Category: Energy
Tighten the ESG focus or face litigation
By Merlita Kennedy & Tobia Serongoane from Webber Wentzel
Continue reading View moreSA climate change measures change
South Africa in partnership with the rest of Africa is on the frontline in the global struggle against climate change and is dedicating significant resources to adapt to the reality of an already-changing climate and address consequential loss and damage.
BY MINISTER BARBARA CREECY
The revised Nationally Determined Contribution (NDC), the Climate Bill and South Africa’s negotiating position for COP-26 have been approved. We have also brought forward the year in which emissions are due to decline from 2035 in the initial NDC, to 2025 in the updated NDC.
As a developing country, South Africa is committed to contributing its fair share towards a global low-emissions, climate-resilient economy and society by mid-century. We recognise the consequences of climate change will be catastrophic for the world, and for South Africa, in particular, without global ambitious action to reduce emissions, and address adaptation.
The latest science makes it clear that in order to prevent these catastrophic consequences, an accelerated shift to a low-emissions society is required.
Our updated Nationally Determined Contribution (NDC), was deposited with the UN Framework Convention on Climate Change (UNFCCC) recently. The submission of the updated NDC follows widespread consultation with business, organised labour, government, civil society and the Climate Commission.
South Africa has set an ambitious Nationally Determined Contribution of 420- 350 Mt CO2-eq which is compatible with Paris Agreement goals. However, to achieve such an ambitious target, developed countries must meet their financing commitments made under the UNFCCC and reaffirmed in the Paris Agreement adopted at COP 21.
In the past decade developed countries have not kept to the level of commitments on climate finance, enshrined in the Paris Agreement. In particular there has been minimal assistance to emerging economies in this regard. Accordingly, we need certainty and predictability of the quantum of financing available to us, to embark on our Just Transition.
The Presidential Climate Commission appointed in February, is tasked with bringing together the government, private sector, organised labour and civil society to advise the government on just transition pathways that will ensure our transition to a lower carbon economy that will open up new opportunities for inclusive local industrialisation and growth, job creation and re-skilling.
Fundamental to the commission’s mandate is ensuring that those most vulnerable to the consequences of the transition, particularly workers and communities in the coal value chain, are not left behind.
Cabinet has also adopted the long-awaited Climate Change Bill, an important step in the development of our country’s architecture to manage and combat climate change. The bill, which will soon be tabled in Parliament, spells out that all adaptation and mitigation efforts should be based on the best available science, evidence and information. It further gives effect to South Africa’s international commitments and obligations in relation to climate change, and defines the steps to be taken to protect and preserve the planet for the benefit of present and future generations.
The bill sets in place a mechanism to co-ordinate the government response to the effective management of climate change impacts. Through the national adaptation response, we will strengthen resilience and reduce vulnerability to climate change.
With regard to our country’s negotiating mandate for COP-26, South Africa is fully committed to a collective, multilateral approach to addressing the global challenge of climate change, with the UNFCCC at its centre.
Our position on resource mobilisation is to secure new commitments of support by developed countries for implementation by developing countries, addressing both mitigation and adaptation. We need the COP to provide clarity on and commence the process for determining a new and more ambitious goal for long-term finance, increasing beyond the $100 billion (R1 498bn) per year from 2025.
As already explained, South Africa, and many other developing countries, require the means of implementation for its adaptation and mitigation actions. This funding could come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance.
With regard to adaptation, COP-26 should deliver an outcome that will enable practical progress, including launching a formal programme of work on the operationalisation of the Global Goal on Adaptation. The position that we will be taking to COP on the adaptation global goal is that we should aim to increase the resilience of the global population to climate change by at least 50% and reduce the global populations that are impacted by the adverse effects of climate change by at least 50%, by 2030 and by at least 90% by 2050.
It is particularly important that developed countries show leadership and come forward with massively enhanced support to developing countries, particularly at this time when sustainable development has been set back decades by the Covid-19 pandemic.
* Creecy is Minister of Forestry, Fisheries and the Environment.
View moreGauteng, Northern Cape, Sasol sign groundbreaking agreement on green hydrogen
Chemicals and energy giant Sasol has announced a first-of-its-kind memorandum of agreement with the Northern Cape government to conduct a two-year feasibility study for a landmark green hydrogen project in the province’s Boegoebaai.
Another memorandum of agreement has also been signed with the Gauteng provincial government.
The announcement was made by Sasol’s Vice President for Energy Business Priscillah Mabelane, at the second annual Sustainable Infrastructure Development Symposium of South Africa (SIDSSA). According to Mabelane, the project in the Northern Cape could potentially produce at least 400-kilo tons of hydrogen every year.
The project underpins the province’s Green Hydrogen strategy: a precursor to the country’s Green Hydrogen strategy.
“A project of this magnitude has the potential to create up to 6000 direct jobs – generating much-needed socio-economic benefits including creating further indirect jobs across the ecosystem. We are very excited to be leading this feasibility study as part of unlocking South Africa’s ambition to a global green hydrogen export player,” she said.
With countries moving towards lowering carbon emissions, hydrogen – which only emits water vapour when used – is considered to be the fuel of the future but large scale use of hydrogen was hampered because of the need to burn fossil fuels when extracting it.
Now countries such as South Africa, which have great potential and access to renewable energy resources, are able to produce clean hydrogen without the need to burn any fuel which can potentially place them as leading players in a green hydrogen economy.
This, Mabelane said, gives South Africa immense potential to benefit from the green economy.
“South Africa’s total green hydrogen potential could reach four to seven million tons by 2050 with over three million tons of export opportunity. This catalyses the roll out of more than 50GW of renewable energy for South Africa, contributing more than R100 billion per annum to our economy and creating more than 370 000 jobs to 2050.”
Mabelane added that as part of Sasol’s approach to “developing a hydrogen economy”, the company has established several partnerships – including signing a memorandum of agreement with the Gauteng government.
“We signed a memorandum with the Gauteng provincial government to leverage special economic zones. These have been earmarked as enablers to unlock South Africa’s green hydrogen market potential for domestic use such as mobility, revitalisation of the steel industry and sustainable aviation fuel, particularly at OR Tambo [International Airport],” she said.
Head of Infrastructure and Investment in the Presidency, Dr Kgosientsho Ramokgopa, said the memoranda of agreement are an indication of South Africa’s commitment to lowering the country’s carbon emissions.
“Green hydrogen is the 21st-century oil and it’s going to contribute in the agenda of the country as led by [Environment, Forestry and Fisheries] Minister Barbara Creecy of making sure that we meet our obligations with regard to our nationally determined contribution, the net-zero [carbon emissions] path that we have articulated and it should constitute part of the totality of submission when we go to [the United Nations Climate Change conference],” he said. – SAnews.gov.za
View moreTighten the ESG focus or face litigation
By Merlita Kennedy & Tobia Serongoane from Webber Wentzel
Litigation on Environmental, Social and Governance matters is rising in volume, both globally and domestically, but there are various steps that companies can take to mitigate the risks
Investor and social pressure on mining and energy companies to report on Environmental, Social and Governance (ESG) and consider renewable energy is immense. Recently, the South African state-owned power utility, Eskom, was named by the Centre for Research on Energy and Clean Air (CREA), as the world’s biggest emitter of the pollutant sulphur dioxide (SO2). Eskom on its own now emits more sulphur dioxide than China, the US, and the European Union’s power sectors combined.
According to the study by air pollution expert Mike Holland, these emissions contribute to high levels of ambient air pollution and to 2 200 air pollution-related deaths in South Africa every year. Most of these deaths are due to SO₂ emissions, which form deadly PM2.5 particles once released into the air.
The study poses a legal threat to the power utility, as climate change litigation is gaining momentum in South Africa, particularly in relation to air pollution.
Environmental, Social and Governance
ESG has risen to the top of the board agenda. Companies are increasingly aware that a failure to address these matters can be detrimental to the company’s business purpose, reputation, corporate values, approach to risk management, and relationships with host communities, investors, suppliers, customers, employees, and other stakeholders. As ESG continues to grow in importance, the number of ESG litigation matters will become self-perpetuating.
Companies and state-owned power utilities globally are employing ESG policies and procedures in the energy sector. Eskom, however, has lagged in this regard.
Litigation Risks
The consequences of falling behind can be severe and far‑reaching, for example by falling foul of climate‑change litigation (i.e. class actions). There is an increasing focus on whether a company is conducting its operations in a sustainable way, and without violating any human rights. In some cases, internationally and locally, both the state and a company were taken to task for not acting appropriately to improve air quality and thus the health and well-being of citizens.
Sharma and others v. Minister for the Environment – Australia
On 8 September 2020, eight young people filed a putative class action in Australia’s Federal Court to block a coal project. The lawsuit sought an injunction to stop the Australian Government from approving an extension of the Whitehaven Vickery coal mine. The court found that a novel duty of care is owed by the Minister for the Environment to Australian children who might suffer potential “catastrophic harm” from the climate change implications of approving the extension to the Vickery coal mine in New South Wales. Ultimately, the court ordered the Minister to pay costs.
Milieudefensie et al. v. Royal Dutch Shell plc – Netherlands
The environmental group Milieudefensie/Friends of the Earth Netherlands and co-plaintiffs filed a case against Royal Dutch Shell plc. (RDS) requesting the court to rule that the Shell group’s annual CO2 emissions and RDS’s failure to reduce them constituted unlawful acts toward the claimants; and order RDS to reduce, by end-2030, the Shell group’s CO2 emissions by 45% net, relative to 2019 levels.
In this ground-breaking decision, RDS was compelled to reduce its global group carbon emissions by 45% net (compared with its 2019 emissions) by 2030, with immediate effect.
In South Africa
In June 2019, the VEJMA and groundWork, represented by the Centre for Environmental Rights, launched landmark litigation against the state, asking the court to declare that the poor ambient air quality in the Highveld was a violation of Section 24 of the Constitution. On 17 May 2021, the Pretoria High Court for the first-time heard arguments in what has become known as the “Deadly Air” case: a case about the toxic air pollution on the Mpumalanga Highveld.
Mitigating the risks of ESG litigation
To manage and mitigate some of the risks of ESG litigation – the key is to be proactive and to:
- involve legal counsel at an early stage to ensure ESG compliance with reporting and disclosure requirements;
- conduct due diligence and environmental legal compliance with the suite of environmental laws;
- point out possible exposure to liability under a changing environmental regulatory landscape;
- audit the suite of contracts individually and ensure that they contain indemnification and other contractual terms to protect against the impact of environmental liabilities;
- in the event of a breach, involve legal counsel to assist with crisis management;
- undertake a feasibility study to see whether corporate structures and operations have the necessary resources and expertise to handle any ESG matters that may arise.
- engage effectively with stakeholders, including regulators, investors, employees, consumers and communities; and
- move beyond treating ESG as a tick-the-box exercise to ensuring robust governance and accountability at board level and integrating material ESG factors into strategic decision-making.
Also, any company should seek specialist legal advice before responding to any ESG litigation issues that they may face.
View moreTransition to low-carbon economy urgent – President Ramaphosa
President Cyril Ramaphosa says the country must urgently reduce its carbon and greenhouse gas emissions or risk experiencing negative social and economic consequences.
The President was addressing the nation through his weekly newsletter.
Carbon and greenhouse gas emissions are a product of the burning of fossil fuels, such as oil and coal, which contribute to global warming and changes in the Earth’s climate patterns (climate change). President Ramaphosa said the impact of climate change is already felt in some South Africans’ quality of life through drought and flooding.
“Several communities in Mpumalanga, for example, are affected by high levels of pollution, which increases respiratory illness and other diseases. Those who are dependent on the ocean for a living have already seen depleted fish stocks amid changing weather patterns and changes in ocean temperature,” he said.
The President warned that if the country continues its carbon-intensive production methods, the economy will bear some risks.
“As our trading partners pursue the goal of net-zero carbon emissions, they are likely to increase restrictions on the import of goods produced using carbon-intensive energy. Because so much of our industry depends on coal-generated electricity, we are likely to find that the products we export to various countries face trade barriers. In addition, consumers in those countries may be less willing to buy our products.
“The other economic risk is that investors will shy away from investing in fossil fuel-powered industries. Banks and financial institutions are already facing pressures from their shareholders not to finance enterprises that depend on fossil fuels to produce their products or services,” President Ramaphosa said.
A just power transition
President Ramaphosa acknowledged that although the low-carbon economy transition is a necessary one, it needs to be “just” because some sectors will be negatively impacted. “There are several important sectors of our economy that will be negatively affected by such a transition, including agriculture, tourism, mining, energy, transport, manufacturing and the biodiversity economy.
“That is why a transition…must address the needs of workers in these industries and in affected communities. The process of transition needs to be based on the full involvement of organised labour and business in targeted programmes of reskilling and upskilling, creating employment and providing other forms of support to ensure workers are the major beneficiaries of our shift to a greener future,” he said.
Transforming communities and electricity sector
President Ramaphosa said government is already developing plans on a transition towards a low-carbon economy, starting with the electricity sector which, according to the President, contributes to 41% of the country’s emissions.
“It will be the quickest industry to decarbonise and will have a beneficial impact across the economy. We will be decommissioning and repurposing coal-fired power stations, and investing in new low-carbon generation capacity, such as renewables.
“We will also pursue ‘green’ industrialisation, such as manufacturing using green technology and a shift to the production of electric vehicles,” the President said.
In line with this, President Ramaphosa announced that the State power utility will transform a coal-fired power station into a renewable power production plant.
“Eskom will be undertaking a pilot project at its Komati power station, which is due to shut down its last coal-fired unit next year, to produce power through renewable energy. Komati will serve as a good example of how this shift from coal dependency could be achieved,” he said.
The President said in Mpumalanga’s mining towns, government is working with different sectors in pursuance of moving towards less dependence on coal, assessing its impact and making sure that “communities are protected against the risks and benefit from the opportunities presented by this transition”.
“There are economic challenges and risks. There are huge economic opportunities that we must seize. South Africa is endowed with abundant resources that can be harnessed to open up new frontiers of investment and growth and build a new economy in areas like green hydrogen. By pursuing these opportunities, we can ensure that our just transition yields new innovative opportunities that will create new jobs.”
Cooperation is key
The President said in order for the country to meet its target of reaching net-zero carbon emissions by 2050, developed nations will be required to keep promises made to financially support energy transitions in countries like South Africa.
In this regard, government is working with international partners to secure a financing facility for the decarbonisation effort.
“This is not about charity. It is about fairness and mutual benefit. Countries with developed economies carry the greatest responsibility for climate change as they have historically been the biggest polluters, while developing economies are the worst affected. That is why wealthier countries have an obligation to provide significant financial support for developing economies to adapt to climate change and reduce emissions,” President Ramaphosa said.
South Africans too, are required to commit to the transition to a low carbon-emitting economy.
“The climate transition is something that affects every South African and we all need to be part of its design and implementation. We have undertaken widespread consultation and there is broad support among social partners for an ambitious, realistic and, most importantly, just transition.
“We have to act now if we are to achieve sustainable and inclusive growth, secure the health and well-being of our people and safeguard the future of our planet,” he said. – SAnews.gov.za
View moreFossil fuels on fire
By Old Mutual Wealth Investment Strategists Izak Odendaal and Dave Mohr
These strange times have become even more unusual. Despite the enormous efforts to reduce the demand for carbon-emitting fossil fuels, their prices have shot up in recent weeks.
The upcoming COP26 Glasgow Climate Summit could ironically take place against the backdrop of coal and natural gas prices at record levels and oil at multi-year highs even though the share of renewables in the global energy mix has thankfully risen steadily.
Chart 1: Futures prices for coal, gas and oil, US$
A perfect storm
It is a perfect storm of events that got us here. On a positive note, demand for energy has increased from the lockdown-induced lows. For instance, IATA estimates a 26% growth in airline passenger numbers between 2020 and 2021, though they are still more than 40% below 2019 levels. However, this improvement in demand has not been met by rising supply. On the contrary, several factors have constrained supply.
One is simply the weather. Northern Europe relies heavily on electricity from wind, but it has been less windy than usual. Droughts in Brazil, China and the US mean hydro-electrical production has also been lower than normal. This has led to increased demand for natural gas and coal. However, natural gas inventory levels have been lower than usual at storage depots across Europe. This has created an opportunity for Russia, Europe’s main gas provider, to flex its geopolitical muscles and go slow on deliveries, although it has indicated a willingness to stabilise the market recently. With winter looming, natural gas prices in Europe have gone stratospheric, pulling up prices in other parts of the world.
In China, flooding has disrupted domestic coal production. China is already the biggest consumer of coal in the world, but demand has increased recently, and with it, its price. Geopolitics play a role here too. China blocked Australian coal imports, about a tenth of its total last year, after Australia questioned the origins of the coronavirus. Imports from Mongolia have also been disrupted by Covid.
Chinese electricity prices are heavily regulated, and utilities cannot freely pass on the cost of higher coal prices to customers. Many have opted to cut back on production, rather than sell at a loss. Beijing has now announced that selling prices will be allowed to rise somewhat. All this has happened at a time when local governments were already reducing electricity production from coal to curb air pollution and carbon emissions. The net result is something South Africans know well: widespread load-shedding.
Finally, in terms of oil, OPEC (along with Russia) has largely maintained the production cuts it put in place last year to prop up the oil price. In other words, there is no fundamental shortage of oil. Supply is being deliberately held back. OPEC can increase supply if it worries that high prices will choke off demand, but for now, its members seem comfortable with the revenues flowing in. Importantly, the price increase has not yet led to the associated increases in American shale oil production as has been the case over the past decade. Shale producers have largely abandoned the old production-at-all-costs mindset in favour of maintaining profitability and shareholder returns.
Chart 2: US oil prices and production
An associated factor is that these companies and their peers face increased difficulty in accessing the funding needed to increase short-term (in the case of shale) and long-term production (in the case of the oil majors). Banks and asset managers across the world are phasing out exposure to fossil fuels and some have already cut all ties. This has contributed to steep declines in capital expenditure by fossil fuel producers.
In other words, the big move among global investors towards embracing environmental, social and governance (ESG) principles might have the unintended consequences of higher fossil fuel prices until such time as renewable sources reach critical mass.
Chart 3: Capital expenditure by listed oil, gas and coal companies
The good news is that elevated fossil fuel prices do create a strong incentive to increase investment in alternatives. This is where ESG can play a big role to make sure the alternatives are green, not brown. Economists have long argued that the best way to tackle climate change is to put a tax on carbon emissions. This is because the price we pay for a tank of petrol, for instance, covers the cost of production and distribution but not the cost of the associated air pollution. Since the cost of this externality is not included, petrol is too cheap. This leads to excessive demand. A carbon tax raises the price to its “correct” level and lower demand. The recent price increases could therefore achieve a similar effect.
A tax on your houses
Increased energy prices act as a tax for most consumers. Most of us have no choice but to fill up our car. If you live in the snowy Northern Hemisphere, you have little choice but to heat your home with gas.
In other words, this will be a drag on global consumer spending, the question is just for how long will prices remain elevated. It is somewhat compensated for by the excess savings that households in the rich world have built up, but it also appears that most of the excess savings are concentrated in the hands of more affluent households. Meanwhile, it is lower-income households that are most exposed to increases in energy prices and associated rises in food prices. Nonetheless, it is worth pointing out that at around $80/barrel, the oil price is nowhere near the $150/barrel record set in 2008 on the eve of the global financial crisis, or the $100+ levels that prevailed between 2011 and 2014, especially adjusted for inflation or growth in incomes.
The other complication is that these price increases come at a time when inflation rates are already elevated. The global production and delivery of goods are already severely constrained by Covid-related disruptions, shortages of inputs and labour, and logistical bottlenecks. But now production in China, the world’s factory, has to contend with electricity blackouts. This is likely to worsen the supply chain problems already besetting the world economy.
People often confuse higher fuel prices with inflation. Fuel prices are very visible since most motorists have to fill up at least once a month. But inflation refers to sustained price increases in a broad range of consumer goods and services. Energy is a component in consumer price indices and therefore higher energy prices do have a direct short-term impact. But the big question is whether firms can raise their selling prices to compensate for higher input costs. In this way, higher energy costs ripple through the economy. If workers then demand higher wages to compensate, we have the beginnings of a wage-price spiral. This clearly requires pricing power on the part of firms and bargaining power on the part of workers that have been absent for many years. However, in the current Covid-distorted global economy, there have been signs of both.
Winners and losers
There are clear winners from this energy crunch. Net exporters of coal, gas and oil are clearly smiling, particularly countries such as Nigeria that have really struggled until recently.
In contrast, many countries are energy importers and face not only higher inflation rates, but also potentially balance of payments problems as they need to cough up more of their scarce dollars for each barrel of oil. Compounding matters, this comes at a time when the US Federal Reserve is planning to scale back its monetary stimulus, which has put upward pressure on the dollar. Some developing countries, therefore, face a triple whammy of higher energy costs, a weaker currency, and domestic central bank interest rate hikes aimed at stabilising exchange rates and inflation.
South Africa has one leg in this camp as an importer of petroleum products. The rand has been on the back foot in recent weeks, and this means a big petrol price increase is on the cards for next month.
However, we are also the world’s fifth-largest coal exporter (behind Australia, Indonesia, Russia and the US) and the rising export revenues limit downward pressure on the rand. Coal exports would be even higher if not for the capacity constraints on the Transnet rail corridor from the Highveld to the coal terminal at Richards Bay.
It also helps that inflation has been relatively stable in South Africa, with price increases excluding food and energy costs running at only around 3%. The SA Reserve Bank’s latest forecasts suggest that inflation should stay close to the 4.5% midpoint of the target range over the next two years. However, the risks are clearly to the upside. A gradual interest rate hiking cycle is therefore likely to commence in the next few months. How gradual will depend on where energy prices settle and how the rand responds. The Reserve Bank will also keep a close eye on what other central banks are doing, particularly the US Fed.
Oils well that ends well?
In summary, it is a delicate moment for the global economy, and could end up being a long, cold winter for people in the Northern Hemisphere. The big risks are a slowdown in consumer spending, further disruptions to production and persistent inflation that forces central banks to tighten monetary policy sooner than they’d like. None of this is good for markets.
However, it is worth repeating that the underlying cause is the strong recovery in demand as the world gradually puts the pandemic behind it. This is good. Moreover, energy prices are notoriously volatile. In April last year, a key oil futures contract briefly traded at a negative price. Traders were willing to pay to get rid of the oil rather than take delivery. The most recent price moves in gas and coal also have all the hallmarks of panic-driven trading, and therefore are unlikely to be sustained over time. Investors in diversified portfolios should similarly avoid making panicky moves in response to the recent dramatic headlines. The current situation is the result of a nasty confluence of events, and some of the contributing factors on the supply side could ease.
Finally, in the current context, it might be worth remembering that 13 years or so ago, “Peak Oil” was a dominant investment narrative. It was believed that the global supply of oil would peak and this justified prices surging to $150/barrel and beyond. The opposite turned out to be the case. Today, we’ve probably already passed the point of peak oil demand due to the rise of electric vehicles. Demand for coal could prove stickier, while natural gas could increase in importance as a “bridging fuel” while the world transitions to renewable sources. However, short-term price movements are clearly going to remain unpredictable.
This is relevant when thinking about investments more broadly. Dominant narratives can lead you astray. Just because you read about a “megatrend” or “structural change”, whether it is ESG, clean energy, blockchain, biotechnology, or demographic shifts, doesn’t mean that there is easy money to be made. It could be priced on already, or simply overhyped. You could be way too soon or too late already. Maintaining appropriate diversification across different asset classes and within each asset class remains the best way of investing, even if it sounds boring.
View moreInvestors pushing the drive to net zero
Thirty-two percent of investors are happy for their money to be used to reduce carbon emissions, regardless of return.
Ninety One has published the second edition of the Planetary Pulse survey, Investing for a Carbon Free World: What Investors Want. The survey of more than 6 000 individual investors across ten markets (UK, Germany, Italy, Denmark, Sweden, South Africa, Singapore, Hong Kong, US, and Canada) found that investors are ready to support the drive to net zero, with half stating that asset managers should use their influence as shareholders in carbon-heavy companies to help facilitate the reduction in carbon emissions. This suggests that investors are ready to use their wealth and influence to invest in sustainable solutions which assist in the drive to reach net zero.
Based on their answers, respondents fell into four broad investor personalities when they thought about investing overall and sustainable investing specifically. Despite a clear knowledge gap, the concept of investing to achieve net-zero has positive appeal for four out of five investors. However, many investors remain skeptical about their ability to contribute to efforts to tackle climate change, with 61% stating that they feel the worst polluter should be tackling the issues.
South African responses
In the South African context, almost two thirds of the 1 109 investors interviewed had at least some
knowledge about net zero. 80% indicated that the principle of net zero appeals to them, and 74% believe it
is the most effective way of slowing or stopping climate change. However, they feel it’s more complicated
than it appears: 51% believe there’s no point working towards net zero unless every country does; 62% feel
that simply reducing carbon isn’t enough – we also need to extract carbon from the atmosphere; and 54%
believe that the consequences of simply getting rid of heavy carbon industries haven’t been properly
thought through.
South African respondents were split in their views about their personal impact on the issue, with 58% believing that the onus should be on the worst polluters to tackle climate change and 36% of the opinion that net zero is a pipe dream that will never be achieved. In addition, there seems to be little consensus about the status quo of net zero across respondents, with 58% saying they see little action being taken anywhere with regards to net zero, and 61% now seeing a real focus on net zero and climate change across business and government.
While 65% of South African respondents believe that less than half of their portfolios are invested in companies or funds that are helping the world to achieve net zero, 65% said they would increase that proportion over the next 12 months. Interestingly, 67% of respondents felt that investment managers can drive the move to net zero by using their influence as shareholders to help companies reduce their use or production of carbon, while only 21% felt that divesting in companies that are high carbon emitters would help to achieve this goal.
Globally, it is evident that divesting from high emitters will create significant risks and inescapable consequences for emerging markets, starving them of capital. While nearly half (49%) of all investors were able to see the negative impact divestment will have on the developing world, there is more conversation needed to raise awareness regarding the allocation of capital to ensure an inclusive, global transition to net zero.
Encouragingly, these findings confirm the growing global movement to create long-term, impactful changes to tackle climate change and shift to investing for net zero, with nine out of 10 global investors and 77% of South African investors stating that they believe that reducing carbon emissions should be encouraged and are happy for their money to play a part in achieving that aim. Moreover, 32% of investors (30% in SA) believe this so strongly that they are happy for their money to be used to reduce carbon emissions, regardless of return.
Hendrik du Toit, Founder and CEO, Ninety One: “We believe in sustainability with substance. However, there is an incontrovertible and sobering fact about the drive to net zero – any effort that does not work for the world’s 7.9 billion people, will fail everywhere. To really save the planet, we must help emerging markets go green. That means robust carbon markets, debt-for-climate deals, and financing options to speed up the transition. As a company with its roots firmly in South Africa, we understand this need perhaps better than most. Emerging economies, after all, are not responsible for the bulk of emissions to date.”
Deirdre Cooper, Co-Portfolio Manager, Global Environment Fund, Ninety One: “The climate crisis presents both tremendous opportunities and risks to investors. This survey makes clear that investors across the globe are looking to allocate capital to funds that invest in companies and countries that are working towards a sustainable future. The investment management industry has an integral role to play in tackling the climate crisis in the real economy, and this cannot be met by providing investment capabilities to investors which tilt towards asset-light sectors, moving capital out of emerging regions, or selling assets to less responsible owners and outsourcing. It is our responsibility to provide end investors with solutions which can counter the climate crisis.”
