The impact of climate change on the financial performance of companies is of concern
to bank credit processes. The main objective of this research was to develop a South
African contextualised credit process that incorporates environmental risk. The
research methodology comprised of a mixed-method being content analysis – the
qualitative portion and the Probability of Default prediction using a Merton Model and
the Hoffmann and Busch (2008) carbon risk analysis model - the quantitative portion.
A content analysis of the banks’ Annual Reports, Integrated Reports and
Sustainability Reports showed that, while South African banks follow a qualitative
approach to embedding environmental risk into their credit process, none of the four
banks that formed part of the study divulged their quantitative approach to embedding
environmental risk. The study used a proximity matrix method to examine the level of
embedding.
The second part of the study, which used prior studies as the benchmark, adopted the
following: (1) a simulated carbon tax regime as a proxy for an environmental risk, and
(2) the Hoffmann and Busch (2008) carbon risk analysis tool and the Merton Model
(1974) as the bank credit process proxies. The second part of the study used a sample
of 33 JSE-listed Carbon Disclosure Project reporting companies out of a population of
107.
The carbon risk analysis showed that the companies in the materials and energy
sector have a high carbon risk. However, the results from the Merton Model showed
that the companies have enough profit to cushion the additional carbon tax liability,
given the insignificant shift in probability of default between the three scenarios, where
financial data had (1) no carbon tax, (2) was adjusted for a carbon tax with incentives,
and (3) adjusted for carbon tax without incentives.
Triangulation of the results from the content analysis, carbon risk analysis and the
probability of default analysis confirms that South African banks do not fully integrate
environmental risk across the credit value chain or process in the 2010 to 2017 period.
However, the carbon risk analysis shows a heavy dependency on carbon sources for
critical inputs into the South African companies’ production processes, which if not
checked, will affect the credit portfolios of banks. / Finance, Risk Management and Banking / D. Phil (Management Studies)
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:unisa/oai:uir.unisa.ac.za:10500/27249 |
| Date | 09 1900 |
| Creators | Bimha, Alfred |
| Contributors | Marx, Johan |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | 1 online resource (xii, 248 pages) : color illustrations, color graphs, application/pdf |
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