Managing climate risks ahead of Cop28

As the countdown to Cop28 continues, the spotlight is on South African banks and their efforts to manage climate risks. Just Share, a non-governmental organization, has been closely monitoring the actions of the country's big five banks in relation to climate change over the past six years. In a recent interview with CNBC Africa, Emma Schuster, Senior Climate Risk Analyst at Just Share, shared insights from their latest report on the banks' performance. The key theme emerging from the discussion is the need for banks to align their commitments with tangible actions to combat climate change. Schuster highlighted the importance of governance structures within banks in driving climate action. According to the report, while some progress has been made, none of the banks are currently doing enough to address climate risks effectively. One of the key findings of the report was the impact of board competence in shaping a bank's approach to climate issues. Banks with a higher level of climate expertise on their boards tended to perform better in other areas related to climate action. Despite some improvements, there is still a long way to go for banks to fully integrate climate considerations into their operations and align with the goals of the Paris Agreement. The report also highlighted the need for banks to set short-term targets, develop clear plans to achieve them, and link incentives to the achievement of climate targets. One of the challenges identified in the report was the banks' slow progress in recognizing and acting on climate risks associated with fossil gas. Schuster emphasized the need for South Africa to seize the opportunity to transition towards cleaner energy systems and economies. She debunked the notion that increased investment in fossil fuels would benefit development outcomes in the country, citing the high levels of inequality and emissions in South Africa. While acknowledging the current dependence on fossil fuels in the economy, Schuster stressed the importance of planning for an orderly transition that considers the impact on workers and communities reliant on fossil fuel industries. She cautioned against delaying action and investing in outdated technologies that could leave vulnerable populations at risk. The discussion shed light on the urgent need for banks to rethink their approach to energy investments and embrace renewable energy solutions as a more sustainable path towards a greener future. As South Africa navigates its energy transition, the role of financial institutions in driving positive change and supporting a just transition will be crucial in the years ahead.