2 December 2019 – Bruce Haase, Senior Associate at the Cambridge Institute for Sustainability Leadership shares business and finance insights from a climate risk event on South Africa’s transition to a sustainable future
During this year’s G7 Summit in Biaritz, South African President Cyril Ramaphosa expressed South Africa's “…commitment to mitigation of climate change, as well as to a just transition from fossil fuels to renewable forms of energy that will protect jobs and livelihoods and give communities equitable, affordable access to emerging alternatives in energy.”
A few days later, the Cambridge Institute for Sustainability Leadership held an event in Johannesburg, Reducing Climate Risk in your Business. The event brought together leaders from business, the investment community, civil society and academia to look at climate risks for business in South Africa and to reflect on the country’s ambitions to build a more sustainable future.
Understanding business risk
CISL Fellow Professor Bob Scholes kicked off the event with an explanation of the diversity of risk that climate change brings to business. In the agricultural sector, the immediate disruption of business through extreme weather conditions or drought is clear, but for most businesses the risks are less obvious but can be equally disruptive. “No business can say they are not exposed to climate risk,” said Scholes, highlighting a computer company that was blindsided and suddenly unable to deliver products when its hard drive supplier in Thailand was wiped out by a major typhoon. “If companies look deeper, they can identify many other forms of climate related risk, including regulatory risk, carbon taxes, insurability, cost of inputs, reputation and brand as well as litigation around companies’ impacts” he continued. Understanding risk is the first step, which leads to a variety of options to not only mitigate the risk but in many cases provide a competitive edge in a changing the business landscape.
Are South Africa’s banks prepared?
According to Wendy Dobson, Head of Group Policy, Advocacy & Sustainability at Standard Bank, South Africa’s banking sector is not adequately prepared to manage climate risks. “Banks exist to manage risk. Risks are generally strictly regulated in banking. However, in the thousands of pages of regulations, climate risk is not mentioned at all – it’s a regulatory vacuum.” In May 2019, Standard Bank tabled a climate risk related shareholder resolution – the first of its kind in the country which would have required the South African lender to report climate risk in its activities. The resolution was voted down, although another resolution passed forcing the bank to disclose its coal financing policies. At least one other major South African bank is now following suit, releasing similar policies– highlighting that much needed change may be on the horizon.
The power of the shareholder and lack of ambition
Theo Botha, a shareholder activist and one of the authors of the Standard Bank resolution, indicated that this lack of preparedness is true for most sectors and not just the banking sector. Just one share in many companies gives one access to shareholder meetings and a voice among the larger investors. Botha has used this opportunity to raise issues in some of South Africa’s largest companies to drive positive change. At the event Theoe recounted a shareholder event for a fossil fuel company board meeting in 2005 where a 1% per year reduction target was proposed. “At that rate, it would take us 100 years to get down to zero emissions, and that’s time we just don’t have,” he recalled. Using this shareholder power, Botha and other activist investors are able to raise issues that many companies would like to avoid, particularly in the presence of other major shareholders.
Tracey Davies, Executive Director of Just Share reaffirmed this lack of ambition: “We see lots of talk about risks associated with climate change in corporate reports, but we don’t see these risks being translated into strategy. This is a corporate failure.”
Coal: Job Motor or Economic Millstone
Coal has traditionally been the sacred cow of the South African economy. Both as an export product and as a primary resource for power generation, coal mining has been fiercely guarded by mainstream industry, government and the unions as a primary provider of unskilled job opportunities and driver of the economy. Louise Naudé, Low-Carbon Frameworks Programme Manager, WWF spoke out about the risks of this myopic thinking. The obvious risk is of sunk-assets in the form of coal fire power plants (some still to be built) with an economic life of 50 years or more. Sticking to coal will also mean that other companies in other countries will have already made considerable progress in transforming their economy, leaving South Africa with a considerable catching up to do, with additional risks for international trade in the broader sense, as some governments consider trade barriers against countries that are not upholding the Paris climate agreement.
Given South Africa´s considerable societal challenges including unemployment, racial inequality, poverty and energy poverty, the case is often made that addressing social issues must take precedent over environmental issues in this context. Naudé highlighted the inextricable link between the two, whereby failing to address one or the other will lead to failure on both counts.
Is risk an opportunity in disguise?
In an opinion shared by others on the panel, Naudé further highlighted the business opportunities that a low carbon transition will bring with it. A shift to a climate resilient economy bring with it an enormous amount of investment and jobs, not only in manufacturing and renewable energy but throughout the country in a variety of sectors. She cited some examples of start-ups she encountered in the WWF Climate Solvers programme including, Mellow Cabs, a thriving three wheel bicycle cab startup in Cape Town that is creating jobs and eliminating tail-pipe emissions.
Trust deficit leads to inertia
While the panel and most of the audience seemed to have a shared understanding of the direction of travel, there was less unanimity around the speed of change and level of ambition needed now and by whom. This seemed to reflect a wider lack of trust between societal actors in South Africa; trust by the unions that renewable energy and the low-carbon economy will deliver jobs, trust by business that legislation will achieve the desired results and be properly enforced, trust by industry and Eskom that renewables will be able to deliver the power needed to drive the economy and trust by first-movers in low-carbon business that a level playing field will come.
The panel was united in highlighting the urgency of the climate crisis and the social, environmental and economic cost of inaction. Whether South Africa will be able to come together with ambition and trust will ultimately determine the chances of success.
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