South African banks, in particular, have made significant strides in integrating sustainability into their core operations, playing a continued pivotal role in driving sustainable growth while addressing environmental, social and governance (ESG) challenges. In this article, we delve into the sustainability efforts of some of the largest banks in the country, examining their initiatives, sustainability reporting practices, and the alignment thereof with international standards, in a reporting landscape that is in constant evolution. The aim here is to provide a comprehensive overview of how South Africa’s major commercial banks are contributing to a more sustainable future.

South Africa has advanced significantly in sustainable finance, establishing the South Africa Sustainable Finance Initiative in 2017 through the National Treasury. This initiative unites regulatory bodies, industry associations, and stakeholders to create a sustainable finance framework. In 2020, the National Treasury released a Technical Paper on Financing a Sustainable Economy, promoting voluntary sustainable finance and stakeholder engagement while urging financial institutions to align with environmental, social, and governance (ESG) principles.

Responsible lending is vital for financial stability and economic growth, with South African banks, particularly larger ones, crucial in providing credit. These banks must balance profitability with social responsibility by assessing borrowers’ creditworthiness, ensuring affordability, and avoiding predatory practices. They have successfully supported sustainable economic development by funding ESG-aligned projects; the 2023 Climate Policy Initiative noted that commercial private sources, mainly banks, contributed 92% (R103 billion annually) of the country’s climate finance flows.

South Africa’s major banks increasingly prioritize ethical investment, integrating ESG factors into their decision-making processes, considering environmental impact, social inclusivity, and corporate governance. Ethical investment directs capital to projects and companies with strong ESG performance. Absa Group Limited, for instance, was the largest funder of renewable energy assets in Africa in 2022, as noted in their 2023 Climate Report. By offering ESG-focused investment products, banks enable customers to align their portfolios with their values.

While progress has been made, challenges persist. Some banks face pressure to balance short-term profits with long-term sustainability. Striking this equilibrium requires robust risk management frameworks, innovative financial products, and collaboration across the industry. Additionally, banks must address climate-related risks, such as exposure to fossil fuels and physical climate impacts.

Reducing the Carbon Footprint

The urgency of mitigating climate change is a reality that South African banks are increasingly recognizing.  Banks are adopting sustainable energy solutions and waste management practices, such as solar panels, energy-efficient lighting, recycling, and paper usage reduction, to minimize operational costs and environmental impact, aligning with global sustainability goals. Globally, banks prioritize carbon footprint reduction by sourcing energy from renewables, installing solar panels, optimizing energy use through smart technologies, and promoting telecommuting. South African banks, including Absa, FirstRand, Investec, Nedbank, and Standard Bank, have set ambitious environmental sustainability targets, as shown in the table below.

This benchmarking demonstrates that while many South African banks are making strides in their efforts to minimise the carbon footprint generated by their operations, there is still room for more comprehensive and uniform commitments across the sector. While banks contribute to global sustainability goals and build stakeholder trust through transparent reporting, the Integrated Reporting & Assurance Services (IRAS) Sustainable Data Transparency Index found that environmental performance in the South African banking sector has been poorly reported, indicating room for improvement in planning, execution, and reporting of environmental issues, despite efforts in recycling, digital banking, and proper electronic waste disposal.

Source 1: IRAS Sustainable Data Transparency Index Report (2023, pg 122)

Promoting Financial Inclusion & Supporting Communities

South Africa continues to grapple with entrenched economic challenges post-apartheid, with alarming rates of poverty, inequality, and youth unemployment, notably affecting black women at rates of 50.47% and 41% respectively. These pressing issues underscore the imperative for collaborative efforts among all stakeholders to address the multifaceted challenges in society. The National Development Plan 2030 identifies private enterprise, including the banking sector, as crucial partners in fostering inclusive economic prosperity.

Financial inclusion stands as a cornerstone of South African banks’ ESG strategies, ensuring equitable access to essential financial products and services such as savings, credit, insurance, and digital payment solutions. This inclusivity is vital for marginalized and underserved communities, supported by regulatory frameworks like the Financial Sector Conduct Authority’s Financial Inclusion Strategy and National Treasury policies. Such measures not only empower individuals to manage their finances effectively, invest in their futures, and protect against financial instability but also play a pivotal role in poverty alleviation and economic advancement.

Key national policies, including the Financial Services Sector Code under the Broad-Based Black Economic Empowerment Act and the National Consumer Financial Education Strategy, guide banks in their strategies for enhancing financial inclusion. The Banking Association South Africa’s 2023 Transformation Report highlights initiatives by banks such as Capitec’s issuance of R1 billion in shares to empower previously disadvantaged employees, exemplifying a commitment to broad-based empowerment.

Source 2: BASA Transformation Report (2023, pg 15)

Additionally, efforts to expand physical banking infrastructure and leverage digital technologies aim to increase access to financial services in remote and underserved areas, thereby bolstering economic resilience and social well-being across South Africa’s diverse communities.

Championing Diversity & Inclusion

Diversity and inclusion both within the workforce and corporate governance structures is another area where South African are at the forefront. Efforts to ensure gender parity, racial diversity, and inclusivity in hiring practices are evident.

Banks emphasize leadership diversity, aiming for balanced representation of women and minority groups in executive roles. The BASA report shows major banks have significantly improved their B-BBEE scores, demonstrating a commitment to transformation. Black voting rights in banks have reached 32%, exceeding the 25% target, and black economic interest has reached 26%, surpassing the target.

Management control has improved, with black directors on bank boards increasing to 39%, though the 50% target remains unmet. Black women in leadership roles have also increased, with black women making up 23% of bank board members and 21% of top senior management positions, approaching the 25% targets.

Skills development is crucial for maintaining a pipeline of black junior and middle managers for future senior roles. Banks have significantly contributed to enterprise development, despite a recent decline in spending. Empowerment financing has grown, particularly in supporting black-owned enterprises, highlighting the sector’s commitment to economic transformation.

South African banks focus on ensuring diverse boards with varied skills, experiences, and backgrounds, enhancing decision-making and reflecting a commitment to fair representation. This emphasis on diversity extends to board composition and leadership roles, fostering an environment where diverse voices are valued. Such practices align with global trends, underscoring the importance of inclusive leadership for sustainable growth.

The Path Forward for Sustainable Banking in South Africa

South African Banks address various ESG issues through multifaceted initiatives. They include striving for responsible lending practices and ethical investment portfolios, setting ambitious targets for reducing greenhouse gas emissions, enhancing social equity through community investments, and ensuring robust governance structures. These initiatives are not just about compliance but also about driving genuine progress toward sustainability. Stakeholders must monitor and hold banks accountable to ensure a steadfast and impactful commitment to a sustainable future.

South African banks’ sustainability efforts are not only a reflection of their corporate responsibility but also a critical factor in driving long-term growth and stability. With the world facing environmental challenges and social inequalities, the banking sector’s leadership in ESG practices will be crucial in shaping a more sustainable and equitable future.

Author:
Belinda Carreira CA(SA), CCB.D is CEO at SustainableDNA and Usithandile Zikalala BA Hons (Labour, Economic & Development Sociology) is a consultant at SustainableDNA.