Shareholders test ICBC’s climate commitment in South Africa

Industrial and Commercial Bank of China holds one-fifth of shares in South Africa’s biggest lender, Standard Bank. Will it vote for climate risk disclosure?
<p>(Image:&nbsp;Paul Gregg / Alamy)</p>

(Image: Paul Gregg / Alamy)

Shareholders in Standard Bank will tomorrow vote on the disclosure and reporting of climate risks, in a move that one expert described as a “ground-breaking step”.

The resolution has been proposed by the bank’s shareholders. Owning 20.1% of shares, the Industrial & Commercial Bank of China (ICBC) may determine the outcome of the vote.

ICBC is the world’s largest bank. It is signed up to the Task Force on Climate-related Financial Disclosures (TCFD) and other similar initiatives so the vote is being seen as a test of ICBC’s climate credentials. Observers are asking: “Will ICBC make the right choice?”

A first of its kind

The shareholder resolution was brought forward by South African non-profit organisation the RAITH Foundation and shareholder activist Theo Botha, with the support of investor activism organisation JustShare. It is the first shareholder-proposed resolution on climate risks for any listed company on the Johannesburg Stock Exchange.

Last year the same coalition of shareholders and organisations submitted a similar resolution to the energy and chemicals company SASOL, South Africa’s largest carbon emitter. The company rejected the submission so no shareholder vote took place.

Tracey Davies, executive director of JustShare, said Standard Bank’s acceptance of the shareholder proposal was a “ground-breaking step” for responsible investment in South Africa.

“This is the first time that they [South African investors] will have to make it clear to clients how serious they are about climate risk,” said Davies.

The resolution itself consists of two parts. Firstly, it asks the bank to assess and report the greenhouse gas emissions resulting from its investments, and the climate risks the bank is therefore exposed to. Secondly, it asks the bank to make its coal power financing policy fully public (currently only a media release is publicly available) and expand the policy to include coal mining.

Climate risk disclosure rests on the idea that investments in polluting industries are ultimately risky assets. Disclosing such risks is in the interest of investors who need such information to make sensible investment choices, as well as in the interest of transforming the global economy away from carbon intensive assets.

Shareholder interest in the idea has been gaining ground in recent years, not least through the establishment of the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD was established in 2015 and aims to “develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders”. It now boasts 580 supporting organisations.

The vote and ICBC

The shareholder vote requires at least 50% of votes to pass. However, the groups behind the resolution account for less than 0.001% of the vote share. The one asset manager to announce full support for the resolution, Mergence Investment Managers, accounts for less than 0.4%.

With one-fifth of shares in the bank, ICBC is by far the largest shareholder. It has been signed up to the TCFD since June 2017 and is the only Chinese bank to be so. No South African banks are signatories.

JustShare and Mergence note that the resolution being tabled at Standard Bank’s shareholder meeting is aligned with the recommendations of the TCFD, which Mergence refers to as “global best practice” on climate risk disclosure.

“In signing this letter, we are proud to express our support for better disclosures of climate-related risks and opportunities and we urge other business leaders to do the same,” members of the TCFD, including ICBC, proclaimed in June 2017.

Via the China-UK TCFD Pilot Group, ICBC has also signed up to a timeline for its own climate risk disclosure, scheduled to start by the end of this year.

Lauren Huleatt, sustainable finance campaigner at Greenpeace East Asia, argues that in the spirit of its commitments on climate risk disclosure, ICBC should vote in favour of the resolution base. But she stresses that the bank has failed to match rhetoric with action. ICBC scored an F in the Climate Disclosure Project’s 2018 ranking on climate disclosure.

“ICBC have given plenty of public indications that they support climate risk disclosure, but now, when they are presented with a binding choice which would mandate disclosure, is when the bank will show its true hand,” says Huleatt.

The likely outcome

The board of Standard Bank have advised their shareholders to vote down the resolution, arguing that shareholder concerns are already addressed by current environmental, social and governance measures and by obligations to report carbon to the South African government.

ICBC has given no public indication of its voting intent. However, JustShare’s Davies thinks the bank, which holds two seats on the board of Standard Bank, is unlikely to favour the resolution and may have influenced the decision to advise shareholders against it.

The vote is a test nonetheless, says Greenpeace’s Huleatt.

“ICBC has a chance in this vote to show that they understand how much disclosure of climate risks matters for environmental protection.”