Nedbank sees the writing on the wall for dirty business
Nedbank will have something unusual on the agenda at its annual general meeting on Friday. Without being forced to do so, its board has proposed two ordinary resolutions on climate change.
The first is “to adopt and publicly disclose an energy policy aimed at playing its part in enabling the transformation over time of the energy system, by making finance flows consistent with low-emission and climate-resilient development” by April 2021.
The second is “to report on the company’s approach to measuring, disclosing and assessing its exposure to climate-related risks … as a percentage of total advances” in the same time frame.
Some readers may recall that Standard Bank and FirstRand voted on two almost identical climate resolutions in 2019. In both cases the first resolution on a policy for energy lending was approved, while the second resolution on companywide exposure to climate risk was unsupported.
What readers may not recall is that the boards of both banks opposed the second resolution outright.
While it cannot be denied that passing the first resolution is a step in the right direction, neither of the resolutions would have been proposed at all were it not for shareholder activism from minority shareholders Just Share and the Raith Foundation.
By contrast, the Nedbank resolutions have been proposed by the board itself.
Over recent years Nedbank has gone to quite some lengths to promote itself as the “green” bank.
It has committed about R35bn to renewable energy projects; it has committed itself to “appropriately aligning its strategy, policies and mandates with the objectives of the Paris Agreement” on climate change; and it has committed itself to reducing thermal lending from 0.7% in 2019 to 0.5% of group advances by 2030. By contrast, the percentage of group advances for renewable energy in 2019 was 3.9%.
Why is Nedbank stepping forward on environmental, social and governance (ESG) issues where others fear to tread? Some may argue that the fiduciary duty of Nedbank’s directors requires them to act in the best interests of the company as a whole, including the collective body of shareholders. Governance codes emphasise the importance of other stakeholder interests and require directors to factor in social and environmental concerns.
Another argument may be that coal can no longer compete with renewable energy on lead times or cost.
I believe there is more to it than this. Morgan Stanley Capital International (MSCI) has an SA ESG leaders index that provides exposure to companies with high ESG performance relative to their sector peers. The SA ESG index, which covers about 85% of market cap adjusted for free float, shows the average share price has gone from parity in 2009 to a premium of more than 65% at end-April 2020.
This holds true for the whole MSCI emerging-market index.
While record sales in exchange traded funds (ETFs) have been recorded in the past few weeks, research from Bank of America Securities shows that ESG funds have received inflows for 10 consecutive weeks. Even after the Covid-19 market sell-off, there has still been an increase of 5% in ESG ETF assets under management for the year so far, while S&P 500 ETFs have seen a 30% decrease of assets under management. In Europe, while EU stocks continue to lose value, ESG funds have experienced steady inflows over recent weeks.
The market has cottoned on to the idea that responsible investing is good for business, and businesses that manage ESG well are outperforming their peers. Nedbank’s strategy to take the lead on ESG and climate change in the banking sector is not simply about its social or fiduciary duty.
It’s about reading the writing on the wall.
Maguire holds a master’s degree in global change studies from Wits and has developed green economy solutions for the private sector, NGOs and the state for more than a decade.