What sets Nedbank’s policy apart are the concrete commitments to exit financing of fossil fuel exploration, extraction and production by specified dates. 

Other banks have focused only on coal-fired power plants in their divestment policies, with various caveats with regards to technology, plant size or jurisdiction, which keep the door open for them to capitalise on coal. In contrast, Nedbank sends a clear market signal – “we’re getting out of fossil fuels altogether”, to paraphrase.

This flows from aligning the business to what the science says is required; and recognises the reality that it is climate change impacts, and the risks of being caught economically on the back foot as trade partners shift to low-carbon, that pose threats to socio-economic development.

The science says that globally we have to achieve net-zero greenhouse gas emissions by mid-century if we are to have a chance of holding the average global temperature increase above the preindustrial level to no more than 1.5 °C. We are already at 1.2 °C.

To be net zero by 2050, the energy sector will have to be at zero – and for South Africa, which is warming at twice the average global rate, this is already manifesting in shifting rainfall patterns and agricultural impacts. Fortunately, technologies exist to achieve that, much sooner than we’re currently moving. Low-to-zero carbon energy is a low-hanging fruit we are not picking.

Why not? Because there are powerful vested interests in fossil fuels and a lot of money still being made there, by the few. Such companies and some in government trot out sawhorses about coal and oil being needed in the mix for the foreseeable future for energy security and development. They work to drag the country’s heels on the policy and action that we need. Delays allow them time to sweat their assets, consolidate rents and migrate their business models. They scaremonger about crashing the economy should we move swiftly to decarbonise the energy sector, ignoring the reality that it is inaction that is already doing the harm – and indeed, that slow action runs the risk of crashing the economy as South Africa struggles to catch up with the rest of the world.

This is why Nedbank’s example is so important: turning off the pump of investments is the leverage point to ultimately throttle fossil fuels, while ramping up investment in the growth areas of renewables and embedded generation.

Since global warming is driven by the accumulation of greenhouse gases in the atmosphere, we can’t be pouring out these gases freely and then drop off an emissions cliff in 2049 – we’d have locked more warming into the climate system by then. We have to take decisive and deep action on a managed transition from right now until 2050. Facilitating this is the mandate of the Presidential Climate Commission.

At the same time as stepping boldly forward, Nedbank’s policy unfortunately falls a bit short of acting with sufficient urgency. The bank plans to be fully out of financing fossil fuels by 2045 – on the brink of that cliff edge. We celebrate that they will be out of new thermal coal in the region by the closing of 2024, and have stopped financing new oil and gas exploration with immediate effect.

But their other targets need to be accelerated in future iterations of their policy. It is inadequate to what is needed to close the tap on natural gas plants only from 2030 and on oil production only from 2035. And processing of oil in refineries and for plastics needs to make an entrance in the policy.

There’s a new narrative being peddled in the South African energy space: that we need fossil gas as an energy carrier to “bridge” us to renewable energy. The assumption being used is that renewable energy doesn’t quite cut it (yet).

Certainly, storage of energy generated from renewable energy technologies is not yet at utility scale and affordable enough to ensure energy supply whatever the weather. Given that R&D efforts around the world are focused on solving the storage problem, a more sensible assumption might be that we will get there rapidly enough.

Rather than a “bridge”, the pro-gas narrative is an onramp to drive another fossil fuel bonanza. In what la-la land will businesses who have invested heavily and are seeing good returns turn off the gas when the “bridge” is no longer needed? Or, on the other hand, what are the implications of investing in a “bridge” that could take ten years to ramp up, and then be shut off suddenly in line with actual commitments?

With regards to gas, Nedbank’s policy has it continuing to finance natural gas production. New utility-scale or embedded gas-fired power generation could be financed where it displaces existing coal- or oil-based generation, is integrated into renewable generation projects as backup, or for mid-merit or peaking capacity. All of this only “to the extent that it is necessary to facilitate the transition to a zero-carbon energy system.” Depending upon the beliefs or interests of those arguing the “extent of necessity”, Nedbank is either holding open its own door into gas or hopefully closing it to a crack.

This begs the question of fiscal responsibility. Because of the increasing risk that such finance cannot adequately return on the investment, we are already seeing the finance costs for coal (and to a lesser extent, for oil and gas) ballooning. Nedbank’s approach therefore aligns with the finance industry’s pricing of the “carbon bubble” into their lending by demanding higher returns from risky fossil fuel investments – it is not a huge leap forward, but an important cautious step.

Notwithstanding these few reservations, Nedbank’s policy is a global pacesetter that will hopefully pull other banks and financial institutions in its slipstream, and for that it should be commended.

Companies are increasingly being evaluated by investors, lenders and insurers on their climate performance. The minimum evaluation is on their climate-related business risks. The Financial Stability Board created the Task Force on Climate-related Financial Disclosures to serve this purpose.

Beyond this, a new expectation is emerging from financiers, and from others in a company’s supply chain and its customers: talking the walk in the policy space, and then putting your money where your mouth is. Companies in the We Mean Business coalition are stepping into climate-positive policy advocacy, and they provide suggestions for how your company can do so too.

The AAA Framework for Climate Policy Leadership urges companies to: Advocate for policies consistent with achieving net-zero emissions by 2050; align trade associations’ climate policy advocacy with the net-zero goal; and allocate advocacy spending to advance climate policies, not obstruct them. Companies’ behaviour on policy advocacy is tracked by InfluenceMap – have a look at how they rate some South African companies.

Companies have an immediate opportunity to enact climate-positive policy advocacy. Government has released South Africa’s draft #2 Nationally Determined Contribution (NDC) for public comment. This is the country’s international commitment on climate action, to be submitted to the UNFCCC before the end of this year. (See here to make your mark. Countries are expected to submit improved NDCs only every 5 years, so don’t miss it this time around.)

Cities and companies in the Alliance for Climate Action South Africa, convened by NBI, C40 Cities and WWF, stand up for a net-zero by 2050 economy and are taking their own action to get us there. Some are choosing to make input on the NDC, demonstrating their climate policy leadership. WWF can facilitate you doing the same.

WWF will continue to engage the finance sector in our efforts to influence the redirection of financial flows as a powerful lever to release money for sustainable investments, and at the same time, withdraw the resources that underpin environmentally, socially or economically harmful impacts.

*Louise Naudé is Senior Manager: Climate Change Portfolio with WWF South Africa and a Presidential Climate Change Commissioner.