South African banks footprint in SADC mining projects: environmental, social and governance principles

South African banks footprint in SADC mining projects: environmental, social and governance principles

Environmental,  social  and  governance  (ESG)  concerns  are  an  increasingly  important  factor worldwide for banks when they invest in large projects. In the Southern African region with its rich mineral deposits, this trend has added importance. Mining companies extract minerals from the ground, and their activities routinely give rise to public concerns about the pollution of water sources, adequate land for agriculture, and fair community participation in mining projects. South African law accepts that the directors of corporations such as banks have fiduciary obligations to act in the best interests of shareholders.

Given the importance of mining activity to economies in Southern Africa an important question aligned to this fiduciary duty is this: Are banks when conducting business obliged to act in the best interests of stakeholders affected by the activities of the mining companies they fund? The trite response is that banks have recognised their obligations to communities through their commitment to SRI (socially responsible investment) practices and internal ESG processes that ensure that their funding decisions result in no harm to communities.

This paper sets out to critically consider the effectiveness of ESG principles implemented by South Africa’s banks when they fund mining projects in the SADC region. There are internal differences  in  ESG  principles  between  banks,  and  a  variety  of  funding  methods  to  which  the principles  are  applied. The study evaluates the ESG frameworks used by each bank and, given the significant market share, aggregates this information to present a picture of the effectiveness of  these  frameworks. The approach taken is a critical one, meaning that what is presented in bank annual reports and sustainability reports is not merely accepted, but (to the extent possible) internal ESG risk frameworks are interrogated for adequacy of application by banks when funding mining  projects. The effectiveness of the implementation of internal ESG  procedures  by banks is then measured against available evidence. This evidence includes the effects of mine project  funding  decisions  of  banks  on  ESG  categories  as  ascertained  from  public  information.  

After consideration of the evidence, observations and conclusions are provided on the analysis. In the closing section, recommendations are provided on areas for possible focus to improve the effectiveness of ESG principles used by banks in the SADC region.

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