In Part 2 of this three-part series, Justine Sweet, Environmental author who consults on content for LexisNexis South Africa’s Lexis Library, Lexis GRC and Lexis Assure solutions, looks at the mounting pressure for environmental disclosure faced by organisations.
More often than ever before, reports and articles on potential liabilities and obligations associated with climate change impacts are being published and widely disseminated. For example, Just Share recently published a legal opinion (with the help of the international non-profit environmental law organisation ClientEarth) on pension funds and climate risk. Regulation 28 of the Pension Funds Act requires that in making investment decisions, pension fund trustees consider environmental as well as social and governance factors.
The legal opinion definitively confirms that the boards of these funds, regardless of whether they are regulated by the Act, must take climate change related risks and opportunities into account. In order not to fall foul of Regulation 28, it is submitted that pension funds would be well advised to consider the opinion and its implications for their investment portfolio, particularly since it is likely that, on the back of the opinion, Just Share and organisations like it will request this information and/or seek appropriate resolutions in this respect.
When it comes to financial institutions, for a number of years, minority shareholders have sought resolutions to address their climate change concerns. In May 2019, a proposed resolution to disclose, among other things, climate-related lending risks was put forward to the Standard Bank Board. More than half the Board voted in favour of the Bank being compelled to adopt and publicly disclose its policy on lending to coal-fired projects and coal mining operations.
Although the second component of the resolution, which sought to compel the Bank to report on its assessment of emissions resulting from its financing portfolio, was not approved, it still garnered 38% support. And, although FirstRand had proposed disclosing its fossil-fuel related assets and the proposed resolution was not passed during its Annual General Meeting in November 2019, the bank has since committed to producing a “road map” on climate risk disclosure within the next year.
On 25 November 2019, the Centre for Environmental Rights (CER) launched Full Disclosure 5: “The Truth About South Africa Banks’ and Companies’ ability to Identify and Address Climate Risks”. As summarised on the CER’s website, Full Disclosure 5 “find that, while ten out of 15 companies and banks assessed identified climate change as posing a material business risk, only three set out the short-medium-and long term impacts to their business strategy, and financial planning. Only two companies report on the scenarios used to inform their strategy and seven have a target to reduce their emissions.
Only one bank discloses its concentrations of credit exposure to carbon-related assets, while two have a policy in place on funding coal mining and coal fired power. Public reports like these are likely to play a significant role in achieving change and it will be interesting to see how these statistics change in the next year or so.
Look out for Part 3 in which Justine Sweet talks Big Business.
 https://justshare.org.za/wp-content/uploads/2019/04/2019_Pension-fund-legal-opinion-by-Fasken.pdf (accessed on 31 October 2019)
 “Standard Bank AGM: shareholders challenge board, favour the climate” dated 30 May 2019