Standard Bank AGM a ‘watershed’

The board of every bank in South Africa should have started this week with a new item on its to-do list: publishing its policy on lending to coal-fired power projects and coal mines. A shareholder resolution to exactly that effect was passed at Standard Bank’s AGM last week, and there is no question that similar requests will be made to every other bank in the country.

Read: Standard Bank shareholders defy board in vote for greener disclosure

“There are of course other banks in South Africa financing coal and fossil fuels, so [the] next step is to table resolutions at each of those banks’ AGMs along similar lines to this one,” says Tracey Davies, the executive director of NGO Just Share, which supported the resolution.

Instead of waiting for this to happen, it makes sense for all of Standard Bank’s peers to get ahead of the issue and do it voluntarily. It may even be an opportunity to gain a competitive advantage.

“I think there is definitely a leadership position to be adopted,” says Rob Lewenson, head of ESG engagement at Old Mutual Investment Group. “There will be a first-mover advantage.”

Significant support

For Lewenson, the adoption of the resolution at the Standard Bank AGM was a ‘watershed moment’ in the South African market:

“It was probably the first environmental-type resolution posited by shareholders, so it was significant from that perspective, but also to the degree in which there was support shown for it by the institutional investment community.”

The resolution was passed with over 55% of shareholder support. For Brad Preston, head of listed investments at Mergence Investment Managers, which also voted in favour, this was a significant number, particularly for a large cap company.

“It’s very hard to move the needle on these types of resolutions, so to get the numbers they did was phenomenal,” Preston says. “I think it probably will have an influence on corporate governance in South Africa. It makes the next one of these a lot easier.”

Next in line

In addition to asking all banks to meet similar disclosure requirements, it’s not difficult to guess which other companies shareholders are likely to approach.

“The obvious next targets are the fossil fuel intensive industries – companies that emit significant amounts of carbon,” says Davies.

That means those involved in industries such as cement, steel production, mining, and oil and gas. For shareholder activist Theo Botha, who proposed the shareholder resolution at the Standard Bank AGM, a precedent has now been set that other companies cannot ignore.

“All we are really asking for is better disclosure,” he says. “I can’t engage with you if I don’t have the information. It’s only when you put your policy out can I actually engage with you on that policy.”

Lewenson agrees that there is definitely scope for shareholders to now approach listed companies in the other industries to ask them to report on how they are assessing their exposure to climate-related risks.

“It should almost be a given that every listed issuer with a big carbon exposure should have to give deep thought to what that exposure will look like,” says Lewenson. “That means not only the impact of their own operations, but the impact of climate change on their investment strategy or business strategy going forward.”

A door has been opened

This doesn’t mean shareholders are now going to run to every company proposing similar resolutions. It has, however, opened the door by showing that this is an option that can be exercised, and that there is enough investor appetite to support it.

Preston points out that what transpired at the Standard Bank AGM shows that these issues are of significant concern to a large number of shareholders. He believes it will follow that more companies will be asked to improve their disclosure, and once that is achieved, they will be asked to change their behaviour.

“A lot of work has been done globally and in South Africa around disclosure on emissions,” says Preston.

“The next logical step within climate change is for shareholders to put forward resolutions for companies to actually have mitigation plans in place and targets on impact reduction.”

The coming transition

As Davies explains, this is not about radical changes that will immediately threaten jobs and company operations. However, if steps aren’t taken now, the sustainability of those jobs and companies will be at risk.

“There is going to be a transition, whether we want it or not,” she says. “If we don’t have a plan there is going to be a cliff edge, at which point all of the problems people seem to think that coal is the solution to at the moment will suddenly get a lot worse. So if you don’t have a plan to transition coal workers into other industries, to decommission power plants, to replace those with renewable energy, and to sufficiently incentivise and finance renewable energy, we are going to be in much bigger trouble than we are in now.”

The result from the Standard Bank AGM is unquestionably going to open up this debate. For that, Botha believes that the bank and its CEO Sim Tshabalala deserve enormous credit.

“It’s now going to be easier for shareholders to start putting forward resolutions,” Botha believes. “I think this has changed the landscape, and boards need to sit up and take cognisance of that.”