Integrated Environmental, Social and Governance Analysis of Nedbank Group Limited

IVAN DIAZ 16360613 phi.designer@gmail.com 0826529423

SUBJECT: BUSINESS ENVIRONMENT

Number of pages: 11 Due date: 30TH July 20112 Group: MBA Modular E1 2010 Lecturer: Jako Volschenk, Arnold Smit
Office use only: Date received:

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Wordle executive summary

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Table of contents
Table of contents List of tables List of figures List of appendices List of acronyms and abbreviations 1 NEDBANK GROUP INDUSTRY AND CORE BUSINESS 1.1 SUSTAINABILITY TRENDS IN THE BANKING SECTOR 2 ESG NEDBANKS DUE DILIGENCE 3 GENERIC TYPES OF COMPETITIVE ENVIRONMENTAL STRATEGIES FRAMEWORK 4 CONCLUSION AND RECOMMENDATIONS 5 REFERENCES ii iv v vi vii 1 2 3 5 10 12

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List of tables
Table 2.1: Big Four Corporate and Social Responsibility (CSR) assessment Table 2.2: Nedbank Equator Principle Deals 2007-2011 Table 3.1: Nedbank Sustainability Cost-Benefit summary Table A.1: ESG DD Questionnaire 4 5 8 14

List of figures
Figure 1.1: Nedbank Historic timeline. Figure 2.1: UNGC Issue Area Coverage Nedbank 2012 (Self assessment). Figure 3.1: Generic Competitive Environmental Strategies. Figure 3.2: Nedbank Sustainable Value Framework. 1 4 7 9

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List of appendices
APPENDIX A ESG NEDBANK due diligence based on cdc group TOolkit APPENDIX B Nedbank SUSTAINABILITY AND GOVERNANCE INITIATIVES 14 18

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List of acronyms and abbreviations

AA1000APS CDC CDM CDP CES CSI CSR DFI EP ESG GHG GRI ILO IFC IRC IIRC ISO KPIs MDB NGOs PFMA RED SA SEMS UN PRI UNEPFI UNGC WWFCP GTSC AccountAbilitys Principle Standards Commonwealth Development Corporation UK Clean Development Mechanism Projects Carbon Disclosure Project Competitive Environmental Strategy Corporate Social Investment Corporate Social Responsibility Development Finance Institutions Equator Principles environmental, social and governance matters greenhouse gas Global Reporting Initiative International Labour Organisation International Finance Corporation Integrated Reporting Committee International Integrated Reporting Committee International Standard Organisation Key Performance Indicators Multilateral Development Banks non-governmental organisations Public Finance Management Act Record of Employees Dismissed for dishonesty South Africa Social and Environmental Management System United Nations Principles for Responsible Investment United Nations Environment Program Finance Initiative United National Global Compact World Wildlife Fund Conservation Partnership Group Transformation and Sustainability Committee

NEDBANK GROUP INDUSTRY AND CORE BUSINESS

The Nedbank Group Limited is a centenary bank-holding institution, grown to become part of Big Four group in South Africa, currently standing as the smallest of the group in terms of market capitalisation, with Nedbank Limited as its main subsidiary. The groups shares were listed on the JSE for the first time in 1969 and at the Namibian Stock Exchange in 2007 (Nedbank, 2012). The Groups three main financial services are wholesale and retail banking; insurance and asset management, which are offered through five business groups covering the entire spectrum of banking services in the local industry, namely: Capital, Corporate, Business, Retail and Wealth clusters; focusing its regional offer in Southern Africa and recently Pan-Africa through an alliance with Ecobank lnc., while positioning it self as the leading bank in terms of sustainability and client centred focus (Nedbank, 2012). Figure 1.1, highlights specific events during the groups last seven years, plotted along the banks share price at the end of each year.

Figure 1.1: Nedbank Historic timeline. Source: Nedbank, 2012 and McGregorBFA, 2012. In terms of the financial sector, according to Matoti (2010:10), the South African banking industry has endured and intense transformation in the past a few decades. Nonetheless, particularly well advanced and close to those in industrialised nations. It is for the most part perceived as a worldclass industry, with satisfactory capital assets, innovation and infrastructure and a solid administrative and statutory environment. This unyielding regulatory framework is considered to be responsible of having safeguarded the sector from the worldwide financial crises initiated in 2008.

South Africa, nonetheless, was faced with a financial decline during 2009, which affected customer spending behaviours, resulting in higher reluctance to undertake more debt obligations. Consequently, the non-performing loans increase had a big impact on the financial institutions books. The aggregate assets and liabilities declined in 2009 but have begun to increase as the nation is moving out of recession, while the banking sector continued to apply stricter loaning measures as a consequence of the implementation of the National Credit Act in 2007 (Matoti, 2010:11) Bishop (2011:11) is of the opinion, that business confidence has started to climb in South Africa, with the Rand's robustness providing a lift as foreign speculators are acquiring higher-yielding assets such as SA securities, and domestic growth turned out at 3.1% y-o-y. Local private sector spending and Capex are anticipated to grow, the former determined by pure salary-wage increase and unsecured lending, and the latter driven by government and parastatal public spending. These factors, together with the fact that SA financial institutions remained well capitalized, profitable and with good levels of liquidity and debt ratios over the past years, shield by the tight government exchange controls have reduced the risk of future downward trends and euro-zone debt crisis contagion. 1.1 SUSTAINABILITY TRENDS IN THE BANKING SECTOR

While for quite some time, Private Banking was perceived as environmentally neutral, this condition has radically changed in recent years. While this neutrality might appear so in terms of their internal operations, the impact on the environment caused by their financial decisions has increasingly become more evident, as ultimately, these institutions are responsible for defining and adhering to policy frameworks, which purposefully reject or favour certain kinds of investments (Dash, R. 2008:26). In addition to this, and according to the Water Financial (2010) amongst others, the level of corruption and poor financial practices unveiled by the 2008 crisis negatively impacted the general public view upon financial institutions. All of this factors, have been intensified by an increasing awareness by the general public about sustainable practices, environmental impact and social inequalities, which have pushed financial institutions to rethink and revaluate their commercial proposition. Whereas these issues have only recently become private banking institutions broad concerns, Nedbank adherence to these principles can be tracked back to 2004, where under the leadership of Tom Boardman, the Values and Brand (SVB) workshops were introduced. Back then, through this workshops, the Deep Green values were presented to the stakeholders (Barrett, R., 2009), aiming to translate and expand the banks financial services into the creation of added value by endorsing ESG initiatives, and a diversified portfolio of products in health care, alternative energy, fair trade, social dwelling, and community micro businesses.

ESG NEDBANKS DUE DILIGENCE

In order to perform the due diligence (DD) on ESG matters for the Nedbank Group, this paper will base its analysis on the comprehensive framework provided by the Commonwealth Development Corporation (CDC) UK government owned development finance institution. The ESG CDC Toolkit for fund managers was developed in order to provide an indication to their partners on how successful ESG standards could add value on their investment processes. According to the CDC Group (2011), the first point a DD ought to evaluate is if an organisation is compliant with all important laws and regulations, including a review of information available for the general public in order to examine the business worthiness or lawful debates, in terms of environmental, social and governance issues. Appendix A, provides the DD questionnaire that was followed in order to assess the ESG standing of the Nedbank Group. Due to evident constraints, the sources of research were limited to Nedbanks 2010 and 2011 Annual Reports, as well as information available on the Internet. The DD questionnaire findings were triangulated against the United Nations Global Compact Self Assessment Tool and the B-Corporation CRSHub assessment in order to gather a more unbiased assessment. The comprehensive and detailed DD executed, puts in evidence that the Nedbank Group has very high and very well standardised ESG reporting standards. As can be seen in Appendix A, there were very few areas in which the group does not have a policy or initiative in place in order to communicate either internally or externally their corporate social and environmental strategies. Out of the 62 questions only three points came out under question, being these the No Local adherence to the Fundamental ILO Conventions; the Large or serious law suits and the Media references to illegal or disreputable activities, which are described in detail below. The former issue, is acknowledged in their UNGC Communication on Progress statement (2012), were under Criterion 9, reference to pertinent worldwide conventions and other global instruments such as ILO Core Conventions is shown unmarked and the whole Labour chapter is self assessed as the lower area covered out of the four evaluated as shown on Figure 2.2.

Anti-Corruption Environment Labour Human Rights

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 2.1: UNGC Issue Area Coverage Nedbank 2012 (Self assessment). Source: UNGC, 2012. Out of the other Big Four banks in SA, only FirstRand Group participates in the UNGC, so no meaningful comparison could be established against the local competitors. Nevertheless, is worth mentioning that the FirstRand report is remarkably less comprehensive and the mere fact that no other local financial institution participates in this initiative could be interpreted as an indication of the level of commitment and leadership that Nedbank has in the local sector. This assumption is supported when we analyse the ratings given by the B-Corporation CSRHub against the other larger South African banks, as seen on Table 2.1 below. Table 2.1: Big Four Corporate and Social Responsibility (CSR) assessment

Source: CSRHUB, 2011 and Rea, M. 2011 Whereas the Big Four rating are higher than the local sector, it is evident that Nedbanks ratings are consistently superior against its peers, across the all dimensions. The heat map used to display the scores, also highlights the fact that Community, Employees and Environment categories are the areas of leaser performance by the industry, whilst Governance, including areas such as board composition, compensation, transparency and reporting receive higher overall attention by the financial sector. The second issue, Large or serious law suits, is brought forward because if the dispute raised by ABSAs determination to go to court in an attempt to recuperate more then R 773m from Nedbank for claims in losses endured after the Pinnacle Point Single Stock Futures (SSF) took over, being this the first time such a big claim is made between institutions belonging to the Big Four cluster. Absa's summons blamed Nedbank for breaking the principles of the Takeover Regulation Panel, the Competition Act as well as the Banks Act. stating that Nedbank did not get authorization from the regulator nor the Competition Tribunal to acquire Pinnacle Point (Kamhunga, 2012); and while Nedbank effectively contended in a hearing against the Securities Regulation Panel in 2010 that it was only an intermediary with no intent on attaining control of Pinnacle (Bonorchis, 2012), the damage to the public image was already inflicted. The final point worth mentioning was identified by the Media references to illegal or disreputable activities question under business integrity, in the CDC DD template. This, with reference to the report published in 2011 by a group of NGOs, namely Urgewald, GroundWork, Earthlife Africa and

BankTrack, were the portfolio of 93 financial institutions was examined in order to identify the main coal sponsors and lenders; proving, according to the authors (Schcking, Kroll, Louvel, & Richter, 2011) the first comprehensive climate ranking for financial institutions. The report, was subsequently used by the Mail & Guardian (Baillie, 2012) to denounce Nedbanks ranking at 76 in the list, with a total of 85 million euros invested in Eskom operations since 2005, something the author found as enough evidence to blame Nedbank for Greenwashing, forcing the Group to emit a media release in which the bank supported its investments claiming carful consideration to ESG issues based on the Equatorial Principles and a constant engagement with its clients in order to minimise operational impact, advise on investments on energy efficient sources and renewables and mining rehabilitation programmes (Burnett, 2011). Regarding the declaration in terms of the EP evaluation, Table 2.2 below, shows the number of projects that have been drawdown since 2007, by Nedbank Capital, under adherence to the International Finance Corporation (IFC) standards and legislation, which not only demonstrates a substantial commitment from the Group to their Deep Green Aspirations but as argued by Chonco (2009) the benefits behind the adoption outweighs its cost, since as a signatory between other benefits, Nedbank has access to funding from the IFC and various Multilateral Development Banks; makes marketing sense as a branding differentiator and responsible Green Bank; provides assistance on partnering with other international signatories and helps reducing financial and reputational risk. Table 2.2: Nedbank Equator Principle Deals 2007-2011

Source: Nedbank, 2011a 3 GENERIC TYPES OF COMPETITIVE ENVIRONMENTAL STRATEGIES FRAMEWORK

As an exhaustive and detailed DD based on the CDC Tool kit, was undertaken, rather than performing a further analysis of the Global Reporting Initiative (GRI), this paper will focus instead on the analysis of Nedbanks Competitive Environmental Strategy (CES) analysis as described by Orsatos paper (2006), in order to assess the groups risks and opportunities as well as environmental initiatives overall strategic alignment.

It is nevertheless worth mentioning that in 2011, a joint financial and non-financial assurance team carried the external audition of Nedbanks Integrated Report, given as a result the inclusion of additional key performance indicators (KPIs) in order to strength the inspection and evaluation process (Nedbank, 2011b). The Assurance Statement from the external auditors found that Nedbanks assertions concerning the alignment with the AA1000APS guidelines of materiality, inclusivity and responsiveness are justly indicated and that the chosen KPIs for the assurance statement analysis and the self-declared of the GRI G3.1 A+ application level are in accordance to the GRI G3.1 principles. The most important point behind Orsatos strategic framework (2006) is that of properly identifying and qualifying the CSR investments, in order to understand the different conditions that would need to be satisfied to render the environmental initiative profitable for the organisation. ESG initiatives profitability are highly context related, and therefore without the proper strategy alignment, market analysis, differentiating value proposition or clear expectations these initiatives wont translate into sustainable value for the organisation and its stakeholders. Below, Figure 3.1 classifies Nedbanks ESG main initiatives in the Generic Competitive Environmental Strategy framework in order to identify sources of competitive advantage. According to Orsato (2006), this decoupling is critical for the understanding and selection of particular circumstances in which corporate environmental strategies may enhance the competitiveness of the company. (Strategy 2 quadrant has been enlarged for this analysis).

Orsato (2006) argues that this competitiveness can either be acquired either through brand positioning or resource-based strategies. According to Porter (cited in Orsato, 2006) a favourable brand positioning means getting an advantage though cost leadership or value differentiation; while the resource-based perspective would pivot around the firms use of the available resources and not as a function of the industry configuration, therefore, the focus lies in the firms internal capabilities to source and manage these assets (Orsato, 2006).

Lower costs

Resource consump tion

STRATEGY 1 Eco-Efficiency
WWF Water Balance Programme

National Energy Efficiency Accord

ter UNEP Wa & Finance ork Initiative W Stream
CD W P Dis ate s r c Pro losur jec e t

Energy Efficiency Leadership Network Pledge

STRATEGY 4 Environmental Cost Leadership

Competitive Advantage

Stakeholder Engagement Task Team

S En ocial viro an d Ma n nag men Sy eme tal s (SE tem nt MS )
Differentiation

Socia Envir l and o Risk nmental Task Team JSE SRI Index Carbon Neutral

United Nations CEO Water Mandate

Leading as a green and caring bank iness National Bus dvisory Initiative A isory Change Adv mittee Com

Equator Principles

African Business Dow Jones Awards World Sustainability Index

UNISA Climate Change Advisory Committee

(CSSA) and Eco-Branding JSE Limited Beyond Compliance Leadership t Annual Repor ns Climate United Natio Ernst Awards ct Neutral & You Global Compa e n Excell at Network WWF-S ence g UN aring for Clim NEP-FI C U Susta in Glob Green T A ina Programme African Task Compa al rust Repo bility ct g partners rting Force Ernst & Youn hip t Annual Repor P FI UNE Global 1000 Enviro Awards Human Sustainable and so nmental South African GRI s Work cial im Right Carbon Performance Climate AA1 3 of lend pacts Stream 000 ure s Index Disclos Leader 20 investm ing, Change King 2 11 Nkonk ents UNEP FI III i Leadership ership UNE Lead produc and Integrated Banking P FI ts dex In Awards Reporting Commission Awards Organizational processes Products and services

STRATEGY 2

es: Financial Tim 2011, Sustainable ar ank of the Ye B e East & Middl Africa.

Banking Association of South Africa: Sustainable m Finance Foru

STRATEGY 3

Competitive focus
Figure 3.1: Generic Competitive Environmental Strategies. Source: Nedbank, 2011a and Orsato 2006. In this case, based on the framework by Orsato (2006), Nedbank does not only pursue efficiencies on their internal processes but also strives towards achieving full recognition from the public for their efforts. They are most certainly investing large amounts of resources subscribing to

international business codes and certifications; unprofitable environmental developments and marketing in order to communicate these efforts. These investments, and the fact that in many of these initiatives Nedbank has been the first signatory in SA (ie. Carbon Neutral, UNCG, etc), evidently has given the Group a differentiation advantage that puts them as the leader in the sector and allows the bank to harvest first mover advantages. Nevertheless, these efforts come at a cost, and as the industry constantly bends towards implementing even more ambitious practices, the boundaries for beyond compliance strategy stretches further, and the differentiation factors slowly become commodities and industry standards, the firm will have to continue developing new competencies and creative innovations (Orsato, 2006). Table 3.1 shows some of the key benefits and trade-offs considered by Nedbank, according to Chonco (2009). Table 3.1: Nedbank Sustainability Cost-Benefit summary
Benefits Singing to EP has allowed the Group to get funding from the IFC, MDBs and DFI. Organisations with stringent environmental and social policies for funding. Green initiatives and efforts have provided then bank with a strong market differentiator while adopting EP has improved their compliance processes, market reputation and effective risk management, subsequently translating on a and a competitive advantage. These initiatives, in particular the EP, have allowed the Group to become the bank of choice for the other signatories Banks in international agreements. Sustainability efforts decrease monetary and reputational risks, allowing for a proactive identification of financial threats and help determining the required systems for risk mitigation. Costs Lack of understanding and appreciation for environmental and social initiatives might generate the loose business to other financial institutions with less strict policies. Direct costs driven by the implementation of environmental management systems, Certification and endorsement, Green marketing and advertisement, monitoring and reporting and external scrutinity. Nedbank considers the implementation of EP as an extension of their green aspirations. As the bank is constantly scrutinised by the public and NGOs, reputational risk is critical. Greater level of stringency comparing with domestic environmental and social legislations.

Source: Chonco, 2009 According to Orsato (2006) the investment profits that might be realised out of these four strategies rely on many variables, running from the organisations internal capabilities to the external structure of the banking sector. Nevertheless, when focusing and delivering effective ESG strategies, a holistic combination of both positioning and resource based perspective is required. The sustainability value framework, developed by Hart and Milsteins (2003) helps assessing the level of integration and consistency of the sustainability strategies and stakeholders value expectations, something achievable only by having a balanced portfolio between all four quadrants.

Figure 3.2 shows the Sustainable Value Framework for the Nedbank Group. From it, is evident that Nedbank currently creates shareholder value by having a broad portfolio across all four quadrants, which could further enhance value creation by tapping on the following opportunities:

Figure 3.2: Nedbank Sustainable Value Framework. Source: Nedbank, 2011b and Hart et al. 2003. Clean technology and branding: Nedbank should continue developing its existing capabilities towards serving previously untapped markets as well as new technologies that facilitate and bring financial solutions to un-served customers. Technology and renewal energy, will become a key source of new investments as these strive to obtain energy in cleaner and more efficient ways; while adherence to the EP, and the UN Principles for Responsible Investment, render any financial endowment on traditional energy sources difficult to justify for the Nedbank Group. Pollution prevention: Further strengthening of internal systems such as Groups Social and Environmental Management System (SEMS) not only allow the bank to control and minimise social and environmental impact, but also to safeguard shareholders investment by striving for responsible, and transparent business best practices while attracting new like minded clients with a trustworthy platform to finance their projects (Nedbank, 2011c).

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Sustainability Vision: Growing market share in the green economy, is a key element of the Groups strategic objective. As previously identified in the competitive environmental framework, Nedbank has established a leader advantage and a clear competitive focus that differentiates their services from those of its peers, positioning it self in a strong place in order to develop and create wealth at a massive scale, taking advantage of Africas demographic and economic growth. Product Stewardship: In order to engage with stakeholder through business and governance transparency, Nedbanks reporting and communication strategies are a key factor for success, demanding close engagement with the different players along their entire value chain, such as suppliers, regulators, auditors, customers and communities, as well as media and NGOs. It also implies the assumption over the responsibility beyond conventional boundaries, including assessment of the impact from raw resources required for the service of their financial instruments to the disposal and decommissioning of such projects by their clients. 4 CONCLUSION AND RECOMMENDATIONS

De Boer (2012), is of the opinion that there was a dramatically important change in the way private business see the role they play and the way they approach ESG issues, at the Rio+20 UN Conference on Sustainable Development in 2012. While policy makers are frozen by the current state of their economies and political turmoil, private institutions has taken a more proactive perspective and have recognized that they can not wait for the politicians to resolve sustainability concerns, rather business need to take action on their own. According to him, there was evidence of a shift in the way companies address their bottom line, and include people and planet in their equation. This due diligence, clearly shows that Nedbank is in the right track, and has managed to make this shift earlier than many other financial institutions, both locally and globally, supporting the Groups desired positioning in the industry as the Green Bank leader in sustainable matters and provided with the opportunity to build experience and expertise for more than two decades, while pioneering and profiting from the new opportunities generated by this new markets, such as: Revenue growth by leveraging financial requirements in emerging markets, such as efficient and clean energy, sustainable businesses, green building etc Carbon neutrality and trading advisory and on transactions with environmental commodities Enhancing of brand identity as a responsible for community and social stewardship Identification and development of energy efficiency projects Identification and development of Clean Development Mechanism Projects (CDM) EPs as a usuful risk management tool for portfolio risk management Triple bottom line (3BL) analysis and impact assesment

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Under this sustainable business perspective, Nedbank and other ESG responsible institutions will find innovative ways to create shareholders and stakeholders value through strategic integrations and alignments along their entire value chain and invested projects life cycle. Companies like Nedbank has demonstrated that they can create competitive advantage by engaging and understanding their stakeholders concerns, anticipate communities expectations and learn from these insights, to develop new skills and relationships so as to create innovation in products and services, create new markets, new business models and finally restructure the business landscape itself to one that cares about true sustainable values (Laszlo, Sherman, Whalen, & Ellison, 2011).

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REFERENCES

Baillie, M., 2012. Did you buy into Nedbanks greenwash?. [On Line]. Available from: http://www.thoughtleader.co.za/mikebaillie/2012/01/26/did-you-buy-into-nedbanks-greenwash/ [accessed 24 July 2012] Bishop, A. 2011. BASA Annual Review 2011. [PDF]. Available from: http://www.banking.org.za/resource_centre/banking_association/publications/publications.aspx [accessed 21 July 2012] Bonorchis, R., 2012. Barclayss Absa Sues Nedbank for $95 Million Over Trading Losses. [On Line]. Available from: http://www.businessweek.com/news/2012-01-12/barclays-s-absa-suesnedbank-for-95-million-over-trading-losses.html [accessed 24 July 2012] Burnett, B, 2011. MAIL & GUARDIAN RESPONSE TO THE 'WHO IS FINANCING CLIMATE CHANGE' REPORT. [On Line]. Available from: http://www.nedbankgroup.co.za/mediareleases/media2011/mediaReleases_2011_11_30.asp [accessed 24 July 2012] CDC Group, 2011. Toolkit on ESG for fund managers. [PDF]. Available from: http://www.cdcgroup.com/uploads/finalcdctoolkitforfundmanagers20101.pdf [accessed 21 July 2012] Chonco, M. 2009. Assessing the adoption of the Equator Principles by financial institutions in South Africa. Unpublished Master dissertation. Johannesburg: Gordon Institute of Business Science. CSRHub, 2011. Corporate Social Responsibility, CSR and Sustainability Reports. [Online]. Available : http://www.csrhub.com/. Accessed: 22 July 2012. De Boer, Y., 2012. KPMG Sustainable Insight Special Edition. [PDF]. Available from: http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/sustainableinsight/Documents/rio20-debrief.pdf [accessed 18 July 2012] Hart, S. and Milstein, M., 2003. Creating sustainable value. Academy of Management Executive, 17 (2), p. 56-69. Kamhunga, S., 2012. Absa takes Nedbank to court over Pinnacle Point. [On Line]. Available from: http://www.businessday.co.za/articles/Content.aspx?id=162378 [accessed 24 July 2012] KPMG, 2011. Sustainable Insight. [PDF]. Available: http://www.csreurope.org/data/files/For_news/Sustainable_Insight_Jan_2011_2.pdf. Accessed: 22 July 2012. Laszlo, C., Sherman, D., Whalen, J., and Ellison, J., 2011. Expanding the Value Horizon: How Stakeholder Value Contributes to Competitive Advantage. [PDF]. Available from: http://www.sustainablevaluepartners.com/Upload_Module/upload/ExpandingValueHorizon05.PDF [accessed 20 July 2012]

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Matoti, M. 2010. South African Banking Sector Overview. [PDF]. Available from: http://www.banking.org.za/resource_centre/banking_association/publications/publications.aspx [accessed 21 July 2012] Nedbank Group. 2011a. Sustainable Development Performance Review. [Online] Available: http://www.nedbankgroup.co.za/pdfs/SustainableDevelopmentPerformanceReview.pdf Accessed: [accessed 21 July 2012] Nedbank Group. 2011b. Nedbank Group Limited, Integrated Report [PDF] Available: http://www.nedbankgroup.co.za/financial/Nedbank_ar2011/downloads/Nedbank_Group_AR.pdf Accessed: [accessed 4 July 2012] Nedbank Group, 2011c. United Nations Global Compact CEO Water Mandate Communication of Progress for 2011. [On Line]. Available from: http://ceowatermandate.org/files/endorsing/Nedbank_MandateCOP_2011.pdf [accessed 20 July 2012] Nedbank Group, 2012. Nedbank Group Profile. [On Line]. Available from: http://www.nedbankgroup.co.za/aboutGrpprofile.asp [accessed 21 July 2012] Orsato, R., 2006. Competitive Environmental Strategies: Whne does it pay to be green?. California Management Review, 48 (2), p. 127-143. Rea, M., 2010. King III and GRI+11: A 2010 review of sustainability reporting in South Africa. [Online] Available: http://www.sustainabilityservices.co.za/2010Reports/KingIII&GRI11-FINALMHR-19May.pdf. Accessed: 12 April 2012. Schcking, H., Kroll, L., Louvel, Y., and Richter, R., 2011. Bankrolling Climate Change. [PDF]. Available from: http://www.banktrack.org/download/bankrolling_climate_change/climatekillerbanks_final_0.pdf [accessed 24 July 2012] United Nations Global Compact, 2011. Communication of progress and discussion. [On Line]. Available from: http://www.unglobalcompact.org/COPs/advanced/16583#human_rights [accessed 22 July 2012]

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APPENDIX A ESG NEDBANK DUE DILIGENCE BASED ON CDC GROUP TOOLKIT

Table A.1: ESG DD Questionnaire
General questions Compliance with all relevant laws, standards and regulations? Yes No Comments No significant fines were received during the period Code of Banking Practice Sector Guidelines King III GRI1 AA10002 No significant fines received for non-compliance in this regard in the reporting period Nedbank Code of Ethics Stakeholders Engagement Enterprise wide risk management framework (ERMF) Nedbank Code of Ethics

Local law enforcement situation?

Record keeping? Permits and licences: obtained and up-to-date? Risk management processes?

Environmental, social and business integrity trackrecord? Certifications obtained (e.g. ISO 14001; OHSAS)? See For investments with significant risks: compliance with the IFC Performance Standards and Environmental and Health and Safety Guidelines? See Appendix 5. Adherence to other relevant international standards? Supply chain practices? The Environment Effluents? Emissions? Water pollution? Air pollution? Energy use? Natural resource use? Water use?

Refer to Appendix B

Yes No Nedbank Group Procurement Comments Section 4: Environmental sustainability GHG EMISSIONS INVENTORY Section 4: Environmental sustainability GHG EMISSIONS INVENTORY 12% reduction by the end of 2015 WWF Partnership 10% reduction by the end of 2011

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Waste management?

10% reduction by the end of 2011

Land clearance? Sensitive forests or other habitats? Biodiversity loss? Climate change: risks and opportunities? Other environmental impacts? Social matters Labour and working conditions Local adherence to the Fundamental ILO Conventions? Local minimum working age in line with ILO Conventions 138 and 182?. Company compliance? Local minimum wage levels? Company compliance? Discrimination? Representation and unions? Vulnerable labour? Health and safety Types and level of health and safety risks? Protective measures, procedures and equipment? Safety record? Training?

Yes No X Yes No WWFCP WWFCP CLIMATE CHANGE POSITION STATEMENT Refer to Appendix B

Comments UGCC Criterion 9 SUPPLIER CODE OF CONDUCT Remuneration Report Internal Ombudsman, UGCC Criterion 9 Collective Bargaining chapter Eyethu schemes, adherence to EP, BBBEE level 2 Comments OHS programme above 95 Health and safety (OHS) act, 85 of 1993, Compensation for Occupational injuries and Diseases act (COID), 130 of 1993 and internal OHS policies

Other social matters Impacts on local communities? Any particular local social issues? Community / NGO consultations? Relocations? Resettlement? Sensitive cultural heritage issues? Risk of adverse impacts for indigenous peoples? For remote operations: impact of company activities on local communities? Use of nonlocal labour? Accommodation and other living conditions for workers and their families? Retrenchments? Corporate use of security force?

Yes

No

Comments Carbon Credits approach, NEDBANK FOUNDATION BBBEE WWF Nedbank Environmental Policies

UNGC

Cultural Sustainability 2011 = 7

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Governance: business integrity and corporate governance Business Integrity Transparency Internationals Country Corruption Perception Ranking? Prevalence of bribery in industry sector? Criminal convictions? Code of conduct? Yes X No Comments Ranked 64, 4.1/10.0 2011 Medium Corruption Act and Bill Public Finance Management Act (PFMA), King III, Code of business Ethics and Employee pledge Group Transformation, Social and Ethics Committee (TSEC) Private Finance Initiatives (PFI) Basel Committee on Banking Security; Financial Action Task Force on Money Laundering; Global Coalition for Africa; Global Forum on Fighting Corruption; and the Group of Eight Record of Employees Dismissed for dishonesty RED database X Apolitical stance Bankrolling Climate Change report and Mail & Guardian No information available X No media highlights

Anti-bribery training for employees? Anti-money laundering (AML) and know-your-customer (KYC) training and procedures? Accounting and legal compliance?

Political affiliations or contributions? Media references to illegal or disreputable activities? Undisclosed or unusual beneficial ownership or carried interests? Sudden or unexplained change of investors, shareholders, auditors, accountants, lawyers or other professional advisors? Tax evasion? Suspicious use of tax havens, off-shore companies, compensation, sources of wealth, lifestyles, fees, local costs or transfer pricing? Large or serious law suits? Reluctance to discuss business integrity issues? Corporate governance Commitment to good corporate governance? Structured and functioning board? Yes

X X

No media highlights No media highlights

ABSA vs Nedbank Pinnacle Point Group case X No Public communication in response to Bankrolling Comments Adherence to King III, UK combined code Group Transformation and Sustainability Committee (GTSC)

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Adequate control and risk management?

Social and Environmental risk Management Systems (SEMS) Benchmarking by the Sustainability Services Review of Sustainability Reporting (based on compliance to King III and GRI guidelines) Score: 69.3% Rank: 23 BBBEE Level 2

Adequate transparency and disclosure?

Rights of minority shareholders and treatment of stakeholders?

Source: CDC, 2011; Nedbank, 2011; UNGC, 2011.

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APPENDIX B NEDBANK SUSTAINABILITY AND GOVERNANCE INITIATIVES

Source: KPMG, 2011, Mlambo & Ncube, 2011, Adapted from previous Strategy Assignment.