- The IDC in 2017 extended a R240 million facility to MC Mining, formerly known as Coal of Africa.
- A report questioned the investment of public funds by the IDC in businesses that are damaging to the environment.
- The IDC has been urged to amend its Responsible Investment Policy with public consultation.
The country's largest development finance institution, the Industrial Development Corporation (IDC), has been flagged by an environmental group for poor investment practices based on its funding of a carbon-intense project.
The report by the Centre for Environmental Rights (CER) criticised the IDC for ploughing public funds to industries that pose a risk to the environment, citing its investment into MC Mining for the development of a colliery in Limpopo in 2017, among other projects.
MC Mining, a junior coal miner listed on the Australian Securities Exchange and JSE, received a loan from the IDC in 2017 to finance the development of its flagship Makhado Colliery Project in Limpopo and related improvements at the Vele Colliery situated outside the Mapungubwe National Park and World Heritage Site.
The IDC in 2017 extended a R240 million facility to MC Mining, formerly known as Coal of Africa, and two drawdowns of R160 million. The transaction had resulted in the IDC becoming a 6.7% shareholder in its subsidiary, Baobab Mining and Exploration, the owner of the Makhado Project.
"By providing a loan and acquiring equity in MC Mining's Makhado Project, the IDC has invested public funds in a company with a history of negative social and environmental impacts as well as environmental non-compliance."
The CER is a non-profit organisation of activist lawyers who help communities and civil society organisations advocate for environmental safety and also litigate for environmental justice; the IDC is a vehicle fully owned by the government.
The organisation further stated that the funding illustrates "a greater problem, which involves public funds being invested in environmentally destructive and climate-incompatible industries".
"As a result, the IDC's investment in MC Mining does not only harm the environment and local communities, but its failure to interrogate the impacts of MC Mining's activities exposes the corporation to risk."
Call to disclose
In February, MC Mining said in had reached an agreement with the IDC to delay the loan repayments until the end of July.
The company said the first and second drawdowns of R160 million plus interest were initially due for repayment by 30 November 2020.
The Makhado Project, located in the Soutpansberg Coalfield, is MC Mining's flagship. Once operational, the mine will be the country's first large producer of hard coking coal for use in steelmaking.
The report highlighted the role of Development Finance Institutions in financing infrastructure and industrial development, saying they normally provide funding in activities where commercial banks are reluctant to invest due to perceptions of excessive risk that reduce the rate of return on investment.
However, in the case of MC Mining, it said the IDC's investment "serves to de-risk investment in an industry with poor longterm growth prospects due, at least partially, to its damaging climate, social, and environmental impacts".
The report states that the IDC's responsible investment policy does not require companies to which it extends finance to phase out coal-fired power generation, coal mining or to disclose and reduce their direct and indirect greenhouse gas emissions.
"The IDC's failure to limit social and environmental harm through its policies and due diligence processes can lead to poor investment practices."
However, the IDC said the accusations levelled against it on the MC Mining funding case study were "incorrect". It also stated that the CER report was not supported by the findings of the environmental impact assessment, heritage impact assessment and the water resources impact specialist study undertaken by independent specialist consultants, which informed its decision on MC Mining funding.
"In all its funding considerations, the IDC considers environmental sustainability and economic and social impact in evaluating whether or not to provide applicants with funding or loan facilities," said a statement in response to the report.
"In the case of MC Mining, our due diligence process found that MC Mining's environment and social risk rating met the IDC funding criteria."
According to the IDC, MC Mining fulfilled the non-negotiable requirement for legislative approval and compliance with regulations.
"Without these, the IDC would not have provided funding or loan facilities."
The report recommended, among other things, that the IDC amend its Responsible Investment Policy, with public consultation. It also urged to the company to publish the criteria and factors that are considered in making decisions to finance development projects, including reasons for decision making, in a bid to ensure transparency and accountability.
Nedbank has indicated that it not provide new finance for oil production from 1 January 2035 or fund new thermal coal mines from 1 January 2025, regardless of where they are located. Its new policy will affect natural gas.
The IDC said it was "actively contributing to the just energy transition" and has established a green energy portfolio to demonstrate its commitment to decarbonising local energy systems.
*This article has been updated to add the IDC comment.