MAKING

HAPPEN

A THRIVINGSOUTH AFRICA

Nedbank’s long-term goals and response

Atmospheric greenhouse gases (GHGs) are stabilised at a level that gives more than a 50% probability of avoiding a 2°C temperature rise above the long-term pre-industrial average.

Water resources are not being extracted beyond sustainable levels.

The labour force is employed at percentages comparable with those of other prosperous nations.

All citizens have affordable access to energy services essential for development and prosperity.

Not everything that needs to be done can or should be done by a bank.

Therefore, we have identified a number of long-term goals that are relevant for a thriving bank in a thriving society that we believe we can contribute towards by being a great bank. These goals, to be achievedby 2030, are as follows:

All citizens have a�ordable access to clean water and sanitation services.

Levels of saving and investment are

development objectives.

Good health outcomes are consistently being achieved for citizens at a cost that is comparable with that of other nations.

Good educational outcomes are consistently being achieved at a cost that is comparable with that of other nations.

We have calculated that, to achieve these goals between now and 2030, capital equal to 2% of the South African gross domestic product (GDP) will have

the economy annually. Our ‘fair share’ of this equates to our market share of debt provision in the economy. This fair share is additional to all the things we are already doing in areas such as renewable energy, BEE financing and enterprise development – Nedbank is already an established leader in most of these areas.

To get money working for the future we want needs imaginative solutions

with rigorous risk assessment.

The targets as well as lead and lag indicators are currently being developed in consultation with key stakeholder groups.

01 | MAKING A THRIVING SOUTH AFRICA HAPPEN

GOAL 1 Atmospheric GHG emissions stabilise at a level that, according to the Intergovernmental Panel on Climate Change (IPCC), gives a greater than 50% chance of avoiding a 2 °C temperature rise above the long-term pre-industrial average.

Proposed target:

A Science-based carbon budget for South Africa for the period 2015-2029

Climate change has been called the ‘greatest and widest ranging market failure ever seen’ and business-as-usual (BAU) climate change could reduce welfare by an amount equivalent to a reduction in consumption per head of between 5% and 20%.1

The primary objective of the United Nations Framework Convention on Climate Change (UNFCCC) is to ‘prevent dangerous anthropogenic interference with the climate system’. This has been defined as keeping the global average temperature increase below 2 °C compared to the long-term pre-industrial level. South Africa is among 193 countries that have signed this agreement, and has itself made pledges through the international climate negotiations in support thereof.

The concept of ‘carbon budgets’ is a useful way to think about limiting emissions, as there is only a certain quantity of greenhouse gases that can be emitted in order to avoid a 2 °C average temperature increase. The latest IPCC report indicates that for a 66% chance of staying below 2 °C, only 1 009 Gt of CO2 can be emitted between 2012 and 2099.2,3 South Africa (SA) can reasonably lay claim to about 1,5% of this budget. Based on this, it is possible to plot a credible emissions trajectory for South Africa for the remainder of the century and to calculate the corresponding carbon budget up to 2030.

Borrowing the approach followed by the UK government, a succession of five-year carbon budgets can be developed from which Nedbank will calculate what the total emissions of its lending book should be in every five-year period.

1 Stern Review. 2006.The economics of climate change. | 2 Assumptions are made that non CO2 GHG emissions reductions are commensurate with CO2.3 Carbon Tracker. 2013. Carbon Tracker’s carbon budgets Q&A: Everything you need to know to use carbon budgets. carbontracker.org/IPCC_carbon_budgets.

Nedbanks long-term goals and response | 02

GOAL 2 Water resources are not being extracted beyond sustainable levels.

Proposed targets:

Ecological water requirements are maintained in catchment areas

Groundwater is not extracted beyond the rate that it is replenished

South Africa is a water-scarce country with low rainfall and one of the lowest

variation in rainfall and surface water has necessitated the large-scale transfer of water between catchment areas. Most of the economically available yield from surface water resources over large parts of the country has been fully developed and utilised. There is a growing demand for water from agriculture, urbanisation, mining and energy production.

The Department of Water A�airs’ assessment of future development requirements for key urban centres indicates that existing supplies in many of these systems may not meet the future demand of domestic and industrial users. This threat requires various water conservation and infrastructure augmentation interventions, which will result in steadily increasing water supply

costs across the country and an expectation

The National Water Act (No. 46 of 1998) incorporated the idea of an ecological reserve that is intended to ensure a minimum quantity of water to maintain the ecology in a healthy condition. About 9 500 million m3, or 20% of the

ecological reserve across major water management areas in the country.4

The ecological reserve determination is necessary for protection of the resource during the evaluation of water uses, and must be considered when finance decisions are made.

4 Government Communication and Information System. 2012.

GOAL 3 South Africa’s labour force is employed at percentages comparable to other countries.

Proposed target:

Number of jobs created by 2030 to ensure employment rate at global standards

South Africa’s unemployment challenge is well known and is most regularly expressed in terms of the unemployment rate (24,7% in September 2013).5 However, the unemployment rate only counts someone as unemployed if they actively sought work in the last four weeks without success. As such, unemployment figures exclude all of those deemed ‘discouraged job seekers’ who, for whatever reasons, choose not to work. Thus, it hides the fact that for every two unemployed persons (4,6 million) in SA there is almost one discouraged job seeker (2,2 million).6

Therefore, a more useful indicator is the employment ratio, which measures employed persons as a percentage of the working age population.

StatsSA reports on this ratio quarterly. Currently, it is 41,9% (14 million out of 33,5 million). According to the International Labour Organisation (ILO) the global average employment rate in 2010 was 60,2%.7 Based on the United Nations (UN) Population Division’s medium forecast, South Africa may have a working age population of 38,9 million by 2030, which means that almost ten million new jobs will have to be created to achieve a 60% employment rate.

5 StatsSA. 2013. Quarterly Labour Force Survey: Q3. | 6 StatsSA. 2013. Quarterly Labour Force Survey: Q3.7 ILO. 2012. Global employment trends 2012: World faces a 600 million jobs challenge, warns ILO, 24 January.

03 | MAKING A THRIVING SOUTH AFRICA HAPPEN

Nedbanks long-term goals and response | 04

GOAL 4 All South Africans have affordable access to energy services essential for development & prosperity.

Proposed targets:

Access to electricity

Access to transport services

Cost of energy services

Access to energy services, such as heating, lighting, cooling, mobility and communications, is essential to development and human prosperity. There is, thus, a strong historical correlation between primary energy use and economic growth. Currently, the largest contributor of primary energy is fossil fuel (coal, gas and oil), the burning of which releases CO2 and exacerbates climate change, which in turn jeopardises future human prosperity. This creates a real dilemma for human progress.

There is, however, an important distinction between energy consumption and access to energy services – the benefits we typically want from energy use. So, for example, buildings can be designed to ensure a pleasant temperature and adequate lighting during daytime without the need to consume primary energy.

The Institution of Mechanical Engineers has developed an energy hierarchy8 to ensure a sustainable energy system that provides a useful decision framework in this regard:

Priority 1: Energy conservationPriority 2: Energy efficiencyPriority 3: Exploitation of renewable,

sustainable sourcesPriority 4: Exploitation of non-

sustainable resources using low-carbon technologies

Priority 5: Exploitation of conventional resources (fossil fuels)

An increase in access to energy services does not, therefore, necessarily require an increase in fossil fuel consumption. Greater benefits, and improvements in human welfare, can be achieved in a sustainable manner.

Currently, about 80% of South Africans have access to electricity and the goal should be to obtain universal access, although not everyone needs to be connected to the grid.

The cost of energy services, or affordability, is also an important enabler of access. The real price of a kWh of electricity in the United States declined by 98% from 1900 to 2000.9 Energy costs have, however, increased significantly in real terms in South Africa over the last few years, with electricity prices escalating by 207% since 2008 and the petrol price by 77%. Globally, the cost of fossil fuels has increased significantly over the last decade.

8 imeche.org/knowledge/policy/energy/policy/the-energy-hierarchy. |9 Vaclav Smil. 2000. Energy in the Twentieth Century: Resources, Conversions, Costs, Uses, and Consequences.

GOAL 5 to clean water and sanitation services.

Proposed targets:

Access to clean water and improved sanitation services

Minimum water requirements at

Access to clean water and sanitation facilities is essential for ensuring a healthy, prosperous population. Not only do we need to drink water to survive, it is also crucial for good health. The UN World Water Development Report of 2009 estimated that 10% of the global disease burden could be reduced through improved water supply, sanitation, hygiene and water resource management.10 Diarrhoea, often caused by inadequate access to clean water, is responsible for 11% of the deaths in under-fives in South Africa. 11

The South African Department of Water

water and sanitation as a potable water supply of 25 litres per person per day within a cartage distance of 200 metres, and a ventilated improved pit latrine. Based on these definitions, 93% of South Africans have water access while only 79% enjoy access to sanitation. 12

10 UNESCO. 2009. World Water Development Report: Water in a Changing World | 11 Medical Research Council.12 Government Communication and Information System. 2012.

05 | MAKING A THRIVING SOUTH AFRICA HAPPEN

GOAL 6

Nedbanks long-term goals and response | 06

South Africa has a level of

its national economic development objectives

Proposed targets:

National savings rate

Gross capital formation rate

In order to achieve a preferable future with superior socioeconomic outcomes than in a BAU scenario, significant changes need to be made in the South African economy. Some of these changes are legislative and behavioural, but significant capital investment will also be needed. This would include inter alia expansion of renewable energy capacity, public transport and more sustainable buildings. The average gross capital formation as a percentage of the GDP for upper-middle-income countries is 32,7%, compared to South Africa’s 19,4%. Fast-growing emerging economies, such as India and China, are at levels of 35% and 48% respectively.

Related to this is the domestic savings rate as a percentage of the GDP as this is an important source of funding for capital formation. South Africa’s savings rate in 2012 was 16,4%, the lowest in two decades, while the average savings rate in upper-middle-income countries was 33,3%.13

The South African National Development Plan has indicated targets of 30% for capital formation and 25% for the savings rate.

13 The World Bank. 2014. World Development Indicators.

GOAL 7 South Africa is achieving good health outcomes for its citizens at a cost that is comparable to other nations.

Proposed target:

Life expectancy and infant mortality rates vs. per capita health expenditure close to norm

There is a positive correlation across countries between income levels and healthcare outcomes such as life expectancy and infant mortality. South Africa is considered an upper-middle-income country, with per capita incomes slightly above the average for this grouping. The country’s health outcomes are however considerably worse than this grouping. This is due to a very high disease burden, especially HIV.

Life expectancy at birth in SA is 55,3 years compared with 74 years for upper-middle-income countries, while infant mortality in SA is 33,3 per 1 000 live births compared with 16,9 for this grouping.14

These statistics arise despite the fact that SA spends more in absolute and relative terms on health care than its peer group. Significant improvements will have to be made in the areas of prevention and general wellness to improve health outcomes in South Africa.

14 The World Bank. 2014. World Development Indicators.

07 | MAKING A THRIVING SOUTH AFRICA HAPPEN

Nedbanks long-term goals and response

GOAL 8 South Africa is achieving good educational outcomes for its citizens at a cost that is comparable to other nations.

Proposed targets:

Percentage of students who complete 12 years of schooling

Participation rate in tertiary education, especially higher education

South Africa spends about 18% of its government budget on education, but the country’s educational outcomes are very poor. While some people do not have access to education due to funding constraints, particularly for higher education, the implementation of zero-fee schools have ensured that the gross enrolment ratio for primary education in the country is about 93%.15 Access to education is thus not the country’s biggest concern; rather it is the educational outcomes achieved for the level of expenditure.

Although the matric pass rate improved to 78,2% in 2013, less than 40% of students complete Grade 12. Of those who pass matric, only 30% quality for studies at higher education institutions. This means that there is only a small pool of people who can successfully contribute in a modern, competitive, knowledge economy.

This lack of skilled human capital is one of South Africa’s greatest challenges and is widely seen as an inhibiting factor for economic development.

15 Department of Basic Education. 2013. Education Statistics in South Africa 2011.

Nedbank 135 Rivonia Campus135 Rivonia Road Sandown Sandton 2196PO Box 1144 Johannesburg 2000 South AfricaEmail Fairshare2030@Nedbank.co.zafairshare.co.za

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