online response to the CDP 2009.
 The scoring does not consider the firm‟s efforts to provide carbon or wider
sustainability disclosure such as corporate responsibility reporting,
sustainability/environmental statements in annual reports, or through meetings and
engagement with stakeholders and policy-makers.
 Finally, the scoring methodology used to rank firms on the CDLI is not based on a
complete metric of a company‟s performance in relation to climate change
management (CDP, 2009).
The obvious limitations to the CDLI Scoring Methodology necessitated a review of a broader
set of publicly available information pertaining to the climate change activities of the major
local banks. This wider pool of information was analysed using the RiskMetrics/CERES
Methodology and the results suggested that the response from the major local banks to climate
change is more closely aligned than that suggested by their CDLI rankings (refer: Table 8).

Table 8: Summary of Research Results - RiskMetrics/CERES 2009
Standard
Assessment Area Area Total Nedbank FirstRand ABSA HSBC
Bank
Board Oversight 16 9 12 12 9 13
Management
22 17
Execution 15 14 10 12
Public Disclosure 18 13 9 9 9 9
Emissions Accounting 14 13 9 10 11 7
Strategic Planning 30 16 13 13 13 24
Total Score 100 66 57 54 54 70
Nedbank still achieved the highest score among the local financial institutions having achieved
66 from an available 100 points on the ranking system, but the difference between their score
and that of their closest rival was marginal. The bank also performed very well in comparison
to the top ranked international financial performer in 2008 i.e. HSBC (70)41. The results
obtained from both scoring methods provide a mere snapshot of the climate-related
performance of the major local financial institutions. A more complete view of their
performance is best seen from an examination of the evidence supporting these scores.
The next section provides a foundation upon which a better understanding of these research
findings can be understood and provides possible reasons to explain the poor CDLI scores
from the perspective of the analyst as well as from each the major local banks. It also provides
a critique of the CDLI and guidance on how the local banks could possibly improve their
future response to the CDP.
41
HSBC was ranked top among financials in the Ceres Report released in January 2008.

6.2 REVIEW OF THE RESEARCH FINDINGS
It has been argued that the scores obtained from using the different climate-specific
assessment metrics do not describe the full picture of a bank‟s corporate response to climate
change; and that the scores are only appreciated when the data/information supporting them is
understood. However, it is not enough that the collaborating evidence be understood, the logic
behind the allocation of scores must also be appreciated and this is only possible if the
information pertinent to the scoring of each bank is presented in a format that allows for
immediate comparability.
Table 9 addresses the problem of comparability by providing a high-level summary of the

differences in the climate-related response observed across the major local banks 42 while the
discussion that follows aims to describe these differences in more detail so that the scores
presented in Tables 7 and 8 are clearly understood.
42
It attempts to condense the important pieces of information contained in Appendix C.

Table 9: Differences in the Response of the Local Banks
PARAMETERS HSBC Nedbank FirstRand Standard Bank ABSA
Board Oversight
The firm has appointed a board Yes Yes Yes Yes Yes
committee responsible for
environmental issues
The firm has appointed a board Yes Yes Yes No Yes
committee responsible for climate
change issues
The firm has appointed a board Yes None Identified Yes No. However, this None Identified
member to manage climate responsibility is
change collectively shared by a
number of the board
members.
The board understands its role Yes Yes Yes Yes Yes
and responsibility with regard to
climate change
The board has received training Yes None Identified None Identified No. The board has received None Identified
that specifically addresses climate awareness training, but not
change issues detailed training on climate
change.
Management Execution
The company's leadership has Yes Yes Yes None Identified None Identified
made public statements with
regard to climate change
The firm has developed or Yes Yes No No No
adopted a company policy that
specifically addresses climate
change issues
There is not more than one Yes No Yes Yes No
reporting level between the chief
environmental officer and the
firm's CEO
The firm has established and Yes No Yes Yes No
filled a climate change executive
position.

The firm has established an Yes Yes Yes Yes Yes
executive level climate change
committee.
ESG Factors are included in Yes Yes, but it is not clear how Yes, but it is not clear how Yes, but it is not clear how Yes, but it is not clear how
financing and risk management climate-related risks are climate-related risks are climate-related risks are climate-related risks are
activities being addressed. being addressed. being addressed. being addressed.
The firm provides employees with Yes, the bank publicly Yes, the bank publicly None Identified. However, None Identified. However, None Identified. However,
climate change related training43. discloses the following: discloses that: the bank reported in an the bank reported in an the bank reported in an
interview that it: interview that it: interview that it:
- a Climate Change Module - employee training on - runs a compulsory online - offers training at various - uses the ABSA Today
in Graduate Development climate change is environmental awareness levels at their leadership Broadcast and ABACUS
Programme; conducted through the training programme college where at the (an internal magazine)
- climate change training is Sustainability eLearning incorporating climate executive level one-tenth articles to raise awareness
part of Chairman‟s Platform. change aspects; of training time is spent on climate change issues
Strategic Forum and - performs induction on global issues - chief with employees.
Group Risk Training; training which includes among them being
- climate-related training climate change, general climate change.
and research conducted environmental and - ensures middle to junior
through HSBC Climate sustainability awareness level managers get
Partnership Initiative. issues; and sensitivity training
- runs extended awareness pertaining to climate
training programme, change issues.
covering climate change
issues, for a select group
of employees with
environmental
responsibilities.
The firm rewards employee Yes Yes No No No
performance on climate change
through financial incentives
The firm is involved in or Yes Yes None Identified None Identified None Identified
sponsors investment research
pertaining to climate change
43
The information provided by the banks during interviews was not used for scoring purposes.

The firm participates in a number The Bali Communiqué, G8 The National Energy JSE Social Responsibility JSE Social Responsibility JSE Social Responsibility
of external climate-related Gleneagles Initiative CEO Efficiency Accord (RSA), Index, Equator Principles, Index, Equator Principles Index, Equator Principles,
initiatives44. Roundtable on Climate Equator Principles, UNEP- Clinton Climate Initiative and National Business Carbon Markets and
Change, The Climate Finance Initiative African Building Retrofit Initiative. Investors Association,
Group, Institutional Task Force, UN Global Programme and UN Global Green Building Council
Investors Group on Climate Compact, UN Climate Compact, NBI (SA). Standard Bank also
Change, EPA Climate Neutral Network (Founding engages with the National
Leaders, Principles for Member), National Business Initiative on
Responsible Investment, Business Initiative issues pertaining to climate
Equator Principles, Sustainable Futures change.
Extractive Industries Advisory Committee,
Transparency Initiative, Banking Association of
UNEP-Finance Initiative. South Africa (Sustainable
Finance Committee) and
UNISA Climate Change
Advisory Committee.
Public Disclosure
The company's annual report No No No Yes. The bank reports on No
discusses climate-related risks carbon trading services and
and opportunities directly CDM financing initiatives.
impacting the bank. In addition, However, the annual
the firm describes products and company report does not
services it has developed to feature any discussion on
address climate change issues45. risks and opportunities
affecting the bank as a
result of climate change
issues.
The company sustainability report Yes Yes Yes Yes Yes
is written in accordance with an
internationally recognised
reporting standard.
44
There‟s a possibility that the list of external initiatives provided in the table is incomplete. The list for each bank was prepared following a review of publicly available information only.
45
The focus of this metric is to establish whether banks have given sufficient thought to how climate change risk/opportunities directly impacts their business. A general discussion on
climate change or the banks initiatives in response to its challenges is not recognised for scoring purposes.

The firm's CDP response is Yes Yes Yes Yes Yes
comprehensive with respect to
climate-related physical,
regulatory and reputational risks
and specifically identifies the
impact of these to the bank's
business operations.
Has the firm made any public Yes Yes Yes None Identified None Identified
policy statements pertaining to
climate change?
Emissions Accounting
Boundary of Scope 1and Scope 2 All Internal Operations 13 Head Office and All RSA Operations were All RSA Operations All RSA Operations
emissions Regional Office Buildings. included in calculation of
the Scope 1 footprint. A
total of 848 buildings were
included in the calculation
of the Scope 2 footprint,
but kWh data was only
available for 21 out of the
848 buildings covered.
Reporting Year 2008 2008 2008 2008 2008
GHG Emissions Inventory
[Reported in Tonnes CO2e] Emissions CO2e Emissions CO2e Emissions CO2e Emissions CO2e Emissions CO2e
Scope 1 102,933 Scope 1 1,222 Scope 1 25,548 Scope 1 6,107 Scope 1 152
Scope 2 771,506 Scope 2 95,749 Scope 2 197,587 Scope 2 159,225 Scope 2 205,656
Scope 3 107,445 Scope 3 Scope 3 Scope 3 Scope 3
Travel 166,000 Travel 29,751 Travel 5,201 Travel 3,492 Travel 18,961
Leased Leased Leased 173,631 Leased Leased
Buildings Buildings Buildings Buildings Buildings
Products Products 3,179 Products 1,759 Products Products
Supply Supply Supply Supply Supply
Chain Chain Chain Chain Chain

Has the firm obtained third party Yes Yes No Yes No
certification for their emission
accounting?
Note: The information presented

has been obtained from the banks‟
response to the CDP 2009.
Has the firm achieved any

emission savings or employed Renewable 40% Renewable None Renewable None Renewable None Renewable None
emission offsets? Energy Saving Energy Identified Energy Identified Energy Identified Energy Identified
Energy None Energy R 1,9 M Energy R 7,5 M Energy None Energy 7% of
Efficiency Calculated Efficiency Efficiency Efficiency Identified Efficiency Total
Offsets Purchased Offsets Donated Offsets None Offsets None Electricity
VER from 88 trees to Identified Identified Cost
renewable offset Offsets None
energy paper use. Identified
projects in
China.

Strategic Planning
GHG Emission Targets
Reduction Target Reduction Target Reduction Target Reduction Target Reduction Target
E = Energy E: 8% 2011 E: 12% 2015 E: 10% 2010 E: 10% N/S E: 4% 2013
C = Carbon C: 6% 2011 C: 12% 2015 C: 11% 2012 C: N/S C: 2009
W = Water W: 11% W: 5% 2010 W: N/I W: W: 4% 2013
P = Paper P: P: 10% 2010 P: N/I P: P: 10% 2013
T = Business Travel T: 15% 2011 T: T: T: T:
N/I = None Identified Targets Baseline Targets Baseline Targets Baseline Targets Baseline Targets Baseline
N/S = Not Specified E 2004 E 2005 E 2007 E 2007 E 2008
C 2004 C 2007 C 2008 C C 2008
W W 2005 W W W 2008
P P 2007 P P P 2008
T 2008 T T T T
Note: Standard Bank Note: ABSA reported a

disclosed in the CDP 2009 Carbon Emission Target of
that it is in the process of 5000 tonnes less than 2008
specifying energy/emission baseline.
reduction targets.
Emissions Trading - Investigating Carbon as a - Pursuing opportunities to - Established a carbon - Trades in CER, ERU and None Identified.
form of payment in monetarize carbon trading desk to support EUA.
project financing, credits, CER and VER for CDM Projects and trade - Involved with CDM
- Investigating opportunity itself and clients. carbon credits. Project Mechanism.
in CDM and JI Project - Investigating opportunity - Actively promotes the
Mechanism, in CDM and JI Project development of Carbon
- Provision of Carbon Mechanism Markets.
Market Advisory Client
Services

Renewable Energy - Provides debt financing - Hosted National - Involved in Clinton None Identified. None Identified.
for low carbon projects Renewable Energy Climate Initiative.
and technologies as well Conference. - Experimental renewable
as equity capital for early - Successfully lobbied energy projects have been
project stage NERSA for renewable applied in a few areas.
development, energy feed-in tariff.
- Purchases green energy in
a number of countries
hosting their operations.
Product/Service - HSBC Climate Change - Has established Carbon None Identified None Identified None Identified
Benchmark Index, Finance Team
- HSBC Climate Change investigating product and
Fund service offerings in
- Climate Change Risk sustainability, carbon
Consultancy Services advisory and inventory
- HSBC Climate areas.
Confidence Index

6.2.1 Analysis of Publicly Available Information
Table 9 makes more obvious some of the observed differences in the climate-related response
of the major local banks and it also places their responses within the context of the
international bank scene through a direct comparison with HSBC. This section broadens the
scope of analysis to include other international banks and reveals more details about the local
banking response to climate change.
Board Oversight
It seems that the corporate directors of the leading banks in South Africa are growing more
aware of the changing set of expectations around climate change matters. In particular, the
Chief Executive Officers of Nedbank and FirstRand have made public statements about their
commitment toward climate-related problems. Mr Tom Boardman (Nedbank) stated:
“Nedbank is proud to be able to play a part in contributing towards the fight against global
climate change” in a recent media release while Mr Paul Harris (FirstRand) indicated that
“while economic and social development requirements are possibly more prominent in our
macro landscape at this current time, it is important to be mindful of the potential impact of
climate change on our world” in the firm‟s 2008 Annual Report. All the banks have an
environmental oversight committee that is responsible for addressing climate-related issues as
part of their individual mandates. However, FirstRand and Standard Bank both differed from
their competition and each other by reporting the appointment of a board member with a
dedicated responsibility for climate change issues (Nedbank) and offering climate change
related training to board members (Standard Bank) respectively.
Management Execution
Hoffman (2006, pp 37) commented that “senior-level support and engagement are the most
critical components of any successful climate strategy” while Cogan (2008, pp 17) revealed
that on the international scene there is an increasing trend by senior management to “translate
climate change concerns into formal company-wide environmental policies.” Although, all
the local banks report the adoption of environmental policies in accordance with the Equator
Principles, only Nedbank has developed a climate-specific policy statement in alignment with

international best practice. Nedbank‟s Climate Change Positioning Statement released in June
2008 resembles those published by the Royal Bank of Scotland and Barclays PLC. In
addition to other things, the positioning statements commits Nedbank to reducing its carbon
footprint, offering climate-focused products and services, improving energy efficiency and
actively engage in the development of a national climate change policy framework.
The local banks have responded in a similar way to international firms by declaring that
climate change is not merely an extension of environmental policy, but also an integral part
of the firms risk management. ABSA‟s response was probably the most clear when it
revealed that “the bank‟s formal credit policy pertaining to environmental matters is to
consider the general environmental implications of all credit proposals. The credit policy
applies to any product or service offered by the Group that incurs credit risk -
environmentally sensitive lending transactions are subject to environmental criteria stipulated
in the lending conditions dictated by the assessment of environmental risk by the mandate
holder. In addition, the Group requires independent environmental impact assessments to
support credit applications from customers.”
However, in comparison to public statements pertaining to risk management from

international firms such as ABN AMRO and HSBC, local firms did not explicitly identify
how climate-specific risks would be managed. HSBC is reported to be “upgrading its risk
approval systems to include sustainability risk ratings. The risk rating will enable the bank to
differentiate deal approval levels, the type of facility it would offer clients as well as provide
portfolio information. ABN AMRO has indicated that with regard to climate change and
project finance, the firm identifies regulatory risk from GHG emissions policies, cash flow
risks from volatile costs and physical risks from weather events” (Cogan, 2008).
Public Disclosure
All the local banks display a strong commitment to public disclosure as evidenced from a
review of their sustainability reports, website postings and response to the CDP 2009.
However, it can be argued that their direct communication on climate change with
shareholders is not at an adequate standard by comparison with the leading international
banks such as HSBC and Barclays PLC. The Annual Reports (2008) of the local banks

include statements and brief descriptions of climate change initiatives such as involvement
with the CDP, but none report on the observed risks and/or opportunities presented by
climate change on their existing client portfolios.
Emissions Accounting and Management

Despite the problems experienced by the banks in obtaining good electricity consumption
information, they have managed to report their carbon emissions in accordance with best
practice. The major local banks use an inventory accounting method called the Greenhouse
Gas Protocol and have conducted a formal inventory of their energy-related emissions arising
from their office buildings and retail branches. In addition, the banks have also reported on
their indirect emissions arising from business travel and where possible emissions arising
from the use of products. All the banks (except FirstRand) acquired third party verification of
their Scope 1, 2 and 3 emissions, but only Nedbank and Standard Bank confirmed the year in
which certification was obtained.
Further, all the local banks have engaged with “green” building initiatives to improve energy
efficiency of both existing and new buildings. In particular, Standard Bank and FirstRand
report active involvement with the Green Building Council (RSA) and the Clinton Climate
Initiative (Building Retrofit Programme) respectively, while Nedbank and ABSA both report
the design of new buildings in accordance with the RSA Green Building Council‟s “Green
Star Rating System.”
The banks also recognise that more can be done to better manage their carbon footprint.
Nedbank intends to achieve reductions in energy consumption through technological
interventions such as replacement of air-conditioners with more efficient technology,
computer virtualization systems and by changing to energy efficient lighting such as Compact
Fluorescent Lamps (CFL) or Light Emitting Diodes (LED). FirstRand proposes the
implementation of lighting retrofits and motion sensors in all their buildings; the replacement
of all remaining CRT computer screens with LCD screens; energy saving settings and remote
shutdown of all computers; the use of heat pump water heaters, power factor correction as
well as server virtualization in their computer centres.

Standard Bank and ABSA have also publicly committed to similar initiatives – the former
reported to the CDP 2009 that “the bank will meet reduction targets by achieving higher
efficiencies on air-conditioning systems through the use of ice storage technology, high
pressure refrigerants and dual-cycle systems; through the installation of electricity load
management systems to operate critical premises; through the centralised monitoring and
management of energy consumption pertaining to critical equipment at all sites and through
the solar installations where this is economically feasible. The latter differs from its
competitors with regard to its focus on reducing the firm‟s dependence on coal-powered
energy sources. ABSA is scheduled to bring on-stream an energy centre in May 2010 that
will provide peak level power to 8 campus sites in Johannesburg. However, more
significantly the centre will be powered by liquefied petroleum gas, which has half the carbon
footprint of coal.
The emissions accounting and energy management initiatives proposed by the major local
banks are comparable to the best practice initiatives from their international counterparts.
However, it is difficult to gauge the future value of these initiatives since many of the local
financial institutions have only recently established emissions baselines. It can be argued that
in the absence of tangible energy savings and emissions reductions – local banking firms
faced with budgetary constraints arising from recessionary conditions may be slow to fully
engage with the climate change process.
Emissions Targeting
It is widely accepted that if firms do not measure their emissions, they cannot manage them;
and it is clear from the preceding discussion that the major local banks have set in motion
processes to ensure both effective measurement and management of their emissions.
However, these initiatives only have meaning if these firms set targets against which
emissions reductions can be assessed. The CDP reports that “the world is facing a carbon
chasm – to cut emissions in developed economies by the required 80% by 2050, there needs
to be a minimum global reduction rate of 3.9% per annum. Currently, there is an annual
global reduction rate of 1.9%” (CDP3, 2009). Local financial institutions may argue that
developed world commitments to emissions reductions cannot be applied to a developing
world economy such as South Africa. The reality is that all firms need to consider

implementing measures that are in alignment with the 80-95% greenhouse gas emission
reduction target recommended by the IPCC in order to avoid dangerous climate effects. The
question is how this achieved and what are the major local banks doing with regard to setting
appropriate emission reduction targets.
Table 9 reveals that all the local banks have set carbon emissions and energy reduction
targets, and all have declared absolute instead of intensity based targets 46. The CDP Global
100 survey47 results show that absolute targets outstrip intensity based in popularity; with
firms declaring almost twice as many absolute targets compared to intensity based ones. The
same study revealed that HSBC, Royal Bank of Scotland, J.P Morgan Chase and UBS AG
have all set absolute targets among the international financial institutions – suggesting the
major local banks are consistent with their international counterparts.
An important issue raised by the IPCC is that reduction targets need to extend beyond 2012 in
order to meet the reduction requirements recommended by science. All the banks, with the
exception of Nedbank and ABSA, have carbon emission and energy reduction targets that
terminate by 2012. This is not unexpected since globally there seems to be a trend to set
targets that terminate before or in 2012 – the CDP suggests that “businesses are waiting to
hear outcomes of the UN Conference in Copenhagen before setting longer term reduction
goals.”
Tables C2, C3, C4 and C5 detail the scope of the targets set by the local banks. All the major
local financial institutions declared company-wide targets. Although it is difficult to predict
whether these scope targets will remain fixed in the future – it can be concluded that they are
in alignment with best practice as portrayed by the likes of HSBC. Nevertheless, in view of
the fact that many of the local banks indicated increasing growth prospects nationally and
internationally, the following should be considered:
46
Absolute Targets are usually expressed as percentages or in tonnes of CO 2e. Intensity Targets are defined as
goals to reduce the ratio of emissions relative to a business metric e.g. revenue, sales or production unit.
47
The survey used the CDP 2008 dataset to analyse how the world‟s largest 100 firms within the FTSE Global
Equity Index Series set emissions reduction targets and whether planned reductions are sufficient to combat
climate change.

 company-wide targets will produce different outcomes to those focused on a specific
area of operations; and
 accounting for any growth as a result of acquisitions influences the impact of a target;
therefore, base emissions should not be recalculated for organic growth or decline, but
can be adjusted in cases of mergers and acquisitions48.
Finally, the local banks profiled do not indicate any targets focused on indirect emissions
arising from their supply chain. In comparison, HSBC and NAB report supplier procurement
processes that audit and monitor supplier practices that assess environmental performance
among a list of other criteria. In particular, NAB reported that it approved AVIS as a hire-car
provider on the basis that the firm was able to provide a carbon offset service to NAB
employees hiring cars for business and personal purposes.
External Financing, Product and Service Offerings

Chapter 5 offered insights into the lending practices adopted by numerous international banks
with regard to addressing climate change risks and opportunities. A review of publicly
available information pertaining to the major local banks did not reveal many instances of
climate change mitigation with respect to debt, renewable energy and mortgage financing.
There was also little evidence to suggest that extensive effort has been made with regard to
the development of asset management services and new investment product offerings.
Subsequent to these findings, the major local banks were interviewed and reasons for their
limited disclosure of available products and services were obtained (refer: Section 6.3). The
primary reason offered by banks, in support of their limited disclosure on climate-related
products and services, is their concern around dilution of their competitive advantage
following premature release of new climate-related product and service information.
Nevertheless, it was possible to extract some insight on their proposed product and service
offerings.
Nedbank reported that its energy project finance team is financing a number of renewable
energy projects and will increase investments in this sector and other clean technologies. In
48
Source: GHG Protocols.

addition, the bank indicated that it hosted the National Renewable Energy Conference in
order to stimulate widespread support for rapid national development of renewable energy
industries as well as appropriate financing strategies – a key success of the conference being
that the bank joined a working group aimed at lobbying government for the introduction of
renewable energy feed-in tariffs, which resulted in the National Energy Regulator of South
Africa (NERSA) approving Renewable Energy Feed-In Tariffs (REFIT) as at 31 March 2009.
Standard Bank revealed that it actively trades in Certified Emission Reduction (CER),
Emission Reduction Units (ERU) and European Union Allowances (EUA) as a business
activity in itself as well as in support of risk management of their financing activities. In
addition, the bank indicated financing of emission reduction projects that are primarily Clean
Development Mechanism. ABSA indicated in its response to the CDP 2009 that it
participates in the European Union Emissions Trading Scheme.
Like their international counterparts, the major local banks recognise climate change as a risk
management issue. However, in comparison to the leading banks such as HSBC or Fortis the
local financial institutions have not reported any requests of their clients to disclose carbon
emissions and mitigation strategies or requests for clients to include carbon pricing in project
due diligence processes. It is also not clear whether the major local banks have re-evaluated
their existing client portfolios with respect to carbon intensity parameters so as to establish
the exposure of these clients to credit risks arising from climate related problems.
The corporate response to financing and investment opportunities arising from climate
change from the major local banks is largely unknown. However, it is difficult to imagine
that these financial institutions are unaware of the massive growth opportunity available to
them within a rapidly expanding emerging market. Deutsche Bank Advisors (2008, pp 3)
suggest that from “a credit supply perspective, which will affect public and private markets,
some companies and projects will find it difficult to raise debt capital and increase their
reliance on equity. Deutsche Bank believes that a more dependable regulatory environment
for climate change will continue to see money move toward climate change sectors in private
markets.” In view of these observations, the major local banks could benefit from

development and disclosure of product and service offerings sooner rather than at a later
stage.
6.2.2 Interview Findings
The preceding section may have highlighted the inherent value of the RiskMetrics/CERES
Method for gaining a broader understanding of the climate response of the major local banks,
but it does not offer an explanation for the massive discrepancy in the CDLI scores across the
four leading banks. This issue of poor CDLI scoring was investigated through the use of
structured interviews with Incite Sustainability49 and separately with each of the major local
banks.
Challenges Experienced in Scoring

A key issue affecting the scoring was the requirement that responses had to be evaluated in
accordance with the strict scoring guidelines prescribed by the CDP. In a number of
instances, banks entered information in a way that could not be acknowledged or rewarded
with a score. Incite Sustainability reports a few situations that resulted in poor scoring
outcomes:
 The assessment of responses to the CDP 2009 was made difficult by the fact that
important company-specific information was provided within attachments or placed
in incorrect areas such as additional information boxes. Although, it was clear to the
analyst that the response of the bank deserved maximum points, the location of the
required information/data prevented a score being awarded.
 It was not possible to score responses to a question that included cross-referencing
since this contravened the scoring rules prescribed by the CDP.
 It was not possible to score a company that did not provide a response i.e. left a blank,
to a question.
49
The difficulties experienced by Incite Sustainability in scoring the major banks in South Africa were
addressed in an interview with Mr Anthony Dane on Mon, 12 October 2009.

The strict protocol governing the scoring of responses to the CDP is necessary because its
limits subjectivity from analysts and supports the standardisation of responses for data
collection purposes. However, it can be argued that it is deficient in a number of ways which
could have negative consequences for participants and benefactors of climate-related
initiatives.
Challenges Faced by Local Banks

Although it can be argued that some features of the CDLI Scoring Methodology have
contributed to the poor scores achieved by some of the local banks, it is not the only reason.
The calculation of the banks carbon footprint is limited by the difficulties inherent in
gathering of emissions relevant data. ABSA reported that the collection of electricity
consumption information from its leased office buildings posed a serious problem – the bank
found it difficult in obtaining a detailed breakdown of their contribution to Scope 2 emissions
in leased office buildings. In addition, the bank suggests that it is committed to long-term
leases for office buildings that are not necessarily “green” because there is limited availability
of office space in the areas where the bank needs to maintain a visible presence and many of
the buildings the bank occupies cannot be adequately retrofitted in accordance with low
carbon emitting technology. Further, the bank‟s commitment to the resuscitation of the city
means the firm has little choice in the occupation of old buildings and forces the bank to
make difficult tradeoffs between financial performance and socio-environmental obligations.
Similarly, Standard Bank suggested that not all of their operations fall within the same
property management and ownership model. Consequently, the ability to access and control
the quality of emissions-related data varies significantly over their operations. In addition, the
bank suggests that the disarray in the municipal system and the quality of monitoring,
metering and billing of energy consumption makes it very difficult to effectively track
developments. Therefore, the bank posits that data credibility issues with the municipality
and the lack of good information in the absence of alternative metering systems prevents the
bank from accurately reporting on their emissions.

A Critique of the CDLI
The response to the CDP is viewed by the major banking institutions in South Africa as an
important governance measure, which conveys a powerful message to stakeholders on their
commitment to climate change. In view of the growing influence of the CDP and the
attention the media places on the results from the CDLI – the major local banks profiled in
this study expressed a strong concern that their organisations are exposed to a serious
reputational risk arising from poor performance ratings on the CDLI. The banks reported that
damage to their reputation or image is caused by the perception of poor performance created
by the CDLI rankings, which is a direct result of poor disclosure/reporting rather than
inadequate actions from their organisations in response to climate change issues.
The local financial institutions suggest that the weighting of the index does not reward
reporting transparency or performance, but rather benefits firms that understand how to
satisfy the strict reporting format of the CDP; that the indicators used by the CDP to assess
climate change emission reduction targets do not necessarily fit the profile of a bank; that the
CDP assessment does not adjust for emerging market business conditions and makes
comparisons across industries that are not directly comparable e.g. retail stores vs financials –
these deficiencies in the methodology inadvertently exacerbates the threat of reputation risk
for the bank. Further, it can be argued the CDLI rewards how a company has responded to
the questionnaire but not necessarily the quality of the information disclosed e.g. banks
disclosing emissions data for 500 branches are rewarded in the same way as one reporting
emissions for 10 branches.
It is the opinion of the author that the criticisms raised by the major local banks, pertaining to
the design of the scoring methodology, might pose a threat to the nature of their support of
the project, which may in the long-run, considering the influence of banks in South Africa,
slow the progress of climate-related efforts of banks on the continent.
Recommendations for Better CDP Assessment

It is difficult to provide definitive guidance on the manner in which banks should respond to
the CDP Questionnaire. Afterall, there is a level of subjectivity associated with the scoring

process. However, it is possible to improve the score achieved by eliminating the unnecessary
errors noticed during the review of some of the responses.
 It is important that responses always address the requirements of the question. It was
noticed that some responses included information that revealed more about the
respondent‟s knowledge of climate change rather than information/data relevant to the
firm‟s activities/initiatives in response to climate-related issues.
 It is critical that no question is left blank or unanswered. The scoring methodology is

designed to reward disclosure which means that responses such as „not applicable‟,
„negligible‟, „could not be determined‟, etc can be scored a point. In circumstances
where a variable score is indicated it is important that the response include reasons for
non-disclosure.
 Firms are advised to always provide a level of detail in their response that is
specifically related to the responding company and their sector. The responses
reviewed lacked examples of activities, products and services being developed or
currently being offered to clients. In addition, banks did not describe/disclose clearly
how certain climate-related risks and/or opportunities affected their business directly.
 Firms are also advised that future editions of the CDP intend to reward responsible
climate-related performance more highly than disclosure. Hence, it is expected that
firms who provide details of actual initiatives undertaken rather than those who
disclose well shall rise to the top of the CDLI.

6.3 LIMITATIONS TO AN EFFECTIVE CLIMATE CHANGE
RESPONSE
The major banks in South Africa posit a number of problems limiting their response to
climate change in the structured interviews. They reported on both internal and external
issues that undermine their ability to develop new products and services, disclose
climate-related information or build support for climate-related issues.
Internal Factors
It was suggested that “silo thinking” within some of the major banks has prevented the
dissemination of climate-related information, which is limiting collaborative action across
business units in the development of new products/services as well as the management of
climate change issues.
The banks have also indicated that they face problems with adapting existing financial
products to address climate change opportunities or risks, which has contributed to longer
lead times for the trial and deployment of new products and services.
There seems to be limited knowledge around credit modelling of climate change risks, which
makes it difficult to develop “value-adding” products and services for clients.
The uncertainty around downstream life-cycle implications of certain technologies such as

the disposal of battery units for hybrid vehicles means that climate benefits offered by such
technologies are overshadowed by other environmental non-compliance issues and costs.
The high costs associated with climate-friendly supplier procurement practices make such
activities less attractive.
External Factors
The state of competitive rivalry among the major local banks is prohibitive to collaborative
climate-related activities and is the primary reason for limited disclosure of new products and
services addressing climate change.

There are no regulatory incentives encouraging the development of climate-related or
environmentally focused products and services.
There is no enabling environment within the local economy for the investment in renewable
energy projects.
There is a limited awareness among clients about the risks and opportunities arising from
climate change. Consequently, banks face an onerous task in marketing climate-related
services to the broader African market.
There are few clients within the local market who are suitably positioned to take advantage of
the opportunities arising from climate change and this prevents banks from financing the
change.
6.4 GUIDANCE FOR AN EFFECTIVE CLIMATE RESPONSE

STRATEGY
It is clear that the major local banks face many challenges in adapting to global climate
change. However, these problems are not insurmountable and it can be argued that local
banks have only scratched the surface of possible business opportunities in the climate
change space. On the basis of the previous analysis, it is argued that banks can:
 change their organisation culture by improving employee awareness on

climate-related issues and by training employees on how to reduce greenhouse gas
emissions both at work and at home;
 invest more in installed energy monitoring and control technology in all their facilities
to ensure better management of their carbon footprint;
 improve emissions reporting by expanding the scope of emissions monitoring and

measurement to include all greenhouse gases not only carbon;

 revise the disclosure of emission and energy reduction targets in accordance with the
level of ambition suggested as being “required by science”;
 set emission reduction targets that extend beyond 2012 (particularly once there is
greater clarity on the nature of the likely post-Kyoto climate framework).
 fund research to track ongoing developments, both locally and internationally, in

climate-related policy and technology and use this material to increase understanding
among potential investors or clients of climate-related mitigation opportunities;
 do more to improve supply chain awareness by assisting clients/suppliers better

understand the benefit of a low carbon economy through marketing and promotional
activities as well as through building partnerships with established manufacturers to
obtain joint benefits;
 work more closely with regulatory and industry peer organisations such as SAICA
(South African Institute of Chartered Accountants) to promote a greater understanding
of the risks and benefits of a regional market for carbon credits;
 do more in this country to motivate for regulatory incentives by lobbying for

improvements in institutional/legal/regulatory conditions that enhance the country‟s
attractiveness to foreign investors active in the renewable energy space;
 grow the market for low carbon assets and raise the profile of asset finance by
selecting suitable clients and providing them with attractive products. UKSIF (2007,
pp 18) suggests that “early opportunities may be best focused on larger more establish
clients who present less risk to the finance provider.”;
 exploit early growth opportunities by recognising immature markets not immature

technologies. This can be achieved by asset finance teams assisting clients in the
selection and acquisition of more energy efficient assets (UKSIF, 2007). The US

Department of Energy has identified case studies across a range of industries which
demonstrate cost savings from upgrading to more energy-efficient equipment. One
example from the chemical sector was a Furnace Retrofit Project (USD 18 M), which
achieved a 2.6 year simple payback that included an annual energy cost saving of
USD 2 M for the firm;
 do more to encourage collaborative research on the expansion of the sustainable

energy portfolios of large regionally-based firms such as Sasol and PetroSA; and
 make strategic acquisitions of advanced energy technologies such as solar and wind
power generation or invest in early-stage technologies such as carbon capture and
storage (CCS). It may be useful for local banks to learn from the experience of
international debt providers in the renewable technology market and transfer that
knowledge to the local economy. Currently, it does not appear that any of the major
banks have positioned themselves to achieve first-mover-advantage in this regard

7 CONCLUSIONS
7.1 GENERAL FINDINGS OF THE RESEARCH
What are the implications arising from national and international policies and related
developments on climate change for the banking sector in South Africa?
South Africa is poised to join other countries in implementing regulatory policy to mitigate
the impact of climate change. The “National Climate Change Response Policy Development
Summit” held from 03 to 06 March 2009 (Midrand, South Africa), laid the foundations for a
participatory process that is to culminate in a Policy White Paper on Climate Change by
2010. The translation of this policy into a legislative, regulatory and fiscal package is
expected by 2012. The implication for many high carbon emitting industries is that they shall
be forced to adapt to an increasingly carbon-constrained local environment.
It can be argued that increased legislation inevitably leads to an increased risk of litigation.
The three possible avenues of litigation could be actions targeting heavy carbon emitters,
challenges related to emergent government carbon controls and increasing scrutiny of
greenhouse gas disclosure (KPMG, 2008, pp 34). This could have a direct impact on the
banking sector through increased risk of credit defaults arising from legal action being taken
against their clients. In addition, banks may be forced to re-examine the treatment of their
fixed-income assets as these come under inflationary pressures from weather-related losses
and carbon controls that make carbon emissions more costly. It is posited that national and
international policies would create a demand for climate-protection products and services that
would translate into new investment, asset financing, equity research and portfolio
management opportunities for the banking sector.

What internal governance practices have major banks in South Africa adopted to respond
to climate change?
This study reveals that the major local banks have established executive level committees and
environmental forums to manage the risks arising from climate change. The banks have
different ways of incorporating environmental, social and governance factors into their risk
management and financing activities, but all acknowledge the need for the inclusion of
climate risks in their lending decisions. It is unclear from publicly disclosed information how
banks are planning to take account of climate-related risks, but some suggest through an
extension of environmental criteria in their lending conditions.
The banks reviewed in the research have all adopted the GHG Protocol for the reporting of
their Scope 1, 2 and 3 emissions and have implemented a number of interventions to meet
self-imposed carbon neutrality targets. All the banks (except FirstRand) have obtained third
party verification of their emissions and have set clear emission reduction targets extending
into the immediate future. It is promising that all the banks have opted for absolute instead of
intensity based targets and that both carbon emission and energy targets have been
considered50. The scope of the targets reported is adequately defined by most of the local
banks, but only Nedbank and ABSA report targets that extend beyond 2012.
How does the climate change response of major banks in South Africa compare with
international banking benchmarks?
The climate-related interventions implemented by the major local banks with regard to
reducing their carbon footprint and participation in external initiatives such as the CDP 2009,
Green Building Council (RSA) and Clinton Initiative correspond very well with international
best practice. However, the quality of public disclosure on their climate-related activities is
poor in comparison to the likes of Barclays PLC, HSBC and Bank of Montreal. There is
limited disclosure of climate protection products/services, climate risks and opportunities
specific to their business and scant mention of how their respective organisations are
50
Standard Bank is the exception in that it is still in the process of defining emission targets.

managing climate-related issues. In addition, climate-related awareness training programmes
for employees and board members seems to be in its infancy within the major local banking
environment. Finally, local banks don‟t seem to be doing enough to stimulate a local market
for climate change through engagement with foreign investors on renewable power
generation, asset management advisory client services or through supply chain initiatives.
What screening protocols are banks using or intend to use in order to evaluate new
projects with regard to climate change risks and how is this process being managed?
There is little evidence to suggest that banks have developed screening protocols to evaluate
new projects with regard to climate change risks. However, the banks report that credit risk
modelling pertaining to climate change is being investigated. Currently, most banks are using
environmental impact assessments as a means to identify possible climate change risks, but
the evaluation criteria being used to assess the risk is not clear.
What active steps are banks taking to develop their products or services that ensure
climate-friendly practices from their clients?
In comparison to their international counterparts, the major local banks have done little to
promote responsible climate-related activity among their clients. The major local banks report
difficulties in marketing the cost/benefit of climate-friendly actions to their clients in the
absence of regulatory certainty over the future value of carbon pricing. In addition, banks
suggest that structural barriers such as limited awareness of climate change issues, life-cycle
costs and possible disconnects between energy-savings and budgeting within their client
organisations prevent the rapid adoption of climate-friendly practices. Nevertheless, the
financial institutions profiled in this study indicated that the release of climate-focused
financial products/services is imminent and may provide greater impetus for responsible
action from their clients.

What is the extent to which banks require corporate borrowers to demonstrate that they
have identified and incorporated climate change impacts on their business model,
including value chains?
This was difficult to ascertain from a review of publicly available information. The climate
survey across the banks also failed to provide clarity on the issue. Nevertheless, it is posited
that the challenge confronting the major local banks seems to be in assigning a value to
reputational risk – in the absence of such information and regulatory constraints on carbon
emissions; it could be long wait before local banks begin imposing stricter lending and
purchasing conditions on their clients and suppliers respectively.
7.2 MAJOR FINDINGS OF THE RESEARCH
I The research has revealed that the major local banks are sufficiently aware of their
role and responsibilities in mitigating the effects of climate change – evidence of their
commitment to climate change can be found in their sustainability reports and media releases
as well as inferred from their involvement in national and international projects addressing
climate-related issues. The financial institutions profiled in this study have invested in
reducing their carbon footprint and have pledged realistic greenhouse gas emission and/or
energy reduction targets, which suggest that they recognise their responsibility to mitigating
their own impact on the global climate.
II It is clear that the major local banks have made a good start in striving to meet the
challenge of climate change. However, the shift to a low carbon economy requires that banks
do more than only manage their own greenhouse gas emissions. It has been argued in this
report that the local banks should do more to stimulate a market response to climate change in
South Africa through government lobbying activities, collaborative research with clients,
strategic investment in early-stage technologies and increasing supply chain awareness of
climate change issues. It is also posited that the local financial institutions may not have
adequately explored the best practice initiatives of international banking benchmarks. On this
basis it is suggested that the corporate response from the major banks in South Africa, who

are aware of their roles and responsibilities, is generally not sufficient in addressing climate
change issues.
7.3 RECOMMENDATIONS
It has been argued that the major local banks (except in some instances) have not sufficiently
responded to the challenges of climate change when compared to their international
counterparts. It is suggested that their corporate responses to the issue can be improved
through:
 improving employee awareness on climate-related issues and by training employees

on how to reduce greenhouse gas emissions both at work and at home;
 investing in installed energy monitoring and control technology in all their facilities to
ensure better management of their carbon footprint;
 improving emissions reporting by expanding the scope of emissions monitoring and
measurement to include all greenhouse gases not only carbon;
 revising the disclosure of emission and energy reduction targets in accordance with
the level of ambition suggested as being “required by science”;
 setting emission reduction targets that extend beyond 2012 (particularly once there is
greater clarity on the nature of the likely post-Kyoto climate framework).
 funding research to track ongoing developments, both locally and internationally, in
climate-related policy and technology and use this material to increase understanding
among potential investors or clients of climate-related mitigation opportunities;
 improving supply chain awareness of the benefits of a low carbon economy through
marketing and promotional activities as well as through building partnerships with
established manufacturers to obtain joint benefits;
 working more closely with regulatory and industry peer organisations such as SAICA
(South African Institute of Chartered Accountants) to promote a greater understanding
of the risks and benefits of a regional market for carbon credits;

 increased lobbying for regulatory incentives that lead to improvements in
institutional/legal/regulatory conditions, which enhance the country‟s attractiveness to
foreign investors active in the renewable energy space;
 promoting a market for low carbon assets and raising the profile of asset finance by
selecting suitable clients and providing them with attractive products;
 providing advisory services that assist clients in the selection and acquisition of more
energy efficient assets (UKSIF, 2007);
 the encouragement of collaborative research on the expansion of the sustainable
energy portfolios of large regionally-based firms;
 increased collaboration with other financial institutions to promote the sharing of
ideas on effective climate-related strategy;
 investment in early-stage technologies such as carbon capture and storage (CCS) or
through strategic acquisitions of advanced energy technologies such as solar and wind
power generation;
This study has also revealed that there is a need for more extensive business research with
regard to climate change and the banking sector. It is recommended that future study in this
area focus on research that:
 assists in factoring climate change risk and opportunities in credit risk modelling for
banks;
 establishes better metrics for evaluating the corporate climate response from banks;
 leads to the standardisation of assumptions and other essential requirements for the
calculation of Scope 2 and 3 emissions; and
 establishes the life-cycle costs and downstream impacts of climate-friendly
technology such as the use of hybrid vehicles, which could improve the
climate-focused response from financial institutions.
Finally, it is clear that the local banking industry is making progress with regard to improving
their corporate response to climate change. It is hoped that their efforts will be accelerated
and deepened following the global climate agreement talks in Copenhagen.

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38. Smith, D. (2007). UK banks – dedicated followers of carbon fashion? Retrieved May 25,
2009 from http://www.climatechangecorp.com
39. Smith, L. (2009, March 13). Nicolas Stern: Politicians have no idea of the impact of
climate change. Times Online. Retrieved August 28, 2009 from
http://www.timesonline.co.uk
40. Sonnenburg, D. and Hamann, R. (2006). The JSE socially responsible investment index
and the state of sustainability reporting in South Africa. Development Southern Africa. 23
(2), 305-320.
41. Stern, N. (2006). The economics of climate change: The Stern Review. United Kingdom:
Cambridge University Press.
42. Sparkes, R. (2002). Socially responsible investment. Chichester: Wiley.
43. Sullivan, R. and Kozak, J. (2006). The climate change disclosures of European electricity
utilities. London: Insight Investment.
44. UK Social Investment Forum. (2007). Green opportunity: Accelerating the financing of
low carbon assets. London: UKSIF

45. Utting, P. (2000). Business responsibility for sustainable development. United Nations
Research Institute for Social Development – Geneva 2000 Occasional Papers, 2, 1-40.
46. van Zyl, C., Botha, Z. and Skerritt, P. (2003). Understanding South African financial
markets. Pretoria: Van Schaik Publishers.
47. Vijn, S., Schrijver, C., Buck, B., Haagsma, W., van Dijk, A., Elsen, M., Saito, K. and
Mori, Y. (2006). Reporting on the business implications of climate change in
sustainability reports. Amsterdam: KPMG and Global Reporting Initiative.
48. White, G. (2005). How to report a company‟s sustainability activities. Management

Accounting Quarterly. 7 (1), 36-43.
49. Whittaker, M. (2002). Climate change and the financial services industry: Module 2 – A
blueprint for action. New York: Innovest SVA
50. Woods, M. (2003). The global reporting initiative. The CPA Journal. 60-65.

9 APPENDIX A
The “Carbon Disclosure Leadership Index (CDLI) is a ranking applied to companies

responding to the Investor CDP Questionnaire. It shows at a glance the range and quality of
the information disclosed.” The CDLI Scoring Methodology is publicly available from the
CDP website51. This study applied the stipulated methodology to score the major banks in
South Africa using their individual responses to the CDP Questionnaire. This section
provides a high level summary of the scores achieved by each bank (refer: Tables A1 – A4).
Final Score
ScoreAchieved
 100
ScoreAvailable
Caveat
In many instances the assessment of a company‟s performance in the CDLI is based on the
information that is disclosed and how accurately firms have answered the CDP
Questionnaire. Consequently, the banks that are better at disclosure and that have provided
high quality answers feature as better performers.
51
Source: https://www.cdproject.net/en-US/Results/Pages/leadership-index.aspx

Table A1: CDLI Results Summary – Nedbank Group
Stand Alone Lead Conditional YES Conditional NO Total
Section Title
Achieved Available Achieved Available Achieved Available Achieved Available Achieved
1 Risks & Opportunities 0 0 6 6 25 30 0 0 31
2a Emissions Accounting 27 34 10 10 7 7 0 0 44
2b Verification & Trading 7 7 9 9 9 9 1 1 25
3 Performance 13 14 10 10 8 10 0 0 31
4 Governance 0 0 3 4 9 10 0 0 12
Total 47 55 38 39 58 66 1 1 143
Table A2: CDLI Results Summary – FirstRand Group

Section Title
3 Performance 13 14 3 10 9 10 0 0 25
4 Governance 0 0 2 4 7 10 0 0 9
Total 24 55 26 39 41 66 1 1 91
Table A3: CDLI Results Summary – Standard Bank

Section Title
3 Performance 4 14 2 10 6 10 1 1 12
4 Governance 0 0 3 4 7 10 0 0 10
Total 18 55 28 39 36 68 2 5 82

Table A4: CDLI Results Summary – ABSA Group Limited
Section Title
3 Performance 3 14 2 10 6 10 0 0 11
4 Governance 0 0 3 4 9 10 0 0 12
Total 16 55 23 39 31 64 1 3 70
Table A5: CDLI Results Summary – HSBC Holdings

Section Title
3 Performance 14 14 10 10 12 12 0 1 36
4 Governance 0 0 4 4 10 10 0 0 14
Total 49 55 38 39 60 68 1 2 147

10 APPENDIX B
“RiskMetrics in consultation with Ceres and the Investor Network on Climate Risk developed
the Climate Change Governance Checklist to analyse corporate responses to climate change.
The checklist has 14 indicators to evaluate corporate climate change activities in five main
governance areas: board oversight, management execution, public disclosure, emissions
accounting and strategic planning - within each of these areas, many sub-factors were
considered to produce a score of pro-active company measures to address climate change”
(Cogan, 2008, pp 5).
The application of the checklist to assess the major banks in South Africa required a more
detailed breakdown of how points would be awarded per sub-factor than was revealed by the
methodology published by RiskMetrics. Consequently, the scoring methodology used in this
study was developed to closely resemble that prepared by RiskMetrics (refer: Table B1)52.
Methodology Explanation
The scoring methodology presented in this worksheet is based on the scoring system
developed by the RiskMetrics Group in consultation with Ceres and the Investor Network on
Climate Risk. RiskMetrics and Ceres developed their Climate Change Governance Checklist
to analyse corporate responses to climate change. The checklist has 14 indicators - these have
been labelled I1 to I14 in the matrix. There are 5 main governance areas: board oversight,
management execution, public disclosure, emissions accounting and strategic planning - the
total score for each of the main categories/areas is indicated to the right of the relevant
category title e.g. Board Oversight has a Total Score of 16. These 16 points are made up of a
number of sub-assessment categories which have been formatted in italics for ease of
identification. The banks have been assigned a score with regard to their performance in the
sub-assessment category. The scoring criterion for allocation of point in a sub-assessment
category is provided in boxes beneath each checklist indicator e.g. Board Committee:
52
The scoring methodology used in this study was based upon the best practice examples provided in the Ceres
Report and was developed in conjunction with Incite Sustainability.

Environmental Oversight is a sub-assessment category - the text provided alongside it
explains how points are allocated.
The scoring is based on information obtained from the following sources: company
sustainability reports (2008), company website, annual reports (2008) and the company's
response to the carbon disclosure project in 2009. This spreadsheet has 5 worksheets in
addition to the Summary and Scoring System Worksheets. The remaining worksheets
tabulates the information gathered from the stipulated sources from the banks being studied
and grouped under the 5 broad governance areas developed by the RiskMetrics/Ceres
Checklist. The information gathered by RiskMetrics/Ceres on the international benchmark
bank, HSBC, is provided for reference in each of the main governance worksheets. It is
important to realise that some sub-categories require a scorer to use information presented in
worksheets pertaining to another governance category in order to allocate a score e.g. the
sub-category, External Initiatives, is located under the governance category, Management
Execution. However, in order to score this sub-category information pertaining to the
governance category Public Disclosure had to be used. This inconsistency is related to the
design of the scoring sheets by RiskMetrics/Ceres.
Data Quality and Accuracy

All data presented in Tables C2, C3, C4 and C5 were obtained from publicly available
sources of information. The information has not been verified, but reasonable attempts have
been made to clarify matters directly with the participating banking institutions. In addition,
no formal due diligence or any other form of assurance has been undertaken or claimed by
the researcher on the underlying data.

Scoring Types
Two variable scoring approaches are used in the assessment of the data in Tables C2, C3, C4
and C5.
Variable Scale A
 1 point is awarded if the information available shows that the indicator requirements
are satisfied.
 1 point is awarded if the quality of the information available is good – e.g. there are
illustrative examples and other details that enhance the readers understanding of the
bank‟s corporate response.
Variable Scale B
 1 point is awarded if the information available shows that the indicator requirements
are satisfied.
 2 points are awarded if the quality of the information available is good – e.g. there are
illustrative examples and other details that enhance the readers understanding of the
bank‟s corporate response.
Caveat
In many instances the assessment of a company‟s performance is based on the information
that is publicly disclosed. Consequently, the banks that are better at disclosure will feature as
better performers. Therefore, the reader is advised that the assessment performed in this study
could be limited because some information, necessary to make a judgement on a firm‟s
performance, was not publicly available or was difficult to access.

Table B1: Governance Checklist - Scoring Methodology (Adapted: Cogan, 2008, pp 40)
Board Oversight Total 16
Board is actively engaged in climate change policy and has assigned oversight
I1 responsibility to board member, board committee or full board.
16
Board Committee: Environmental Oversight. The Board of Directors designates a
board-level committee with explicit oversight of the company‟s environmental
3
affairs.
Board Committee: Climate Change. The Board designates a board-level committee

with explicit oversight of the company‟s climate change policy and initiatives. 3
Board Member: Climate Change: The Board designates a specific board member
with explicit oversight of the company‟s climate change policy and initiatives. 3
Board Role: The Board has taken specific actions to initiate, approve and/or
monitor the company‟s environmental affairs and climate change initiatives. 3
Board Training: The Board receives training and education addressing

environmental, climate change and/or sustainability issues. 3
Company specific examples are provided in support of the sub-factors presented.

1

Management Execution Total 22
The Chairman or CEO assumes leadership role in articulating and executing
climate change policy.
I2 4
NB: The information required to score the sub-category, External Initiatives, is
found in the public disclosure worksheet.
CEO Leadership/Statements: The Chairman/CEO assumes leadership role in
articulating the company‟s climate change strategy, including shareholder
3
communications and participation in external initiatives.
External Initiatives: The company participates in external coalitions, working

groups or initiatives to mobilize action on climate change and incorporation of
1
ESG factors in financing decisions.
There are top executives and/or executive committees assigned to manage climate
I3 change response strategies.
6
Climate Change Executive: The bank designates a corporate-level executive (this
could be the chief environmental officer) or committee with explicit responsibility
2
for managing environmental affairs and/or climate change policy and initiatives.
Levels to CEO: The bank discloses the number of reporting levels between the
chief environmental officer and CEO. Disclosure earns one point and a bonus
2
point is earned if the responsible person reports directly to the CEO.
Other: The Head of a division or business function assumes direct responsibility

1
for managing climate change policy.
Staff Training/Education: The staff receives training and education addressing
environmental, climate change and/or sustainability issues. 1
Climate change initiatives are integrated into risk management and mainstream
business activities. The bank issues formal policy and governance procedures to
incorporate environmental, social, and governance (ESG) factors in its risk
I4 management function and/or financing decisions. 10
NB: The information relevant to score the sub-categories listed below is located in
the public disclosure governance worksheet.
Company assesses direct climate change related risk to the company e.g. physical
damage to company buildings, business disruptions, increasing energy costs,
2
reputational risks, etc. Disclosure earns one point and a bonus point is earned if a
detailed explanation is provided.
The company has taken action to mitigate/manage these direct risks.

1
The company assesses indirect risks associated with the influence of climate
change on the company‟s lending portfolio. Disclosure earns one point and two
3
points are earned if a detailed explanation is provided.
The company has taken action to mitigate/manage these indirect risks 1

The bank assesses climate change related business opportunities. . Disclosure earns
2
one point and a bonus point is earned if a detailed explanation is provided.
Company has taken action to exploit these opportunities 1

Executive officers‟ compensation is linked to attainment of environmental goals
I5 and GHG targets.
2

Management Execution Total 22
Compensation Link: The company explicitly links executive officers‟
compensation to attainment of environmental and/or climate-related goals.
Disclosure earns one point and a bonus point is earned if compensation is 2
specifically related to a climate-related goal.

Public Disclosure Total 18
Securities filings disclose material risks and opportunities posed by climate change.
NB: It was assumed that the 3 survey responses on governance, social and
I6 environmental issues to the JSE SRI Index provide similar information as Form
8
10-K. Information contained in these surveys was discussed in personal interviews
with the various banks.
Securities Filings Statement: Company discusses material climate change risks and
opportunities in Form 10-K or equivalent securities filings. Points are awarded
according to the following breakdown:
The securities filings include information about possible risks and opportunities
2
associated with climate change
The securities filings disclose material risks or some sort of distinction/assessment
of the importance of different climate change risks 2
The securities filings disclose material opportunities or some sort of

distinction/assessment of the importance of different climate change related
2
opportunities
It is clear that attention is paid to the role of climate change and/or GHG
regulations in terms of risks and opportunities 2
Public communications offer comprehensive, transparent presentation of response

I7 measures.
10
Annual Report: Company discusses climate change risks, opportunities and
initiatives in most recent Annual Report e.g., CEO letter to shareholders, front
1
section or Management Discussion & Analysis.
Sustainability Report: Company publishes a Sustainability Report or equivalent

public document that discusses climate change risks, opportunities and initiatives. 1
GRI Accordance: Company‟s Sustainability Report is “in accordance” with

independent standards established by the Global Reporting Initiative (GRI). 1
Carbon Disclosure Project: The Carbon Disclosure Project (CDP) is a non-profit

organization that conducts an annual climate change survey on behalf of
1
institutional investors.
Member: The company actively supports CDP survey and on-line data collection
instrument. 1
2009 Signatory: Company signed letter requesting corporate responses to

CDP2009 survey. 1
CDP 2009: Company completed CDP2009 survey and did (or did not) publicly
release results. 1
CDP 2009 Risk Disclosure: Company assesses climate change-related risks in

CDP2009 response. 1
Public Policy Statements: The company expresses its views on climate change
regulatory proposals and related public policy measures. Disclosure of response
2
measures earns one point and a bonus point is earned if the financial implications
of the response measures are provided.

Emissions Accounting Total 14
The company calculates and registers GHG emissions savings and offsets from
I8 operations. The bank seeks renewable energy purchases and/or energy efficiency 3
savings to reduce GHG emissions and offset inventory totals.
Renewable Energy: The bank reports the percentage of electricity derived from
renewable energy sources in 2008. 1
Energy Efficiency Savings: The bank has calculated savings from energy
efficiency measures. 1
Certified CO2 Offsets: The bank has purchased certified emission reductions and
credits to offset company GHG emissions. 1
Company conducts an annual inventory of GHG emissions and publicly reports

I9 the results.
7
Scope 1: Direct GHG emissions from combustion in company-owned or
controlled sources (boilers, furnaces, vehicles, etc.) 1
Scope 2: Indirect GHG emissions from generation of electricity purchased for use
by company facilities. 2
Scope 3: Other indirect GHG emissions from company activities e.g. employee
commuter travel; business travel by air, rail or motor vehicles; other indirect
2
emissions from product use or supply chain.
Emission Forecasts: The company forecasts emissions trends.

1
Accounting Methods: Company documents accounting methods used for GHG
emissions inventory. 1
The company has an emissions baseline by which to gauge future GHG emissions
I10 trends. 2
Disclosure of baseline earns one point and a bonus point is earned if the baseline
was established prior to 2007. 2
I11 Company has third-party verification process for GHG emissions data. 2
Third party certification: Company employs third-party reviewer of GHG
emissions data. 2

Strategic Planning Total 30
The company sets absolute GHG emission reduction targets for facilities, energy
I12 use, business travel and other operations (including indirect emissions).
10
Overall Climate Change Related Targets: Award one point for disclosure of a
relative target, the scope of emission and the baseline year respectively. Award
5
two bonus points for disclosure of an absolute target.
Climate Change Related Financing and Lending Targets: The company has
established emission reduction targets for financing/lending operations.
Award one point for disclosure of a relative target, the scope of emission, a 5
projected timeframe respectively. Award two bonus points for disclosure of an
absolute target.
The company participates in GHG emissions trading programs. Company
I13 engages in voluntary or mandatory GHG emissions trading programs to offset its 5
own emissions and/or provides emissions trading services to others.
Company engages in voluntary or mandatory GHG emissions trading programs to
offset its own emissions. 2
The company has done so for more than 2 years 1

Company provides emissions trading services to others 2
Company pursues business strategies to reduce GHG emissions, minimize
I14 exposure to regulatory and physical risks, and maximize opportunities from 15
changing market forces and emerging controls.
Renewable Energy: Company purchases renewable energy for its own operations
and/or finances/invests in the renewable energy sector. Award one point for
disclosure of the type(s) of renewable energy project(s), the amount of energy
4
generated and the financial commitment made by the bank. A bonus point is
earned for the quality of information available for scrutiny.
Energy Efficiency: Company takes measures to improve energy efficiency of its

own operations and/or finances/invests in energy efficiency measures available to
clients. Award one point for disclosure of the type(s) of energy efficiency
initiatives, the amount of energy saved and the financial commitment made by the 4
bank. A bonus point is earned for the quality of information available for
scrutiny.
Other Climate-Related Investment Products: Award one point if the company

offers climate-related investment and/or retail products, the company provides
examples of climate-related investment and/or retail products; the company
3
provides examples of products that assist clients manage risks associated with
climate change.
Partnerships: The company engages with other organizations in a way that will
encourage mitigation of climate change risks and take advantage of opportunities 3

11 APPENDIX C
The following section tabulates the research results of HSBC (International Benchmark),
ABSA, Nedbank, FirstRand and Standard Bank as per the Ceres/RiskMetrics Climate Change
Governance Checklist Report Methodology.
Table C1: Sample Profile - HSBC Holdings (Adapted: Cogan, 2008, pp 36)
Company Information
The second-largest bank in the world by assets. HSBC Holdings is active in more
than 80 countries, providing consumer and commercial banking services, credits
cards, asset management, private banking, securities underwriting and trading,
insurance as well as leasing. Its North America operations include HSBC USA,
consumer lender HSBC Finance and HSBC Bank (Canada).
Contact Information
Chairman Stephen Green, Group Chairman
CEO Michael Geoghegan, Group CEO
Contact Tel: +442079918888
8 Canada Square
London
Address
E14 5HQ
United Kingdom
Board Oversight Score: 13/16
Board Committee:
Corporate Responsibility Committee
Environmental Oversight
Committee Chair The Right Honourable Lord Butler of Brockwell
Board Committee:
Corporate Responsibility Committee
Climate Change
Board Member: Climate
Stephen Green (Group Chairman)
Change
Board Role Mr Green, Group Chairman, has ultimate responsibility for climate change
matters. At the board level, there are two committees that have responsibility for
climate change issues. The Group Management Board (GMB), which is chaired
by the Group Chief Executive, operates as a general management committee
under the direct authority of the board. GMB responsibilities include the firm‟s
2004 decision to become carbon neutral, emissions reductions project investments
and new business expansion relating to carbon market opportunities. The second
committee with board representation is the Corporate Responsibility Committee,
which is responsible for overseeing corporate responsibility and sustainability
policies.
In addition, reputational risks (including Social, Ethical and Environmental (SEE)

risks) are considered and assessed by the board, the GMB, subsidiary company
boards, board committees and/or senior management during policy formulation.
Board Training The Corporate Responsibility Committee (CR) gives guidance on the CR
component of director‟s induction and training programs as well as provides the
board with assurance that relevant executive training programmes, including
credit officer training courses contain appropriate CR Training.

Management Execution Score: 17/22
CEO Group Chairman, Stephen Green stated in a news conference to announce
Leadership/Statements HSBC‟s Climate Partnership in May 2007: “We believe we can tackle the causes
and impacts of climate change. Over the next 5 years HSBC will make
responding to climate change central to our business operations and at the heart of
the way we work with our clients across the world.”
Company Policy HSBC announced its Carbon Finance Strategy in June 2006. Although, the firm
said it will continue to support fossil fuel electricity generation, it pledged to seek
out new opportunities in key low carbon technologies (wind, solar, biofuels,
energy/transport efficiency, landfill gas/methane capture, geothermal energy) in
priority countries where government policy and fiscal regimes support early
adoption.
Head of Group Sustainable Development, Jon Williams stated at Ethical

Corporations Sustainable Finance Summit in September 2007: “We can finance a
shift to a low carbon economy…Climate change can be tackled at minimal
economic cost if we do it today.”
Chief Environmental Jon Williams, Head of Group Sustainable Development.

Officer Simon Martin, Head of Group Corporate Sustainability
Francis Sullivan, Deputy Head of Group Sustainable Development and Advisor
on the Environment, Group Corporate Sustainability
Levels to CEO 0
Climate Change Nick Robins, Head of Climate Change Centre of Excellence.
Executive
HSBC announced the appointment of Mr Robins in July 2007. Mr Robins is
based in HSBC‟s London Office and reports jointly to David Burnett (Head of
Global Research) and Jon Williams (Head of Group Sustainable Development).
Further, HSBC appointed Sir Nicolas Stern as Special Advisor to the Chairman
on Economic Development and Climate Change. Mr Stern is the former World
Bank Chief Economist and author of the Stern Review on the Economics of
Climate Change. Mr Stern serves as an advisor on strategic issues for HSBC,
contributes to management development programmes and provides client advice
related to climate change and sustainable business strategies.
Executive Committee The Group Sustainability function is responsible, among other things, for
addressing risks and opportunities derived from climate change and for
embedding sustainability within the firm‟s mainstream operations from both a
risk and business development perspective.
Group Corporate Sustainability has 5 focus areas: business development, risk

management, footprint management, communications/reporting and internal
sustainable development advisory.
Further, HSBC created a Climate Change Centre of Excellence in Bangalore

(India) in 2006, to evaluate the implications of climate change for the HSBC
Group., its Global Research Division and other business units. The Centre is
intended to be a central source of climate knowledge and will support the
implementation of the firms Carbon Finance Strategy.

ESG Factors in Risk HSBC established an Environmental Risk Standard in 2003, which has been
Management/Financing adapted into a Sustainability Risk Framework.
HSBC is upgrading its risk approval systems to include sustainability risk ratings,
which will be gradually assigned to clients globally. It is working with a third
party to develop the underlying sustainability risk decision support tool. The risk
ratings will enable it to differentiate deal approval levels, the type of facility it
would offer a client and provide portfolio information. HSBC has a network of 27
environmental risk managers that support the Sustainability Risk Team in
London.
HSBC has issued 5 sector lending guideline reports with regard to financing.
These are reports on forest lands and products, fresh water infrastructure, the
chemicals industry, the metals and mining industry and the energy industry. The
Energy Sector Risk Policy Report issued in May 2006 stated: “HSBC supports a
transition to a lower carbon economy.” It says it expects its clients to abide by
regional or national laws to implement GHG reductions under the Kyoto Protocol
and the EU ETS. HSBC has also called on clients to disclose their carbon
emissions and mitigation strategies in a consistent manner.
Staff Training/Education HSBC added a climate change module in the Group Graduate Development
Programme in 2006, to inform participants about climate change and the role of
the bank in the issue.
Climate change issues are also considered in other training courses, including the
Chairman‟s Strategic Forum and Group Credit and Risk Training. All project and
export finance teams have been trained in the Equator Principles.
HSBC also staged a road show in China, Hong Kong, India, Malaysia and
Singapore to educate more than 100 employees on carbon finance and other
issues in 2006. The firm is also conducting a benchmarking survey of employee
engagement on sustainability issues and planning e-learning forums.
Further, HSBC launched in 2007 the HSBC Climate Partnership – a 5 year,
USD 100 M partnership between HSBC, the Climate Group, Earthwatch Institute,
Smithsonian Tropical Research Institute and WWF. HSBC will work in some of
the world‟s major cities to influence climate change policy and create employee
“climate champions” who will undertake field research on climate change issues.
The programme will involve carbon measurement in the world‟s forests and
protection of major rivers from the impacts of climate change.
External Initiatives The Bali Communiqué, G8 Gleneagles Initiative CEO Roundtable on Climate
Change, The Climate Group, Institutional Investors Group on Climate Change,
EPA Climate Leaders, Principles for Responsible Investment, Equator Principles,
Extractive Industries Transparency Initiative, UNEP-Finance Initiative.
Investment Research HSBC Investments launched a new SRI Team in 2006 covering environmental,
social and governance issues. The team consists of 6 SRI analysts based in
Europe, India and Brazil plus 2 product specialists.
HSBC Global Research, a division of the firm‟s Corporate, Investment Banking

and Market‟s Group, also offer coverage of alternative energy stocks.
Research Reports related None Identified.

to Climate Change

Compensation Link HSBC‟s Group Corporate Real Estate is responsible for proposing environmental
targets and ensures delivery of these targets with the support of Purchasing and IT
Functions.
Incentives around sustainability performance are built into objectives and reward
structures for these units. More broadly, senior managers have CR objectives –
including objective related to climate change as part of their remit with reward
schemes recognising achievements.
As at 2007, the cost of procuring carbon offsets to maintain HSBC‟s carbon

neutrality is being borne by the regional offices responsible for the emissions,
providing an increasing incentive to manage the firm‟s total emissions.

Public Disclosure Score: 9/18
HSBC‟s Annual Report (2006) does not include a discussion of climate change.
However, it provides a broad overview of corporate social responsibility issues
Annual Report and consideration of reputational risk issues arising from social, environmental
and ethical issues as part of its corporate governance policy.
Sustainability Report Title: 2006 Corporate Responsibility Report published May 2007; Website:
http://www.hsbc.com; GRI Accordance: 2002 CI
Carbon Disclosure Member: Yes; Signatory: Yes; CDP5 (2007): Answered Questionnaire (Public)
Project
CDP 5 Physical Risk Disclosure: “climate change risk will need to be
increasingly factored in when performing equity valuations and making
investment decisions.” Customer related risk ranges from business disruptions to
slowed economic growth due to extreme climate events. In order to address
potential physical risks, HSBC is undertaking an internal assessment of insurance
coverage for facilities that may be impacted by extreme weather events or sea
level changes. The firm has also established contingency plans for environmental
risks.
CDP 5 Regulatory Risk Disclosure: HSBC reports that the firm is well positioned
to respond to future regulation regarding emissions limits and energy efficiency
standards due to its voluntary implementation of its carbon neutrality policy.
CDP 5 Reputational Risk Disclosure: HSBC also recognises the credit and
reputational risk the firm may face due to client exposure to regulatory changes.
Public Policy Statements HSBC stated in its CDP5 response: “Climate change is a challenge that will
require global solutions; collective action will be required from governments,
business and individuals to stimulate adoption of energy efficiency and clean
generation technologies to stabilise carbon dioxide emissions.” HSBC also states
that it supports an international cap and trade system to achieve global emissions
reduction targets.
Mr Williams, Head of Group Sustainable Development said at Ethical

Corporation‟s Sustainable Finance Summit that: “emissions trading needs to go
global.” He also suggested that a post-Kyoto global agreement could be
negotiated with 20 major carbon-emitting countries.
Further, HSBC signed the Bali Communiqué in November 2007, which calls for a
comprehensive, legally binding United Nations Framework to tackle climate
change.

Emissions Accounting Score: 7/14
GHG Emissions Year: 2006; Facility/Region: All Internal Operations; Protocol: GHG Protocol.
Inventory
Emissions CO2e (Metric Tonnes)
Total Emissions 813,00053
Scope 1 [Direct]
Scope 2 [Indirect – Electricity] 634,00054
Scope 3
Travel 179,000
Leased Buildings -
Products -
Supply Chain -
Accounting Methods HSBC converts data on building energy use 55 and employee business travel using
emission factors set out by the local environmental authority or the utility
supplier. If such information is unavailable, then factors from the International
Energy Agency and the U.K. Government‟s Department of Environment, Food
and Rural Affairs (DEFRA) are used.
Third Party Certification Det Norske Veritas Certification BV (DNV) verifies HSBC‟s direct
environmental performance. DNV conducted an audit of HSBC‟s CO 2 emissions
and carbon neutrality.
Certification Year 2006

Emissions Savings and Renewable Energy Savings: 40%; 2006
Offsets Energy Efficiency Savings: None Calculated.
Certified CO2 Offsets: HSBC was carbon neutral for the first time in 2006. The
firm estimated the quantity of emissions that would cover all properties and
buildings (i.e. 100% of full-time employees) and then applied an additional 2.5%
to estimated emissions from electricity, 10% to estimated emissions from other
energy sources and 5% to estimated emissions from transport to account for any
uncertainty in estimates. In order to achieve carbon neutrality HSBC purchased
Verified Emissions Reductions (VER) from several renewable energy projects in
China and Taiwan.
53
Total Emissions offset in 2006.
54
This includes Scopes 1 and 2. Although, the vast majority of energy use is purchased energy (Scope 2), HSBC
also owns some on-site electrical generation facilities, but these were not tracked separately.
55
This is calculated by assuming building are 96% occupied by full-time employees.

Strategic Planning Score: 24/30
GHG Emissions Targets
Reduction Baseline Year Target Year Region
Targets
Total 5% 2004 2007 All Internal
Emissions Operations
Energy Use 7% 2004 2007 All Internal
Operations
Target Details HSBC‟s carbon neutrality is achieved thorough a Carbon Management Plan,
which involves reducing direct emissions, buying green electricity and offsetting
remaining emissions.56
HSBC has set 3 year reduction targets for energy, water, waste and CO 2
emissions covering 90% of its product portfolio. HSBC is setting new targets for
the 2008-2010 period, including emissions intensity targets.
The firm also issued environmental target progress reports in 2005 and 2006. Its
2006 Corporate Responsibility Report stated: “During 2006, our CO 2 emissions
per person, our key CO2 measure, increased due to a change in the type of energy
we were able to purchase and an increase in air travel. We have programmes in
place to reverse this trend. For a growing business, it is a challenge to reduce
emissions constantly.”
Emissions Trading All emissions reductions, including the bank‟s carbon neutrality goal, have been
on a voluntary basis. HSBC is also exploring options for participation in the
CDM and JI markets under the Kyoto Protocol.
In addition to traditional project financing structure, HSBC will increasingly look

at new finance structures incorporating carbon as a stream of repayment.
HSBC also plans to apply its own experience in the voluntary carbon markets to
address client needs in this area.
Renewable Energy A survey by Business Week and Climate Group ranked HSBC first in the Low
Carbon Finance and Investment Leaders Category in December 2006. The firm
provides debt financing for low carbon projects and technologies, as well as
equity capital for early stage project development.
HSBC purchases green electricity in the UK, the USA, Australia, Brazil, Ireland,
Luxemborg, Sweden and Switzerland. The firm has installed solar power panels
at offices in the UK and France, introduced a bio-diesel plant at its Global
Technology Centre (Pune, India) and installed micro wind turbines in the UK.
The firm was awarded the USA EPA “Green Power Partner of the Year”
recognition for renewable energy purchases.
56
These costs are now included as part of the firm‟s normal operating budget.

Energy Efficiency HSBC launched a Global Environmental Efficiency Programme in June 2007, a
commitment to reduce the firm‟s direct environmental impacts. The USD 90 M
commitment over 5 years will support renewable energy technology, water and
waste reduction programmes and employee engagement. Initiatives will include:
developing flagship buildings to benchmark environmental standards; footprint
management and innovation; environmental management systems to optimise
process efficiency.
Achievements include HSBC‟s first “zero carbon” branch in Greece, New York;
the building achieved Leadership in Energy and Environmental Design (LEED)
Gold Certification and optimises energy efficiency using a ground-source heat
pump.
HSBC is also committed to reducing the environmental impact of business travel.

The firm has conducted an employee green travel survey and invested in
video-conferencing technology.
Going forward, the cost of carbon will be more explicitly factored in real estate
capital expenditure projects and energy procurement decisions.
Other Climate Related HSBC Corporate, Investment Banking and Markets (CIBM) launched the HSBC
Investment Products Climate Change Benchmark Index in September 2007, encapsulating a family of
4 investable global climate change sub-indices. The Benchmark Index is designed
to provide exposure to firms that are best positioned to profit in the face of
climate change challenges. The sub-indices include:
- HSBC Climate Change Index,

- HSBC Low Carbon Energy Production Index 57
- HSBC Energy Efficiency & Energy Management Index 58
- HSBC Water, Waste and Pollution Control Index 59
HSBC Investments launched a climate change fund in November 2007 that

invests in clean energy, energy efficiency, water, waste and pollution control
firms. The fund aims to out-perform the HSBC Global Markets in partnership
with HSBC Investments.
HSBC‟s Insurance Broking Division is developing risk consultancy services to

help customers assess and manage their physical exposures to climate change.
The division is also developing insurance products to facilitate the development
of renewable energy products and carbon markets.
HSBC has launched green marketing campaigns for its retail products in both the
UK and the USA. In addition, HSBC has conducted an international survey of
public attitudes on climate change – the HSBC Climate Confidence Index. The
research reveals more optimistic markets in Asia and Latin America, which could
mean that new products such as green mortgages are launched first in emerging
markets.
57
This includes solar, wind, biofuels and geothermal.
58
This includes fuel efficient autos, energy efficient solutions and fuel cells.
59
This includes water recycling, waste technologies and environmental pollution control.

Table C2: Sample Profile – ABSA Group Limited
Company Information
ABSA Group Limited is one of the largest financial services organisations,
serving personal, commercial and corporate customers in South Africa.
Contact Information
Chairman Ms Gill Marcus
CEO Ms Maria Ramos
Contact +27 (0) 11 350 4000
3rd Floor, ABSA Towers East
170 Main Street
Address
Johannesburg
South Africa
Board Committee:
Environmental Steering Committee
Not Identified. However, ABSA reported in an interview that this position is
occupied by a member of the ABSA Group Executive Committee (David
Committee Chair
Hodnett).
Board Committee:
Environmental Steering Committee
Climate Change
Not Identified.
Change
Board Role ABSA reported in their response to the CDP 2009: "The Environmental Steering
Committee (ESC) has identified 6 key focus areas for ABSA of which Climate
Change and measurement of the carbon footprint is one. The ESC meets on a
quarterly basis and receives updates on progress of environmental performance
improvement initiatives and makes management decisions accordingly." ABSA
also reported in an interview that the board takes specific actions related to
climate change.
Board Training None Identified.

CEO None Identified.
Leadership/Statements
Company Policy None Identified. The bank does not have a Climate Change Position statement,
but its commitment to climate change issues forms a part of its Environmental
Positioning Statement.
Chief Environmental None Identified.

Officer
Levels to CEO 2
Climate Change None Identified.
Executive
Executive Committee ABSA identified in their response to the CDP 2009 that their Environmental
Steering Committee addresses issues on climate change, but the response was not
explicit with regard to whether the ESC is an executive body i.e. a committee
comprised of company executives at the highest levels in the organisation. ABSA
reported in an interview that their committee is comprised of executives at the
highest level but not all bank divisions are represented.
ESG Factors in Risk ABSA reported in its Sustainability Review (2008): "The formal credit policy
Management/Financing pertaining to environmental matters, is to consider the general environmental
implications of all credit proposals. The credit policy applies to any product or
service offered by the Group that incurs credit risk. Environmentally sensitive
lending transactions are subject to environmental criteria stipulated in the lending
conditions dictated by the assessment of environmental risk by the mandate
holder. The Group requires independent environmental impact assessments to
support credit applications from customers. ABSA has acknowledged the
importance of environmentally sensitive lending decisions and the Equator
Principles are entrenched in the Group's Credit Policies."
ABSA also reported under GRI (FS8) in their Sustainability Review (2008):
"ABSA's products and services in general are not designed to deliver a specific
environmental benefit. However, ABSA subscribes to the Equator Principles that
guide financial institutions in socially and environmentally sensitive project
finance decisions."
Staff Training/Education None Identified. However, ABSA reported in an interview the firm uses the
ABSA Today Broadcast and ABACUS (Internal Magazine) Articles to raise
awareness on climate change issues.
External Initiatives JSE Social Responsibility Index and Equator Principles. ABSA also engages with
the National Business Initiative (NBI), a voluntary group of companies working
together to achieve sustainability in growth and development in South Africa on
issues such as climate change.
Investment Research None Identified.

to Climate Change
Compensation Link ABSA reported in their response to the CDP in 2009 that the responsibility for
management of environmental indicators has been assigned key performance
indicators, which when met have implications for employee salary increases and
bonuses.

ABSA's Annual Report (2008) does not have any specific statement on climate
change or sustainability. However, the bank does present its view on
sustainability in it Sustainability Review (2008): "ABSA is an integral part of the
colourful tapestry that is South Africa. It is believed that the largest contribution
ABSA can make to society is by operating a commercially successful business in
a responsible way. In achieving this, the Group must ensure value creation for its
Annual Report
stakeholders and the environment. This necessitates that ABSA accurately
identifies and manages economic, social and environmental issues across the
Group and contributes to the well-being of society. ABSA is firmly committed to
advancing the principles and practice of sustainable development and takes its
role as a leading and concerned corporate citizen seriously."
Sustainability Report Title: Sustainability Review 2008; Website: http://www.absa.co.za; GRI

Accordance: G3 Guidelines
Carbon Disclosure Member: No; Signatory: No; CDP 2009. Answered Questionnaire (Public)
Project
CDP 2009 Physical Risk Disclosure: ABSA reported that its exposure to physical
risks predominates in Africa, where it has a diverse client base. It reported that
the potential physical effects of climate change that the bank has identified are
numerous and widespread across many sectors (e.g. rising sea levels affecting
harbours, coastal property and coastal farmland; potential increase of night time
temperatures which can affect the cold requirements for fruit production; and
changes in precipitation and evaporation which may affect South Africa‟s water
supply). ABSA stated in their response to the CDP in 2009: "The widespread
footprint of ABSA‟s lending and investment operations means that the potential
for risk exposure is high. The bank's credit profile is likely to require some
adjustments because clients may require revision of their business models as a
result of the impacts of climate change. Climate change may also affect the
sectors that the bank is likely to lend to - the agricultural sector may face
increased water stress and may be a required to implement technological
measures in order to adapt to these changes. The cost of these measures may be
prohibitive without further support from the banking sector. Similarly, heavy
industry – the larger emitters – is likely to face increased regulatory and fiscal
control measures being introduced." ABSA suggests that other potential risks
threatening the company could include: changes in operating costs; commodity
prices; weather patterns causing damage to fixed assets; as well as supply chain
disruptions.
CDP 2009 Regulatory Risk Disclosure: "various regulatory instruments are in

place to indirectly reduce emissions (such as energy efficiency requirements) this
will affect our property portfolio and in particular energy consumption and travel.
The impact of these requirements does not currently seem to be material to our
bottom line but with increasing regulatory pressure this situation may change.
Since Absa is a finance provider it has a wide spread of clients in various sectors
which may lead to indirect impacts from climate change for ABSA."
CDP 2009 Reputational Risk Disclosure: "In South Africa, in line with
developments in many other parts of the world, there is an ever increasing
awareness of environmental issues. People are beginning to make business
decisions based on the environmental performance of organisations. Therefore,
the onus is on businesses to ensure good environmental performance and in doing
so they manage their reputational risk."
Public Policy Statements None Identified.

GHG Emissions Year: 2008, Facility/Region: The information presented publicly covers the
Inventory activities of ABSA's South African operations and, where possible, the Group's
African entities in Tanzania, Mozambique and Angola. However, ABSA reported
that since 98% of the Group's earning originates from South African operations -
there is a predominant focus on operations in South Africa. Protocol: GHG
Protocol.

Scope 1 [Direct] 152
Scope 3
Travel 18,961
Leased Buildings -
Products -
Supply Chain -
Accounting Methods ABSA used the Greenhouse Gas Protocol Guidelines to calculate its Scope 2
Emissions. ABSA's carbon footprint was calculated using the Barclays Carbon
Accounting and Offsetting Protocol which is based on the World Resources
Institute's Report 'Hot Climate, Cool Commerce: A Service Sector Guide to
Greenhouse Gas Management' and DEFRA's „Environmental Key Performance
Indicators: Reporting Guidelines for UK Business‟. In addition, ABSA reported
that carbon accounting was carried out in accordance with DEFRA guidelines on
GHG Reporting.
Third Party Certification ABSA's carbon emissions have been verified by ICF as part of Barclays Bank's
Climate Action Programme.
Certification Year Not Identified.

Emissions Savings and Renewable Energy Savings: None Identified.
Offsets Energy Efficiency Savings: 7% on Total Electricity Bill was saved.

Targets
Operations
Carbon 5000 T < 2008 2009 All Internal
Emissions Baseline Operations
Water Use 4% 2008 2013 All Internal
Operations
Paper Use 10% 2008 2013 All Internal
Operations
Target Details ABSA has indicated that the bank plans to reduce energy consumed by 20%. This
includes reducing space occupied by 100 000 m2 and reducing business travel by
10%.
Emissions Trading None Identified.

Renewable Energy None Identified.
Energy Efficiency ABSA has adopted a phased approach to going carbon neutral, focusing on
improving energy efficiency and decreasing it dependence on coal-powered
energy sources. An energy centre, currently being installed, is scheduled to go
live in May 2010. The centre is powered by liquefied petroleum gas and has half
the carbon footprint of coal. The energy centre will generate all the electricity
requirements for ABSA's 8 campus buildings in Johannesburg (South Africa).
Other Climate Related None Identified.

Investment Products

Table C3: Sample Profile – Nedbank Group
Company Information
Nedbank Group operates as one of the four largest banking groups in South
Africa. The bank offers a wide range of wholesale and retail banking services
through three main business clusters Nedbank Corporate, Nedbank Capital and
Nedbank Retail. The bank‟s principal services comprise business, corporate and
retail banking, property finance, investment banking, private banking, foreign
exchange and securities trading.
Contact Information
Chairman Dr Reuel Khosa
CEO Mr Thomas Boardman
Contact +27 (0) 294 4444
135 Rivonia Road
Address Sandown
South Africa
Board Committee:
Group Transformation and Sustainability Committee
Committee Chair Group Executive for Enterprise Governance and Compliance (Mr Selby Baqwa)
Board Committee:
The Transformation and Sustainability Sub-Committee
Climate Change
None Identified.
Change
Board Role The Chief Executive Officer takes overall responsibility for Climate Change. The
Group Executive responsible for Enterprise, Governance and Compliance,
champions the Climate Change Position Statement and the Environmental,
Reputational and Corporate Responsibility policies. A central Sustainability
function is housed within the Enterprise Governance and Compliance cluster,
which is supported by a number of resources/champions throughout the various
business units.
The Group Transformation and Sustainability Committee is responsible for

monitoring and refining environmental policies and ensuring that these are
integrated into the Nedbank Group philosophy and practice.
Nedbank reported in their response to the CDP 2009: "progress in terms of our
climate change initiatives, including progress against our intensity reduction
targets aligned our Climate Change Position Statement, are monitored and
reported to the Group Environmental Forum. The Sustainability function within
Enterprise Governance and Compliance reports progress in this regard to the
Group Operational Committee and the Group Executive Committee (where
relevant) on a monthly basis, and quarterly reporting is done to the
Transformation and Sustainability Board Sub-Committee."

CEO Group Chief Executive, Tom Boardman stated in a media release in September
Leadership/Statements 2009: "Nedbank is proud to be able to play a part in contributing towards the fight
against global climate change. Through our involvement in the Princes Rainforest
Project (PRP) we are actively contributing towards the preservation of Africa's
rainforests by seeking forestry offsets on the continent.
Company Policy Nedbank revealed its Climate Change Position Statement in September 2009. The
statement outlines a strong commitment to dealing with climate change matters
and involves employees, clients, government and other stakeholders.

Officer
Levels to CEO 2
Climate Change None Identified.
Executive
Executive Committee Nedbank suggests in their response to the CDP 2009 that the Group
Environmental Forum has responsibility for climate change issues and that it is
chaired by the Group Executive for Enterprise, Governance and Compliance.
However, it was unclear whether the Group Environmental Forum is an executive
body i.e. a committee comprised of company executives at the highest levels in
the organisation. Nedbank indicated in an interview that the GEF is comprised of
persons representing the chief executives of various business clusters.
ESG Factors in Risk Nedbank has decided to embed the principles contained in its environmental and
Management/Financing corporate responsibility policies by including specific focus areas and
deliverables in a Corporate Responsibility Framework in 2008. However, it is not
clear how the bank is incorporating ESG Factors into Risk Management or
Financing.
Staff Training/Education Nedbank has introduced a Sustainability eLearning platform to enhance general
awareness of carbon emissions among their employees.
External Initiatives The National Energy Efficiency Accord (RSA), Equator Principles, UNEP-
Finance Initiative African Task Force, UN Global Compact, UN Climate Neutral
Network (Founding Member), National Business Initiative Sustainable Futures
Advisory Committee, Banking Association of South Africa (Sustainable Finance
Committee) and UNISA Climate Change Advisory Committee.
Investment Research Nedbank is a participant in the Old Mutual Group Utilities Project, which is
aimed at identifying energy savings and energy efficiency savings.

to Climate Change
Compensation Link Nedbank does not report any employee incentives related to sustainability
performance in their Annual Report. However, it does recognise employees who
are making significant changes to their lifestyle in an effort to curb global
warming thorough its annual Green Trust Staff Awards Programme.

Nedbank's Annual Report (2008) states: "climate change remains a core focus
area and the Nedbank Group believes in playing its part in increasing energy
efficiency and reducing carbon emissions." However, it does not include any
Annual Report
statements on the potential risks or opportunities that the bank faces as a direct
result of climate change issues.
Sustainability Report Title: Sustainability and Transformation Report 2008; Website:

http://www.nedbankgroup.co.za; GRI Accordance: G3 Guidelines
Carbon Disclosure Member: No; Signatory: No; CDP 2009. Answered Questionnaire (Public)
Project
CDP 2009 Physical Risk Disclosure: Nedbank has experienced incidences of
branch closures due to unstable energy supply/blackouts, water restrictions in
certain areas and even extreme weather events such as flooding. All insurance
policies are reviewed annually to ensure cover against any growing risks,
including those associated with possible impacts arising from climate change.
The physical risks of climate change have the potential to impact on our
employees who themselves face the increasing challenges of energy supply
blackouts; resulting communicating challenges and the cumulative impact of such
on both time and performance management. Nedbank has accordingly
implemented flexible work practices.
CDP 2009 Regulatory Risk Disclosure: Nedbank‟s direct exposure to regulatory

instruments for emissions reduction impacts mainly through our investment
banking and property portfolios with some increased pressure on our operational
costs in respect of energy in particular. Nedbank acknowledges that it could incur
indirect exposure to a broader range of regulatory risks through potential impacts
on our existing and future client base.
CDP 2009 Reputational Risk Disclosure: Nedbank is currently a member of the

Dow Jones World Sustainability Index and JSE Social Responsibility Index, and
faces the possibility of our ranking on these indices being eroded if we are unable
to respond appropriately to the climate change challenge. Nedbank believes that
there is a clear reputational and brand equity risk associated with not addressing
climate change issues proactively and that this will translate into reduced
shareholder value. Nedbank continues to identify and manage these risks
proactively through our Enterprise-Wide Risk Management Framework in order
to avoid any negative reputational exposure with resulting decreases in
shareholder value.
Public Policy Statements Nedbank Chairman, Dr Reuel Khoza, stated in Nedbank Group's Sustainability
and Transformation Report (2008): “embracing our role in addressing climate
change has been a central focus of our group in 2008. Nedbank acknowledges
that the challenges of climate change extend beyond the environment and also
impact the economic and social arenas. In promoting a sustainable agenda we
hold ourselves accountable and we have taken action to address climate change
by setting reduction targets in respect of our energy, water, paper usage and travel
so as to begin to minimise our carbon emissions and our impact on the
environment.”

GHG Emissions
Inventory Year: 2008; Facility/Region: The information made publicly available relates
only to the 13 head office and regional office buildings managed by Nedbank
Group Property Services. Protocol: GHG Protocol.

Scope 1 [Direct] 1,222
Scope 3
Travel 29,751
Leased Buildings -
Products 3,179
Supply Chain -
Accounting Methods Nedbank uses the Greenhouse Gas Protocol - Corporate Accounting and
Reporting Standard (revised edition). In addition, they specify that
air-conditioning and refrigeration gas calculations used are wholly dependent
upon data from external service providers. Excluded from the reporting boundary
are: leased and rented South African retail outlets and any unlisted regional
offices; non-South African offices (e.g. Nedbank London); South African and
Non-South African wholly or partially owned subsidiary companies; Imperial
Bank and emissions associated with the operation and service of Automated
Teller Machines (ATM‟s), Self Service Terminals (SST‟s), Point of Sale (POS)
and other remote devices. The bank also reports in their response to the CDP
2009 that DEFRA and ESKOM Emission Factors are used for Scope 1 and
Scope 2 Emissions respectively.
Third Party Certification Ernst and Young performed an audit on Scope 1, 2 and 3 Emissions reported by
Nedbank.

Offsets Energy Efficiency Savings: Nedbank was able through better housekeeping
efforts to reduce energy consumption in their Head Office by 6% in purchased
electricity - a cost saving of R 1.9M which equates to an emissions reduction of
1.88% from 2007.

Targets
Total - - - All Internal
Operations
Carbon 12% 2007 2015 All Internal
Water Use 5% 2005 2010 All Internal
Operations
Paper Use 10% 2007 2010 All Internal
Operations
Target Details Nedbank reported in their response to the CDP 2009: "Further reductions in
energy consumption will be achieved through technological interventions, such as
replacement of air-conditioners with more efficient technology, computer
virtualization and changing to energy efficient lights, e.g. CFLs or LEDs. This
will feed into a CDM project for energy efficiency in buildings. Water-saving
initiatives were introduced that resulted in reduced consumption as well as
reintroducing a natural dam and cleaning alien vegetation at Nedbank's training
facility at Olwazini in the Cradle of Humankind. Paper consumption is carefully
monitored and printers have been adjusted to print on both pages as a default
setting. Another measure introduced to reduce paper wastage is secure printing
where a password is required to print documents in the print-queue. Unprinted
documents at the end of the day are then deleted from the queue, reducing paper
wastage."
Emissions Trading Nedbank is actively pursuing opportunities to monetize carbon credits for itself
and its clients, both CERs and VERs. Nedbank regards the Clean Development
Mechanism of the UNFCCC, and consequential carbon trading, as the most
visible regulatory opportunity at this stage. Although renewable energy and low
carbon technology markets are heavily influenced by regulation, they also have
other fundamental drivers such as technology advances and energy security
concerns. Nedbank‟s position as one of the leading South African banks, together
with our strategic focus on Sub-Saharan Africa, provide us with a unique
opportunity to advise clients of the opportunities that CDM affords, and to assist
them to attain those benefits through adopting a low carbon approach to realising
project goals (CDP, 2009, pp 34).

Renewable Energy Nedbank has investigated renewable energy options in 2008 such as building
integrated photovoltaic (BIPV) panels on its roof and the possibility of wheeling
clean energy to Nedbank. However, these technologies are considered expensive
and in the current economic environment do not warrant the capital outlay needed
for their implementation (CDP, 2009, pp 38).
Nedbank hosted the National Renewable Energy Conference, a multi-stakeholder

event to stimulate widespread support for rapid national development of
renewable energy industries as well as appropriate financing strategies. Following
the conference, a member of Nedbank Capital‟s Carbon Finance team joined a
working group aimed at lobbying government for the introduction of renewable
energy feed-in tariffs and to generally support/promote the development of
renewable energy technologies. As a result, the National Energy Regulator of
South Africa (NERSA) approved Renewable Energy Feed-In Tariffs (REFIT) on
31 March 2009.
Energy Efficiency Nedbank rolled out a Group-wide Energy Efficiency Campaign (Power2U). The
campaign encouraged employees to reduce their carbon footprint both at work
and at home. Employees were invited to exchange their old, energy intense light
bulbs for energy-saving bulbs, free of charge, at their head offices and branches.
Other Climate Related Nedbank reports in their Sustainability Report (2008) that it has established a
Investment Products dedicated Carbon Finance Team to view carbon dioxide and other emissions
holistically. The team looks at emissions end-to-end, using a 5 pronged approach
that draws on cross-functional expertise in finance against the backdrop of a value
proposition comprising the following: sustainability, carbon advisory and
footprint services as well as identification and development of energy efficient
projects.
Nedbank is committed to developing innovative financing solutions to facilitate

investment in clean energy and energy efficiency projects. Nedbank‟s energy
project finance team is financing a number of renewable energy projects and will
increase investments in this sector and other clean technologies. Nedbank has set
up a carbon finance team, which is involved in the origination of clean
development mechanism projects under the framework of the Kyoto Protocol. 60
60
Source: Nedbank Climate Change Positioning Statement (2009)

Table C4: Sample Profile – FirstRand Group
Company Information
FirstRand is the only fully integrated financial services group in South Africa. It
is also the only „owner-managed‟ firm among the four major retail, commercial
and investment banking groups in South Africa.
Contact Information
Chairman Mr G Ferreira
CEO Mr S Nxasana
Contact +27 (0) 11 282 1808
4th Floor
4 Merchant Place
Address Cnr Friedman Drive and Rivonia Road
Sandton
South Africa
Audit, Risk and Compliance Committee reports the activities of the Group
Board Committee:
Environmental Forum to the Board.
Not Identified. However, FirstRand indicated in an interview that the Group
Environmental Forum is chaired by the Environmental Health and Safety
Committee Chair
Manager (Ms M Ronquest).
Board Committee:
FirstRand Board of Directors
Climate Change
Sizwe Nxasana (Chief Executive Officer)
Change
Board Role Mr Nxasana, Chief Executive Officer, is responsible for environmental issues, the
approval of international and national submissions and FirstRand's Climate
Change Strategy.
FirstRand reported in their response to the CDP 2009: "The Group Environmental
Forum was mandated by the Board in 2007 to set strategic objectives for and
direction on environmental issues. The Forum, is attended by representatives
from the major operating divisions across the Group, addresses issues of
relevance to FirstRand as a financial services group." FirstRand reported in an
interview that the board takes specific actions related to climate change.

CEO Group Chief Executive, Paul Harris, stated in the Group's Abridged Sustainability
Leadership/Statements Report (2008): "The need for open and honest communication, value-for-money
products and services, transparent pricing and solutions to assist our customers in
these tough economic times is now even more important than ever before. While
economic and social development requirements are possibly more prominent in
our macro landscape at this current time, it is important to be mindful of the
potential impact of climate change on our world." Mr Harris is quoted in the
bank's response to the CDP in 2009: "“We continue to work actively at reducing
the environmental impact of our operations. We measured our carbon footprint,
continued reducing our consumption of resources and worked towards attaining
ISO 14001:2004 certification for a number of our large buildings. As a large
financial services provider, we continue to maintain environmental and social risk
vigilance in our financing and lending activities, while working toward helping
the market implement solutions to climate change by developing suitable
financial products."
Company Policy None Identified. However, the bank has indicated in their response to the CDP
2009 that it is currently developing a Carbon Management Strategy. It also
reported in its Sustainability Report (2008): "All business units are expected to
clearly understand and monitor the cost and revenue as well as social and
environmental implications of all actions. The extent to which such actions do or
do not add value must be understood."

Officer
Levels to CEO 1
Climate Change Mr Nxasana, Chief Executive Officer, is responsible for environmental issues, the
Executive approval of international and national submissions and FirstRand's Climate
Change Strategy.
Executive Committee FirstRand suggests in their response to the CDP 2009 that there are three
executive committees that report on the efforts of the Environmental Forum.
These are the Operational Risk Committee, Regulatory Risk Management
Committee and the Risk Audit and Compliance Committee. The bank does not
provide a definitive statement that indicates explicitly whether oversight on
climate change issues is provided by these executive committees. However,
FirstRand indicated in an interview that the Environmental Forum is an executive
committee and deals specifically with climate change issues.
ESG Factors in Risk RMB is targeting Clean Development Mechanism projects to generate emission
Management/Financing reduction credits, maintaining an environmental risk policy aligned to the Equator
Principles and ensuring that clients complete an Environmental Impact
Assessment on projects prior to obtaining finance.
Staff Training/Education None Identified. However, FirstRand reported in an interview that it runs a
compulsory online environmental awareness training programme (incorporating
climate change aspects) as well as performing induction training which includes
climate change, general environmental and sustainability awareness issues. The
awareness training is extended for a select number of employees with
environmental responsibilities who are given have a online interactive,
compulsory training course covering climate issues.

External Initiatives JSE Social Responsibility Index, Equator Principles, Clinton Climate Initiative
Building Retrofit Programme and UN Global Compact.

to Climate Change
Compensation Link FirstRand does not provide incentives for individual management of climate
change issues. However, it reported in its response to the CDP 2009 that it has
introduced a special category in its annual Innovators Campaign, Sustainable
Innovations, to reward individual innovation with regard to social and
environmental benefits for the organisation.

FirstRand's Annual Report (2008) does not have any specific reference to climate
change, but does provide a broad overview their view on sustainability. The
report stated: "The FirstRand Group continues to strive fo the highest possible
standards in good, corporate citizenship and reporting in respect of sustainable
Annual Report business practices. It recognises that it has a duty not only to its shareholders, but
to its many other stakeholders. These include the environment and the
communities in which we operate, our customers, employees, suppliers,
government and our regulators."
Sustainability Report Title: Sustainability Report 2008; Website: http://www.firstrand.co.za; GRI

Accordance: G3 Guidelines
Carbon Disclosure Member: No; Signatory: Yes; CDP 2009. Answered Questionnaire (Public)
Project
CDP 2009 Physical Risk Disclosure: "The impact of climate change on our
operating territories in Africa and vulnerable segments of our client market (e.g.
CO2-intensive industries, energy or water-dependent consumers e.g. farmers, high
impact sectors such as chemical manufacturers) may affect their own business
position, thereby affecting their financial attractiveness. Through our exposure to
at-risk clients, suppliers, communities and other key stakeholders operating in
environmentally-vulnerable areas (e.g. areas prone to coastal flooding) or
utilising valuable environmental services (e.g. water-intensive mining,
manufacturing and agricultural operations), we face an indirect business risk."
South African Environmental Fiscal Reform: A number of environmental
pronouncements that could inform taxation and incentives were made by the
Minister of Finance in February 2009. The items that could have a material direct
or indirect impact in our business include: incentives for firms to invest in
energy-efficient technologies and cleaner production; implementation of the
electricity levy; reforms on motor vehicle excise duties to include carbon
emissions; introducing a new tax on energy intensive light bulbs; making certified
emission reduction credits subject to capital gains tax.
CDP 2009 Regulatory Risk Disclosure: “South African Climate Change policy
positions informed by Long Term Mitigation Scenario (LTMS) and the National
Climate Change Policy Framework: The Focus of the Long Term Mitigation
Scenario61 is to ensure the ultimate reduction of national Greenhouse Gas
emissions. This is supported by limits which are yet to be determined. The
Minister of Environmental Affairs and Tourism has also indicated that voluntary
emissions reporting may make way for mandatory reporting. Consequently, there
is a significant focus on climate change, sustainable development, energy
efficiency, and new and scaled-up environmentally-friendly technology
investment at both a national and international level. This may pose an impact
indirectly on FirstRand‟s business, where clients in CO2-intensive sectors face
increased costs or try to transition to lower CO2 options.
CDP 2009 Reputational Risk Disclosure: FirstRand recognises that legal,

reputational and market risks shall increase as a result of changing consumer
expectations. The bank suggests that it potentially faces the risk of being less
attractive to their target market if they do not innovate and develop financial
solutions that assist customers to manage their own environmental impact e.g. do
not offer financing for environmentally friendly solutions.
61
Source: Discussion Document (March 2009)

Public Policy Statements Nedbank Chief Executive, Mr Paul Harris, stated in the bank's response to the
CDP 2009: "We continue to work actively at reducing the environmental impact
of our operations. We measured our carbon footprint, continued reducing our
consumption of resources and worked towards attaining ISO 14001:2004
certification for a number of our large buildings. As a large financial services
provider, we continue to maintain environmental and social risk vigilance in our
financing and lending activities, while working towards helping the market
implement solutions to climate change by developing suitable financial products."

GHG Emissions Year: 2008; Facility/Region: The organisational boundary includes the following
Inventory companies and divisions under the control of FirstRand Ltd: FirstRand Bank Ltd;
First National Bank; Rand Merchant Bank; Momentum Group; Wesbank and
Ebucks Ltd. FirstRand followed the consolidation approach that covered all
divisions, entities and businesses in the reporting boundary. The consolidated
approach included companies and building over which FirstRand has operational
or financial control as well as leased facilities. Protocol: GHG Protocol.

Scope 3
Travel 5,201
Leased Buildings 173,631
Products 1,759
Supply Chain -
Accounting Methods FirstRand uses the Greenhouse Gas Protocol - Corporate Accounting and
Reporting Standard, 2006 IPCC Guidelines for National Greenhouse Gas
Inventories. The establishment of the carbon footprint was done in line with
principles of good carbon reporting practice as contained in the Greenhouse Gas
Reporting Protocol.
Third Party Certification FirstRand did not get third party verification of their Scope 1, 2 and 3 emissions
reporting. However, they report that Price Waterhouse Coopers performed the
calculation of their carbon footprint.
Certification Year Not Applicable.

Offsets Energy Efficiency Savings: ZAR 7,516,351 was saved.

Targets
Emissions62 Operations
Operations
Carbon 11% 2008 2012 All Internal
Water Use - - - -
Paper Use - - - -
Target Details FirstRand reported in their response to the CDP 2009 with regard to their plans
for achieving reduction targets that: "lighting retrofits and motion sensors are to
be implemented in all FirstRand buildings; all remaining CRT computer screen
are to be replaced by LCD screens; energy saving settings and remote shutdown
of all computers, including Linux 7590 computers is to be implemented; the use
of newer technologies such heat pump water heaters is being investigated; power
factor correction is being implemented where necessary and server virtualization
using blade server technology is currently being implemented in their computer
centres."
OUTsurance has committed to a 30% reduction in paper used is recycled.

Wesbank has committed to determining the impact of offsetting CO 2 emissions
generated by motor sport events. All business units are committed to FirstRand's
Group Climate Change Strategy Development and to extend Baseline of Carbon
Footprint Assessment.
Emissions Trading FirstRand has reported that it has a carbon trading desk to trade CO 2 and support
CDM projects that will generate emission credits.
Renewable Energy FirstRand has signed an energy performance contract as part of the Clinton
Climate Initiative aimed at uniting businesses and institutions in battling climate
change by greening facilities. The firm also reports involvement in experimental
self-generated and renewable energy projects in a small number of areas.
Energy Efficiency None Identified.

Investment Products
62
Source: Interview with FirstRand on Tue, 10 November 2009.

Table C5: Sample Profile – Standard Bank
Company Information
Standard Bank is a universal bank offering transactional banking, saving,
borrowing, lending, investment, insurance, risk management, wealth management
and advisory services.
Contact Information
Chairman Mr Derek Cooper
CEO Mr Jacko Maree
Contact +27 (0) 11 636 9111
9th Floor, Standard Bank Centre
5 Simmonds Street
Address
Johannesburg
South Africa
Board Committee:
Group Risk and Capital Management Committee
Not Identified. However, Standard Bank indicated in an interview that it is Martin
Committee Chair Shaw.
Board Committee:
None Identified.
Climate Change
None Indentified. However, Standard Bank indicated in an interview that there is
Board Member: Climate no single person appointed on the board to hold climate change responsibility, but
Change there are various persons on the board addressing this issue.
Board Role Standard Bank reported in the response to the CDP 2009: "The Group Risk and
Capital Management Committee, is the appropriately delegated risk oversight
body on behalf of the Board and has ultimate responsibility for environmental
risk.
Board Training None Identified. The board has received awareness training around climate
change, but not detailed training according to an interview with Standard Bank.

CEO None Identified.
Leadership/Statements
Company Policy None Identified. However, the bank reported in their Sustainability Report
(2008): "Standard Bank is a market leader in carbon finance and trading. We
apply a number of quality criteria to the emissions reduction projects we finance
or purchase carbon credits from, which ensure that they deliver real and
permanent emissions reductions, and make a positive contribution to sustainable
development."
In addition, the bank reported in their response to the CDP 2009: "Standard Bank
is developing a fully integrated business around climate change. The business will
provide support to regulated companies and countries as well as help develop
projects that reduce green house emissions at the lowest marginal cost. Standard
Bank participates as a financial intermediary in trading schemes around the world
to ensure we have global coverage for our client base."

Officer
Levels to CEO 1
Climate Change Karin Ireton (Director - Group Sustainability Management) is directly involved
Executive with Climate Change issues.
Executive Committee Standard Bank indicates in their response to the CDP 2009 that the Strategic
Issues Forum is an executive body addressing climate change issues.
ESG Factors in Risk Standard Bank views climate and environmental risk in the same cluster
Management/Financing according63 - the Chairman of the board participates in a monthly strategic issues
forum and is informed on climate issues at this forum. Standard Bank trades
ERUs, CERs and EUAs as a business activity in itself as well as in support of risk
management of their financing activities.
Staff Training/Education None Identified. However, Standard Bank indicated in an interview that training
is offered at various levels including at their leadership college where at executive
level one-tenth of the time spent is dedicated to global issues - chief among them
is climate change. The middle to junior level managers get sensitivity training
pertaining to climate change issues.
External Initiatives JSE Social Responsibility Index, Equator Principles, Carbon Markets and
Investors Association, Green Building Council (SA). Standard Bank also engages
with the National Business Initiative on issues pertaining to climate change.

to Climate Change
Compensation Link Standard Bank does not incentivise individual management of climate change
issues.
63
Source: Interview with Standard Bank on Wed, 11 November 2009.

Standard Bank's Annual Report (2008) does not have any specific statement on
climate change or sustainability. However, the Sustainability Report (2008)
indicated: "The group continues to focus on a wide range of sustainability-related
initiatives across economic, social and environmental dimensions, which are
Annual Report comprehensively discussed in this sustainability report. We believe it is important
at this time to focus on sustainable development opportunities as this can assist in
mitigating broader business risks such as social instability caused by loss of
income and employment as well as the depletion of resources."
Sustainability Report Title: Sustainability Report 2008; Website:

http://sustainability.standardbank.com; GRI Accordance: G3 Guidelines
Carbon Disclosure Member: Yes; Signatory: Yes; CDP 2009. Answered Questionnaire (Public).
Project
CDP 2009 Physical Risk Disclosure: Standard Bank stated that projects or
institutions financed by the firm may be exposed to the physical risks of climate
change, particularly in relation to extreme weather risks linked to global climate
change.
CDP 2009 Regulatory Risk Disclosure: Standard Bank indicated that "potential
risks may arise from the regulation of financing of emission-intensive activities
through Project Financing - projects that are subject to challenge become less
economic as CO2 emissions targets become more stringent". In addition, carbon
market regulation, including regulation of the nature and type of trading, poses a
risk to the bank." The lack of an agreed and transparent regime post-2012 places
considerable constraint on, and risk in the Bank‟s ability to channel capital into
emission reduction projects. Effectiveness of the regulatory regime surrounding
existing carbon markets, in particular the institutions and practices in
administration and regulation of the Clean Development Mechanism (CDM) and
Joint Implementation (JI). As a participant in these markets, regulatory
uncertainty over the lack of consistency in the processes and practices of the
CDM Executive Board expose Standard Bank to considerable regulatory risk."
CDP 2009 Reputational Risk Disclosure: Standard Bank recognises the

reputational risks related to climate change and financing of high impact
industries as a possible threat to their business.
Public Policy Statements None Identified.

GHG Emissions Year: 2008; Facility/Region: All South African Operations; Protocol: GHG
Inventory Protocol.

Scope 3
Travel 3,492
Leased Buildings -
Products -
Supply Chain -
Accounting Methods Standard Bank has used the Greenhouse Gas Protocol – Corporate Accounting
and Reporting Standard. The firm confirmed use of the following calculation
tools: CO2 emission from business travel; CO2 emissions from fuel use
combustion; CO2 emissions from transport mobile services and individual CO2
emissions from purchased electricity, heat and steam. The calculation was based
on 34944 employees and specifically excludes: combustion of fuel in boilers or
furnaces; business travel in corporate jets (Standard Bank does not own such
aircraft); combustion of diesel in generators associated with leased properties;
business travel related to car rental and hotel accommodation; emissions from
employee commuting; emissions resulting from paper consumption or emissions
arising from end-user use of services sold by the reporting company.
Third Party Certification Ernst and Young performed an audit on Scope 1, 2 and 3 Emissions reported by
Standard Bank.

Offsets Energy Efficiency Savings: None Identified.

Targets
Total - - - -
Emissions
Energy Use 10% 2007 All Internal
Operations
Carbon - - - -
Emissions
Water Use - - - -
Paper Use - - - -
Target Details Currently, Standard Bank focuses on energy reduction through various initiatives
such as joining the Green Building Council of South Africa. This will ensure that
all new buildings are designed built and operated in an environmentally
sustainable way. Standard Bank uses the Green Star SA rating system when
designing new buildings. This system also takes into account energy and water
consumption, materials used and site emissions of buildings (CDP, 2009, pp 26).
Standard Bank reported in their response to the CDP 2009 that they intend to
meet reduction targets by: "implementation of an environmental control program
in buildings in accordance with energy management initiatives (transport, natural
air circulation, solar heating, building insulation technology, waste water re-
cycling, recycling of building materials, land-use & ecology, reducing CO2
emissions, innovation etc); higher efficiencies on air-conditioning such as ice
storage technology, high pressure refrigerant and dual cycle air-conditioning
systems; load management systems to efficiently sustain and operate critical
premises by reducing and smoothing of electricity demand profiles to obtain
lowest electricity cost; central remote monitoring and management of energy
consumption of critical equipment of all sites including branch network and solar
installations where economically feasible.
Emissions Trading Standard Bank reports in its Sustainability Report (2008) that it is actively
involved in efforts to promote the development of carbon markets - the bank has
developed relationships with the European Commission, Clean Development
Mechanism and governments to pursue this goal. Standard Bank trades Certified
Emission Reduction and Emission Reduction Units, the finances against them and
European Union Allowances. The company is also actively considering
involvement in other compliance based markets. Standard Bank also indicated
that it is a signatory investor in the Carbon Disclosure Project, with the intention
to use data acquired there to develop products linked to carbon management.
Renewable Energy None Identified.

Energy Efficiency Standard Banks reports on their website that it is currently investigating solutions
to reduce energy consumption in its main buildings and older branches. However,
the bank has various initiatives in place to optimise energy usage of their air-
conditioning systems. These include load monitoring systems, the use of new
control technologies that reduce energy consumption as well as replacing old air-
conditioning chillers with modern units that are more energy efficient. The bank
also reported the installation of power factor correction panels, which reduce
electricity demand, at the main computer centre at the head office.

Investment Products


Climate Change and The Role of Banks: A Study On The Corporate Response From The Major Banks in South Africa

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Climate Change and The Role of Banks: A Study On The Corporate Response From The Major Banks in South Africa

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CLIMATE CHANGE AND THE ROLE OF BANKS

A Study on the Corporate Response from the Major Banks in

The Graduate School of Business

University of Cape Town

of the requirements for the

Masters of Business Administration Degree

Supervisor: Jonathon Hanks

south, africa, role, response, banks, climate, change

Mr J. Hanks Thank you for giving me the opportunity to undertake

Dr L. Ronnie I am extremely grateful for your insights and influence

ABSA Group Limited

NCI Pty Ltd

“only a life lived for others is worth living”

1.1 Research Area 1

2.1 The Science and Economics 6

5 International Banking Best Practice 42

5.1 Climate Change Policy Framework 43

6.1 Summary of the Research Findings 59

7.1 General Findings of the Research 85

Table 1: Climate Change Related Risks and Opportunities for Banks 15

Table 2: The Potential Value in Investing in Climate Change 16

Table 3: The Size of the Private Banking Sector in South Africa 27

Table 4: Perceived Risk Level by Sector 28

Table 5: Schedule of Climate Policy Implementation 34

Table 6: HSBC Emission Reduction Targets 47

Table 7: Summary of Research Results - CDP 2009 59

Table 8: Summary of Research Results - RiskMetrics/CERES 2009 61

Table 9: Differences in the Response of the Local Banks 63

Table A1: CDLI Results Summary – Nedbank Group 96

Table A2: CDLI Results Summary – FirstRand Group 96

Table A3: CDLI Results Summary – Standard Bank 96

Table A4: CDLI Results Summary – ABSA Group Limited 97

Table A5: CDLI Results Summary – HSBC Holdings 97

Table B1: Governance Checklist - Scoring Methodology 101

Table C1: Sample Profile - HSBC Holdings 107

Table C2: Sample Profile – ABSA Group Limited 115

Table C3: Sample Profile – Nedbank Group 120

Table C4: Sample Profile – FirstRand Group 126

Table C5: Sample Profile – Standard Bank 132

Figure 1: Total Assets held by all Banks in South Africa 27

1.1 RESEARCH AREA

Climate Change and the Role of Banks 1

1.2 PROBLEM STATEMENT

1.3 PURPOSE OF THE RESEARCH

Climate Change and the Role of Banks 2

1.4 RESEARCH SCOPE

1.5 RESEARCH ETHICS

Climate Change and the Role of Banks 3

Climate Change and the Role of Banks 4

Banks: Internal Response

Diagram 1: Organisation of Chapters.

Climate Change and the Role of Banks 5

2.1 THE SCIENCE AND ECONOMICS

Climate Change and the Role of Banks 6

Africa is seen to be extremely vulnerable to physical change impacts – a problem compounded

Climate Change and the Role of Banks 7

Climate Change and the Role of Banks 8

Climate Change and the Role of Banks 9

Climate Change and the Role of Banks 10

Climate Change and the Role of Banks 11

Climate Change and the Role of Banks 12

Climate Change and the Role of Banks 13

Climate Change and the Role of Banks 14