The South African Reserve Bank (Sarb) has instructed banks under its supervision to enhance their resilience against climate risks, ahead of new regulatory guidance due to be published next year.
A prudential policy communication published in early July revealed that Sarb will begin monitoring how supervised financial institutions have approached the integration of climate risk into their governance, risk management and reporting processes. The central bank says the guidance it is developing will be in line with international best practice.
South Africa’s banks have come under heavy criticism for their outsized role in funding high- carbon sectors. A report last year found that financial institutions in the country gave at least US$8.4bn of support to fossil fuel projects and companies between 2016 and 2021.
An RBSA survey published in October revealed that 59% of the country’s largest financial institutions had never discussed climate-related financial risks at board level, and 61% had no policy on climate risks.
The prudential communication says Sarb expects supervised institutions to identify important climate-related information to be disclosed to stakeholders and include it as part of their disclosure frameworks. It adds that the Task Force on Climate-related Financial Disclosures (TCFD) could serve as an important guideline in this respect.
The document makes reference to the social risks that may arise during the green transition, an issue climate advocates have urged central banks to engage with.
“It is important to consider the potential social risks that may arise as a consequence of the behavioural changes required to reduce greenhouse gas emissions,” it says. “These include for example impacts on societies, communities and individuals that may be strongly tied to certain economic activities.”
Although South Africa has a large and well-established financial sector relative to the rest of the continent, Sarb has been outpaced by some of its peers when it comes to integrating climate considerations into its supervision. The Bank of Kenya and Bank of Mauritius have both published binding guidelines, with the latter opening a climate change centre last year.
Sarb has yet to carry out a comprehensive climate stress test, but it recently added a climate change risk add-on to the common scenario stress test it periodically conducts on the six systemically important banks in the country.
This page was last updated August 11, 2022
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