Managing social and environmental risk

The year 2023 has been a year of driving environmental, climate and especially nature considerations in business in alignment with global best practice.  Nedbank has taken an integrated risk management approach toward becoming climate resilient. Through our ERMF we have established a comprehensive process to identify and assess climate- and environmental related risks and integrate these risk considerations within our business across the group. This approach impacts how we  mitigate risks through our financing and pursue opportunities related to adaptation financing.  

Aligned to our focus on nature, Nedbank adopted a new exclusion in 2023, prohibiting finance for any activities prohibited by national legislation or international conventions. This is in relation to the protection of biodiversity resources or conversion or degradation of protected areas or critical habitat regardless of technology or country or to any project or operation that may destroy or degrade South African protected and conservation areas listed in the South African Protected Areas Database and South African Conservation Areas Database.

Other exclusions from finance include socially and environmentally controversial industries such as:

• Shale oil and gas;
• Arctic oil;
• Tar sands /oil sands;
• Extra heavy oil;
• deep water offshore well project or operations for oil or gas; and
• Coalbed methane.

Nedbank’s key objectives in managing social and environmental risk (including climate risk) include the following:

• Reducing the social and environmental impacts of our own operations, also in the facilities we occupy.
  
• Managing our indirect impacts through responsible lending by ensuring that the social and environmental risks of the projects and investments our clients undertake are adequately assessed and addressed.
  
• Anticipating risk through developing scenarios, monitoring and managing the impact of climate risk on our operations, our business activities, the activities conducted by our clients and the  communities in which we operate, in accordance with our CRMF.
  
• Ensuring alignment and mapping with the group’s strategic goals and supporting the business objectives linked to the SDGs as set out in the Nedbank strategy.

Climate-related risks associated with the lending process involving funding for projects are managed through the Social and Environmental Management Systems (SEMS) process. We continually transform and mature our SEMS from learnings taken from regular interactions with the Taskforce on Nature related Disclosures, the African Natural Capital Alliance, peer learning sessions organised by the Embedding Project, and the United Nations Environment Programme Finance Initiative (UNEPFI)’s Africa and Middle East Regional Coordination Programme. The materiality of social and environmental issues was further guided by the various indices that Nedbank participates in, such as the FTSE4GOOD, Dow Jones World Sustainability Index and Sustainalytics. 

Nedbank's environmental compliance:

• Total Number of Environmental Incidents  - 0
• Total Number of Environmental Fines and/or Non-Compliances - 0
• Total Number of Environmental Complaints - 0
• Total monetary losses from legal proceedings associated with environmental regulations - R0.00
• Total monetary losses from environmental law violations - R0.00
• Certified ISO14001: As a financial institution we align to the standard, but due to our limited operational impact not certified.
• Percentage of the suppliers' operations covered by the ESG criteria 100%
• Metrics on supplier non-compliance with environmental expectations - 0
• Metrics on corrective actions to mitigate suppliers' non-conformance regarding environmental issues - 0
• Significant negative environmental impacts identified in the supply chain - 0 - As a financial institution our suppliers do not have a significant impact on the environment.

Social and environmental policy

Our formal environmental policy confirms our group's commitment to an environmental protection and conservation culture in our operating environment and with all the parties with which we have a business association including, but not limited to, clients, suppliers and contractors.

We therefore recognise environmental management as an important area of corporate performance and accept that responsible business management is a crucial part of sustainable development. 

The policy is aligned with the philosophy of conducting business in a responsible, fair and honest manner and in keeping with government's efforts to protect the environment. The purpose of this policy document is to formalise environmental management in the group and to give guidelines for the introduction, development, maintenance and exercising of proactive environmental management processes and procedures. The guiding principles are that the group:

• recognises the importance to be sensitive to the environment in its business operations;
  
• will address possible risk areas and operational resource efficiencies related to its activities at facilities that it occupies;
  
• realises its responsibilities for sensitive and protected areas, the national estate and world heritage sites where some of its facilities are located;
  
• will address the environmental effect of its lending and financing activities in a responsible manner;
  
• is committed to comply with all environmental legislation and regulations applicable to its operations, as well as incorporating best practice, where appropriate;
  
• supports the precautionary approach to environmental management that strives to anticipate and prevent potential environmental degradation;
  
• recognises that environmental management must place people and their needs at the forefront of its concern, and serve their physical, psychological, developmental, cultural and social interests equitably; and
  
• recognises that, as a financial services institution, its most significant environmental risk may arise indirectly from the environmental impact of third parties such as its clients, investments and business partners. Although we cannot prescribe environmental management policies to our clients, we will encourage sound environmental management and compliance with legislation and regulations. 

Social and environmental policy

Social and environmental management system

We actively manage 17 risk categories, and primary exposures to these risks resulting from lending and investment activities. These risks are managed actively by using SEMS and ensuring that the bank is aligned with industry best practice and the appropriate environmental, social, and human rights benchmarks. Nedbank has developed an independent social-and environmental risk assessment, with assessment criteria aligned to relevant Equator Principles (EP) and International Finance Corporation (IFC) Performance Standards .All client-facing credit risk reviews and new applications include the screening of high-risk clients and EP relevant deals through the SEMS process. Climate related risks are integrated into the existing SEMS process to ensure that they are assessed when granting credit.

All transactions in high-impact sectors, such as mining, oil and gas, agriculture, waste, property and water infrastructure, must receive social and environmental sign-off before the credit committee considers financing in line with the SEMS governance process, industry best practice and environmental, social and human rights benchmarks. We continue with our partnership approach to all sensitive investments, working closely with our clients and relevant authorities to maximise benefits and minimise the negative impacts of these activities.

Nedbank developed policies, procedures, workflows and appropriate governance for lending activities across the bank which support the effective implementation of SEMS. The SEMS supports the operationalisation of the Nedbank Energy Policy to ensure deals honour the limits set for the funding of new thermal coal projects, ie thermal coal mining, thermal coal-related infrastructure, and thermal coal-related trade. Nedbank has set a restriction on total coal mining lending to 1% of total group gross loans, with the intent to reduce the exposure to 0,5% by 2030. During 2023 the SEMS process was applied across various business units within our organisation. The most significant applications of SEMS were as follows:

• In our CIB divisions all new applications and credit-risk reviews of high risk transactions were included in the SEMS assessment process, which was externally assured.  A total of 579 deals (excluding property finance) were assessed in CIB, compared to 610 in 2022. In Property Finance, 1 805 deals were assessed, compared to 1 345 in 2022.
  
• A risk-based approach was adopted in Retail and Business Banking (RBB) due to the large number of clients. Clients are required to disclose any negative environmental or social impact their activities might have, and such disclosures are assessed through the SEMS process. If necessary, mitigating actions are taken. In our RBB Commercial Banking operations we have identified and defined  environmental and social high-impact industries. In 2023, 1 695 clients involved in these sectors were assessed, compared to 1 174 in 2022.
  
• In the Nedbank Wealth business most of our social- and environmental-risk exposure results from clients’ acquisition of industrial and commercial properties that could present asbestos or land contamination concerns. The total number of clients assessed in 2023 was 161 compared to 129 in 2022.
  
• We extended the coverage of our SEMS process to our African regions during 2023.

Social and environmental management system policy

Human rights statement

The Nedbank Human Rights Statement exists as part of our commitment to uphold human rights in business. The John Ruggie Guiding Principles highlight the business case for implementing human rights in business, in that this will allow us to:

• protect our values by recognising that implementing human rights in business is the right thing to do;
  
• protect our bottomline by doing human rights due diligence that is part of effective risk management;
  
• create new business opportunities that raise the bottomline; and
  
• follow an integrated sustainability approach aligned with global social norms to do sustainable business.

This statement aligns us with international best practice by values-driven organisations and informs our work towards building Africa's most admired bank. The focus on human rights in terms of King VI demonstrates that the board 'leads Nedbank ethically for sustainability in terms of the economy, environment and society, taking into account its impact on internal and external stakeholders'. 

Key human rights principles guide all decisions and actions in terms of the following:

• Employees: We fundamentally respect and promote the rights of our employees and always strive to create an environment where these rights are upheld. This is strongly reflected in our employment policies and values and in the Nedbank Code of Ethics.
  
• Financial inclusion: We believe in the empowerment of individuals through financial inclusion and are committed to delivering financial services at reasonable costs to previously disadvantaged and low-income segments of society.
  
• Clients and suppliers: We believe that relationships with clients and suppliers are vital to human rights practices. We seek to associate with parties that have and practise the same values and principles.
  
• Procurement: The Nedbank Supplier Code of Conduct is included in all supplier contracts to make sure that suppliers adhere to the relevant employment legislation. In our efforts to share best practice for human rights, we seek to influence human rights actions and behaviours positively with all participants in our supply chain. 
  
• Clients: We follow stringent anti-money-laundering legislation to make sure that we know our clients and do not promote or support bribery and corruption in any form. Our participation in the Human Rights Compliance Assessment ensures that we assess all transactions against good human rights practices.
  
• Community and environment: We are prudent about the effect we have on the communities in which we operate. We try at all times to support and promote a society based on the Universal Declaration of Human Rights.
  
• Government: We recognise the pivotal role of the state and the government in protecting human rights, but we also acknowledge the role business plays as a responsible corporate citizen as well as the importance of compliance with applicable laws.
  
• Host countries: In our international operations where legislation is more stringent, the host country's legislation will apply in addition to the Human Rights Policy. If there is significant conflict with this policy, we will adhere to legislation but seek to create the awareness and, through the example of best practice, try to influence the status quo for the better. Conflicts may preclude certain relationships or transactions.
  
• Provider of financial services: We do not tolerate any form of corruption, including extortion and bribery. Product development takes into consideration human rights requirements and the proper evaluation of risks. We also refer to the Anti-money-laundering Control and the Combating of the Financing of Terrorism and Related Activities Policy.
  
• Due diligence: Our commitment to international best practice includes managing our business operations with due diligence. All stakeholders must align to the group policies, procedures and best practice commitments. 

Human rights statement

Sector guidelines

We have found that many of our clients are unaware of the social and environmental legislation applicable to them and their operations, and of the devastating effect that non-compliance with the legislative requirements could have on a company's operations and sustainability. We have therefore developed sector guidelines that focus on high-impact industries to provide legal certainty and awareness. We developed guidelines for the agriculture, oil and gas, and waste management and recycling sectors. In addition, specialised impacts or sensitive receptors have been considered in the following sector guidelines:

• The Hazardous Substances, Asbestos and Contaminated Land Sector Guideline - addresses the risk of 'lender liability', which results from financing operations that cause land, surface and underground water pollution. The Guideline aims to create awareness among businesses and clients of the risks associated with high-impact industries that operate using hazardous raw materials and manufactured products, or cause by-products and waste that may cause pollution.
  
• The Heritage Sector Guideline - considers both objects and sites. As a social risk heritage property is regulated under the National Heritage Resources Act, which requires permits before any heritage object can be alienated or leave the country, or before any heritage site can be changed or demolished. We are conscious of the cost of non-compliance for clients, which could include substantial fines or directives of reinstatement. An asset can even become a stranded asset if it is not fit for the purpose for which the client bought it, and if the client is unable to reconstruct it for that purpose.
  
• The Natural Capital and Biosafety Sector Guideline - we recognise that we have an important part to play in the country's natural capital sector, and we work to help make sure that the sector operates in a sustainable manner. By critically selecting clients to include in our investment and lending portfolios and leveraging mechanisms to minimise their negative impact through global best practices, we deliver on our responsibility to promote sustainable economic growth in SA.

These guidelines are based on international best practice and local environmental legislation. The aim is to give client-facing staff a simple reference guide to facilitate conversations with clients about legal requirements and the risk that non-compliance poses for them and us.

Sector guidelines

Grievance procedure for the public

In keeping with our commitment to enabling effective dialogue with our stakeholders, we formalised a grievance procedure for external stakeholders. The public, affected communities and NGOs can now submit queries or concerns about environmental and social aspects of projects that we finance, directly to us, and receive a timely response. Email any social and environmental concerns to the executive head of sustainability at brigittebu@nedbank.co.za.