South African Reserve Bank working paper finds banks with higher climate and environmental engagement have lower credit impairments

The South African Reserve Bank published a Working Paper analysing whether South African banks’ climate and environmental (C&E) engagement is associated with credit risk, finding that higher engagement correlates with better credit portfolio quality. Across multiple specifications, banks with stronger C&E engagement show lower impaired loan ratios and, in some models, slower growth in impairments. The paper constructs a text-based C&E engagement indicator by mining C&E-related content in 647 investor-facing reports from domestic banks (covering 2007–2023 reporting and 2008–2023 balance-sheet outcomes), then links the measure to credit quality metrics derived from banks’ BA900 economic returns. The empirical approach combines fixed-effects panel regressions with instrumental-variable estimation and a Heckman selection model to address endogeneity and selection concerns, and is framed in the context of South Africa’s largely principles-based, “apply and explain” disclosure environment. The Working Paper is presented as preliminary, externally refereed research intended to elicit comments and stimulate debate, and does not represent South African Reserve Bank policy.