South Africa’s Standard Bank faces dilemma over pipeline decision

Having started my journalism career in South Africa, I’ve been following the news from the country over the past year with some concern — from electricity blackouts to August’s tragic fire in Johannesburg (last weekend’s Rugby World Cup win by Siya Kolisi’s Springboks was a rare and welcome feel-good story).

But with its powerful financial and business sector, South Africa could yet play a vital role in helping to drive sustainable development across its continent. That will come with some tough trade-offs, as our interview below with Sim Tshabalala, chief executive of South Africa’s biggest lender Standard Bank, makes clear.

This month I’m heading back to Johannesburg for our first Moral Money Summit Africa on November 21, featuring first-rate speakers and punchy debate on the biggest challenges and opportunities in Africa. Moral Money newsletter subscribers can get a 20 per cent discount on an in-person pass or watch online for free.

Also today, I dig into a new legal opinion that sounds a wake-up call for board directors around nature risks. Have a good weekend. — Simon Mundy

Looming pipeline decision underscores dilemma for South Africa’s biggest bank

South Africa is in the middle of an energy crisis, as mismanagement of its network of coal power plants has crippled electricity supply.

In a recent speech lauding the country’s Rugby World Cup triumph, president Cyril Ramaphosa was forced to acknowledge that rolling blackouts are punishing South Africa’s economy. The energy crunch is bad news for the climate. South Africa’s struggling Eskom state power monopoly might need to delay plans to wind down its old coal plants in order to keep the lights on.

This tension between energy supply and concerns is front and centre for Sim Tshabalala, chief executive of Standard Bank, which is by far the largest lender in South Africa and vies with the National Bank of Egypt for the status of Africa’s biggest bank.

In an interview with us in New York, Tshabalala said that his bank is “of the view that climate issues are the single biggest issue facing our generation”.

But environmentalists are sceptical. Standard Bank is considering whether to work on financing for the $5bn East Africa Crude oil pipeline (Eacop), which will run from Uganda to the Tanzanian coast, and is one of the world’s most controversial energy projects. The bank is currently running an impact study of the scheme that will determine its future participation.  

Even if it does take part, Standard Bank’s role in the project would not be decisive, Tshabalala said. “If we are, for example, not to provide the funding, it will not stop the project,” he said. The pipeline makes economic sense for Uganda and Tanzania, he said, predicting it would ultimately boost the countries’ gross domestic product by 25 and 20 per cent respectively. “The increase in GDP per capita will have a materially positive impact on the quality of life. So that’s the economic argument.”

“As the World Bank argues, countries ought to be entitled to use their fossil fuels if it will have a positive impact on that society. And in the case of Uganda and Tanzania, that is definitely the case,” Tshabalala added.

The profits from fossil fuel could be used to address some of the continent’s most pressing infrastructure problems, he argued. “Half a billion people on the continent do not have [electric] grid power — half a billion — it breaks my heart,” Tshabalala said.

The pipeline is a microcosm of the energy conundrum facing many other countries: whether to pursue economic growth through fossil fuel investments, which will worsen the climate impacts that affect developing nations worst of all. Standard Bank’s decision on the pipeline will be closely watched by other big banks wrestling with that dilemma. (Patrick Temple-West and Jamie Smyth)

The legal threat from biodiversity risk

Some corporate directors may have breathed a sigh of relief in July after a UK judge threw out a case, brought by the non-profit group ClientEarth, that sought to hold board members at Shell personally accountable for the oil major’s alleged failure to address climate risks.

But a whole new can of worms is opening up for board directors, according to a noteworthy legal opinion published yesterday in Australia — this time around nature and biodiversity.

The 20-page opinion — which finds that directors could be held personally liable for breaching their duty of care and diligence if they fail to consider nature-related risks — should be of interest to company directors and lawyers far beyond Australia.

Australian law around directors’ duties is broadly similar to that of other “common law” nations such as Canada, India, South Africa and the UK. The parties that commissioned this legal opinion — investment and advisory firm Pollination and the non-profit Commonwealth Climate and Law Initiative — are planning to seek opinions from prominent lawyers in each of those four countries, with the one from the UK expected to come in the next few months.

One might fairly point out that yesterday’s publication reflects the professional view of just two of Australia’s many lawyers. But as the first in-depth legal opinion on this subject, it’s a valuable indicator of where this conversation is heading.

The lead author, Sebastian Hartford-Davis, co-wrote the influential 2016 “Hutley Opinion”, which asserted directors’ potential liability for climate-related risks and helped pave the way for lawsuits like ClientEarth vs Shell. (It’s worth noting that, while the court spurned that case in part due to ClientEarth’s small shareholding, it did not reject the principle of directors’ liability for climate-related risks. Law firms such as Dentons and Stephenson Harwood have said more cases targeting directors could follow.)

In the new document, Hartford-Davis and his co-author Zoe Bush write that nature-related risk has become more of a threat to directors thanks to a series of developments over the past year.

They highlight last December’s UN biodiversity summit in Montreal, where countries committed to “encourage and enable” greater corporate disclosure of nature-related risks and impacts. A further important move, they added, was the Taskforce on Nature-related Financial Disclosures’s recent guidelines for such disclosures. Central banks and financial supervisors, they note, have also started linking nature-related risks to financial stability.

All of this, the lawyers write, means that the nature-related expectations for businesses — and their directors — are moving fast. That in turn comes with “transition risk”, as companies are confronted with new pressures and requirements from their regulators, investors and customers.

So even without any fundamental change to corporate law, they argue, board directors will face a raft of new responsibilities to study, identify and report on biodiversity-related risks. Directors, whether in Australia or anywhere else, would be wise not to relax any time soon. (Simon Mundy)

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