Absa’s leading role in sustainable financing supports moves toward zero emissions as the Group makes significant strides in meeting renewable energy loan targets
Absa Group, Africa’s largest funder of renewables, announced today its long-term ambition to reach Net Zero state by 2050 for scope 1, 2 and 3 emissions. Supporting transition to a low carbon economy is underpinned by the Group’s aspirations to be an active force for good in everything we do, prioritising business activities that have the most positive environmental, social and economic impact, while mitigating negative impacts.
“While we recognise Africa’s particular vulnerability to climate change, our approach to Net Zero also takes cognisance of the development needs of Africa’s people,” said Punki Modise, Absa Group Chief Strategy and Sustainability Officer.
“Our Net Zero declaration underpins our belief in and support for a Just Transition. The transition to a resilient and sustainable economy must be inclusive and equitable for communities, investors and industries, and leave no one behind. We are committed to mobilising the resources necessary for supporting our clients’ energy transition, thereby reducing their carbon emissions and, ultimately, those of the countries in which we operate,” she said. Our commitment to entrench environmental, social and governance (ESG) principles throughout our business underpins this support, as we believe that ESG is vital for delivering real long-term value and our purpose of empowering Africa’s tomorrow, together …one story at a time.
Operational Emissions: Absa Group recognises its contribution to a sustainable future and the extent to which its business needs to reflect this in the operating choices that it makes. As such, the Group continues its journey toward a group-wide target to reduce operational emissions by 51.0% from 2018 levels by 2030. The Group is on track with this target, and has achieved an overall reduction of 21.3% to date. The Group commits to setting near and long-term scope 1 and 2 targets and having these targets validated by the Science-based Targets initiative (SBTi).
Sectoral Targets on Financed Emissions
Coal: We support diversifying electricity and energy supply; and we strive for a balanced energy mix, supporting clients through the energy transition. Funding the sector will be in line with the Group’s Coal Financing Standard, which provides a framework for addressing Absa Group’s sustainability risks and disclosures. Coal credit exposure as a percentage of the Group loans and advances to customers (including off-balance sheet items) was 0.04% in 2022. We expect to reduce the coal credit exposure limits from 0.20% in 2023 (2022: 0.20%) to 0.11% in 2030, with further reductions to 0.06% in 2040 and 0.03% in 2050.
Oil and Gas: Our credit exposure limits to the oil sector are expected to peak at 1.41% of Group loans and advances to customers (including off-balance sheet items) in 2023 (2022: 1.03%). Thereafter, we target a significant reduction to 0.46% in 2030, 0.22% in 2040 and 0.04% in 2050. As we consider gas a transition fuel, the trajectory of our lending targets differs from oil and coal. Our gas sector Group loans and advances to customers (including off-balance sheet items) are expected to exceed oil by 2027. We expect our total credit exposure limits to the gas sector to increase to 0.60% in 2023 (2022: 0.51%) and to peak at 0.83% in 2030. Thereafter, we target a material reduction to 0.52% in 2040 and 0.32% by 2050.
Wind and Solar Energy: Absa Group celebrates being the first bank in South Africa to announce its plan to mobilise a cumulative R100billion of sustainable finance by the end of 2025. Our Relationship Banking unit in South Africa aims to finance R2.5bn of embedded renewable power by 2025. The Group expects to grow its renewable energy lending at a compound annual growth rate of 26% by 2025, doubling the lending commitment over the period.
In addition, the Group, through its Vehicle and Asset Finance division, commits to supporting the adoption of New Energy Vehicles (NEV) – taking into account the charging and other infrastructure needs for both in-home and on-the-road usage.
Our Progress to date in financing the Low-Carbon Energy Transition
Absa Group has made significant strides in delivering against its sustainability agenda and cemented its position as Africa’s leading bank in renewable energy financing. The Group issued its first green bond (Africa’s first certified green loan), published its Sustainable Financing Issuance Framework, and closed a US$400million sustainability-linked term loan facility.
The Group invested in the African Rainbow Energy platform with an initial cash investment of R500million, and by transferring R5billion of its existing renewable energy assets. This investment aligns with the Group’s commitment to renewable energy and the green economy, and it brings expertise in renewable energy financing; thus creating South Africa’s largest, Black-owned, renewable energy fund.
Additionally, the Group has delivered a landmark transaction with Harmony Gold Mining Company Limited – which it believes will be a blueprint for other sustainable finance transactions over the course of 2023 and beyond. This R10.4bn transaction was the largest sustainability-linked transaction in the sector for 2022, and incentivised Harmony Gold Mining Company Limited to reduce its overall carbon footprint by setting targets for greenhouse gas emissions, renewable energy consumption, and water usage.
At the end of 2022, Absa Relationship Banking in South Africa had financed over R1bn in SME embedded renewable power generation capacity. It also acted as sole sustainability coordinator in the first sustainability-linked transaction in the paper and pulp industry for Sappi; and also enabled the evolution of Teraco’s energy usage toward renewable sources by arranging a R1.5billion green loan.
Absa Group endeavours to ensure its financing does not harm vulnerable communities and that they have access to affordable renewable energy. Consequently, the Group applies enhanced due diligence when considering the environmental and social impacts of projects; ensuring that it adheres to best practices.
Reporting and Disclosures
Absa Group aims to lead the financial services sector in moving away from a reactive and compliance-based approach to sustainable financing, reporting and disclosures, and instead consolidate a strategy-driven approach to unlocking the social impact, climate resilience and enterprise shared-value opportunities presented by our sustainability and Net Zero commitments.
As a founding signatory to the UN Environment Programme Finance Initiative’s Principles for Responsible Banking (PRB), as well as being a signatory to the UN Global Compact, Absa’s Net Zero strategy is aligned with the UN Sustainable Development Goals (SDGs) and the Paris Climate Agreement. The Group plans to maintain its sustainability reporting and disclosures in addition to the prescribed King IV Integrated Report, while ensuring that it incorporates the latest standards and best practices as the need for greater transparency grows. Currently, the following reports are provided:
- Environmental Social and Governance
- Task Force on Climate-Related Financial Disclosures
- Principles for Responsible Banking
Absa Group Environmental, Social and Governance (ESG)
“In the past year we’ve made significant progress in the area of sustainability, which is an integral part of our commitment to being an active force for good in everything we do. This commitment has also seen us accelerating the embedment of environment, social and governance practice across our business,” said Absa Group CEO Arrie Rautenbach.
Due to the severe load-shedding situation in South Africa, our Group has taken the initiative to assist our clients during this trying time. We are working closely with them to discover inventive approaches that can reduce energy usage, improve productivity, and support the reduction of greenhouse gas emissions. Our objective is to aid our clients in reducing the impact of load-shedding on their day-to-day activities and operations, while simultaneously aiding the worldwide mission of mitigating climate change.
We are pleased with the latest tax incentives introduced by South African Minister of Finance Enoch Godongwana, which promote the adoption of renewable energy sources by both households and businesses. This has the potential to increase renewable energy production and alleviate the energy crisis.
We support a Just Transition that addresses Africa’s energy poverty, and we have prioritised the promotion of sustainable and inclusive economic growth, employment, and decent work for all. Several of the countries in which we operate rely on oil and gas sectors for their socioeconomic development. Our objective, therefore, is to aid customers and communities in achieving sustainable and inclusive growth, leaving no one behind by providing services which facilitate the transition and adaptation process, promoting an ethical and inclusive supply chain, and ensuring that stakeholders have a say in our climate change decisions. Embarking on a journey to achieve a Net Zero state by 2050 is an important step toward supporting a Just Transition and a sustainable future.
