Is Africa being left behind in the push for a net zero world?

The UK shooting past its record high daytime temperature in July was a powerful reminder that the effects of climate change aren’t something that will be felt in the distant future, but which are with us here and now. It also happens that there have been a lot of those powerful reminders in 2022.

By Brondwyn Douglas, Senior ESG Officer at Spear Capital

Whether it’s the wildfires raging across Europe, the floods that ravaged parts of Australia and South Africa earlier this year, or the megadrought that’s enveloped southwestern North America, the signs are now too glaring to ignore. 

Acknowledging the problem and addressing it, however, are two different things. Much has been made of the net-zero commitments made by some of the world’s biggest governments, as well as the fact that the combined assets companies committed to achieving net-zero emissions had risen to US$130 trillion by the end of 2021. 

But in the quest for a net-zero world, is Africa being left behind? Is it getting the support it needs to not only develop sustainably but also live with the effects of the climate catastrophe? 

Addressing significant vulnerabilities 

Africa is, after all, disproportionately affected by climate change, with rising global temperatures already triggering food insecurity, poverty, and displacement across the continent. There will be other impacts too, including the destruction of heritage sites and a rise in conflict.

In many ways, the continent is suffering from the actions of others, particularly in the developed world. Africa itself is only responsible for less than three percent of global CO2 emissions. Despite that and despite the fact that large parts of the continent still have a lot of ground to make up when it comes to growth and development, it is under massive pressure to reduce its own emissions. 

In fact, as an article in Foreign Policy points out, some rich-world nations have gone so far as to leverage development aid and threaten to cut off finance to push African countries into adopting climate change mitigation strategies. At a surface level, it’s possible to see why the rich world is putting this kind of pressure on the continent. Having seen the rapid economic rise of China, India, and other large emerging markets result in matching increases in carbon emissions, it fears that the same will happen in Africa. That too makes a modicum of sense. While population growth in other parts of the world is plateauing or even shrinking, it’s still accelerating across the continent. In fact, 2020 research showed that the world’s 15 fastest growing cities were all in Africa.   

Ignoring Africa’s realities    

The trouble is both of those views ignore a couple of realities. The first is that the continent is starting from such a low energy usage base (with the notable exception of South Africa, which has the world’s most polluting power company in the shape of Eskom) that, even on the continent’s accelerated growth path, its contribution to global emissions is likely to remain lower than that of the developed world for some time to come. 

The second is that Africa has a long history of adopting new innovations without needing all the preceding stages other countries experienced. The story of how the continent “leapfrogged” fixed line telephony with mobile phones is well-trodden, as is its embrace of mobile money. Less well-known is how it’s used those innovations to embrace things like off-grid solar power.

As countries across the developed world try to figure out how to change their power systems from one-way, centralised grids to smart, two-way ones, many parts of Africa have a chance to take such an approach from the beginning. 

Investing on the ground  

Africa, in other words, needs different ways of thinking to guarantee a greener future. To our mind, that looks like investment in the companies that are already making a difference on the ground, fostering development, and advancing sustainability. 

These companies understand the realities of the markets they operate in and are in a much better position to push Africa towards sustainable development and even net-zero than paternalistic handouts and punitive threats.

While limiting the effects of the climate catastrophe is and should be a global effort, it should not be informed by misconceptions that Africa represents some kind of existential climate threat. In fact, with the right investments in the right places, it might just offer models that the rest of the world can follow. 

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Food innovation: investing to feed our future

Thought leaders from Franklin Templeton and its specialist investment managers weigh in on the challenges and opportunities facing the food and agriculture sector of the future

The Franklin Templeton Institute released its latest insights paper, “Food innovation: Investing to feed our future,” focusing on the innovation and investments needed to feed a growing global population in the face of climate change and geopolitical conflict. The paper features perspectives from a variety of Franklin Templeton experts. Highlights of their remarks include:

Over the coming decades, investors, asset managers and researchers will be increasingly focused on the challenge of feeding a growing global population in the midst of climate change, geopolitical shocks and uncertainty. It is clear to Franklin Templeton that innovation in food and agricultural technology will be necessary to boost agricultural productivity and the nutritional value of food while reducing the negative impacts of agriculture on the environment. 

The war in Ukraine is a stark reminder of the geopolitical risk in agricultural supply lines. This crisis arrived on the heels of Covid-19 pandemic-induced inflation, which has increased food prices over 30%, creating an additional US$42 million in monthly costs to feed vulnerable populations. Asset managers have a responsibility to actively identify opportunities and risks in the financial markets, to protect clients’ assets by generating, sustainable risk-adjusted returns. Understanding investment and impact is what sustainable investment is all about: taking care of people, the planet and prosperity. Food is essential to each.

The future of food, including the innovation and technology that will be needed to safely produce and distribute the food we need, will impact global investors across asset classes. The necessary innovations in the food industry must be financed. Whether it be funding for improving traditional farmers’ production, the move to high efficiency indoor agriculture, startups developing alternative proteins, or helping companies build supply-chain resilience, all will require large capital inputs from equity, fixed income and private markets. In equities alone, food makes up US$4.9 trillion, or approximately 4% of global market capitalisation. Further, it is critical that carbon trading and carbon markets also developed as soon as possible.

As emissions continue to grow and global temperatures continue to rise, higher carbon dioxide levels in the atmosphere reduce nutrient levels in foods. Mitigation of these trends will require a broad range of solutions, including addressing issues around policy, land use, diet, waste, subsidies, and trade agreements. At the same time, the food system is highly complex and interconnected, and deployments of capital must consider unintended consequences. Changes in the system create ripple effects that have long-term impacts and can lead to severe disruptions.

As we invest in innovation to help reduce negative externalities, it will be necessary for investors to more effectively measure and price environmental impact. The economic value of natural systems and the risks to these systems’ further degradation must be accounted for in asset pricing. Half of global GDP has significant risk exposure to changes in nature. It is estimated that this transition will generate US$10 trillion in additional business revenue and cost savings and over 395 million jobs by 2030, of which US$3.6 trillion and 191 million jobs are directly related to changing the food system. For investors, there are opportunities to help fund the global economy’s transition to a nature-positive economy.

The banking sector has a key role to play in managing and mitigating the impact of the food supply chain on biodiversity and climate change. The global food system is responsible for 70% of global water use, over 50% of biodiversity loss and over 33% of greenhouse gas emissions contributing to climate change. Banks provide a wide variety of finance to companies involved in agriculture and food supply chains, including term loans, trade finance, revolving credit and project finance. We are seeing that some of the leading banks are recognising their impact on the food system in their approach to agricultural lending activities. We believe that banking leaders will seize the potential investment opportunity in this space while also effectively managing risks associated with the food sector.

Banks can further incentivise change by setting eligibility criteria that preclude the conversion of forest or ecosystems. These conditions can be applied retrospectively, by looking at what producers have done and removing eligibility as appropriately, or prospectively, by applying a penalty interest rate once the loan has been received. Further, supply-chain financing can have a broader influence with buyers or financiers supporting “conversion-free” supply chains, whereby they choose to buy or finance only those agricultural commodities that are not linked to deforestation or conversion of other ecosystems.

Banks will need reliable and robust biodiversity data to enable target setting, and there is a real need for more streamlined biodiversity-related key performance indicators. We are encouraged by the development of reporting frameworks, including the Principles of Responsible Banking (PRB) and the Task Force on Nature-related Financial Disclosure (TNFD), which will facilitate lenders and investors to make more informed assessments on the risks and opportunities associated with the food supply chain.

A productive and sustainable agricultural system starts with rebuilding healthy soils through nature-positive practices, representing cost-effective, sustainable, and scalable ways to sequester carbon and generate positive ecosystem benefits. Regenerative agriculture is centered around practices that promote soil health, crop diversification and human health. The Croatan Institute estimates that regenerative agriculture could mitigate up to 170 gigatons of CO2 emissions and generate nearly US$ 10 trillion in net financial return over the next 30 years. More than US $700 billion of financing is needed to scale these agricultural solutions in the United States over the next 30 years, representing a significant opportunity for investors to invest in a more sustainable food system.

Due to the transition period required to rebuild soil health, the investment opportunity for regenerative agriculture is primarily concentrated in private markets.  This includes real asset strategies that acquire conventional farmland to be transitioned to regenerative or organic, as well as venture and growth equity funds that invest in innovations to support the scaling of regenerative practices across the value chain in areas as diverse as soil monitoring sensors, biologics, marketplaces, satellite technology, regeneratively-grown food products, and more.  While there are no cure-all solutions, it is critical to transform the agriculture and food system toward nature-positive solutions to help manage risk, meet our climate targets and preserve the environment for future generations.

There is a common misconception that Gulf Cooperation Council (GCC) states are behind the curve in terms of applying environmental, social and governance (ESG) practices, but we see that GCC states are making progress in areas such as carbon emissions and food security, presenting unique opportunities for investors.

We believe GCC markets are better placed than most in terms of adopting ESG protocols because the largest emitters of greenhouse gases – national oil companies and utilities – are government owned. This gives governments much more control in terms of implementing necessary technological upgrades and regulatory changes. Initiatives such as seawater harvesting, soil improvement techniques, microalgae production and groundwater conservation have all played a part in improving food production in the region.

Despite the bold and ambitious policymaking and programming, the GCC is still only 31 percent food secure, on average, and storage and transportation of locally cultivated produce is still very inefficient. It is estimated that US$200 billion of investment is required annually until 2050 to meet the GCC food supply and demand gap. These investments are needed across the full value chain, including capital to improve efficiency gains, technology and the development of novel processed food. Investments will also be needed to support better logistics, help reduce waste across the system and improve storage capabilities. We see that there is an opportunity to invest in companies applying technologically advanced production and farming technologies to disrupt the region’s alliance on imported food.

Like clean energy infrastructure before it, vertical farming will mature into a defined real asset sector that will be a part of well-diversified portfolios. Over the next several years, vertical farms will create alternative use cases for underutilised land and vacant buildings, and create opportunities to drive lasting social and environmental impact.

A confluence of powerful short-term and long-term market factors give vertical farms the potential to become a major disruptor in the food and agriculture space. The global population is growing, the supply of arable land is shrinking, weather patterns are becoming far less predictable, eating habits are shifting and demand for sustainable products is growing. We need solutions that increase yield; use less water, chemicals and land; and reduce our dependence on long, wasteful and complex food supply chains. Vertical farming promises to not only increase global food security, but also to provide forward-thinking investors with strong opportunities to bring scale to this burgeoning space.

For investors, large-scale emissions reductions in agriculture from developing technologies are a long way off from monetization, but plant-based food categories look to be growth stories, and in many cases, these foods are getting a push from large consumer staples names.

Changes in consumer preference are already reducing the harmful climate effects of cultivating beef, as the shift in consumption from beef to chicken has already resulted in less land used for meat production. Changing consumer preference is also relevant in the milk arena, where consumers have been gravitating toward replacing almond milk and soy milk with oat milk. For any diet-based strategy geared toward lowering carbon emissions, consumer taste will continue to be a critical variable in growing this space.

Two goals of COP26, the United Nations (UN) Climate Change Conference included curtailing deforestation, with Brazil as a focus, and building resilient agriculture. Brazil’s beef industry has faced pressures over deforestation as supermarkets and consumers steer clear of beef linked to the demise of the Amazon rainforest. The ability to trace cuts of beef to a single animal and ranch within Brazil, including tagging cattle with chips after birth to digitally track movements, will be crucial for minimising revenue losses and reputational damage from food safety concerns. Without digital traceability, Brazil’s largest meatpackers face potential bans from markets like Europe and potentially China.

A global carbon market would give Brazil’s government a tangible monetary incentive to enact more climate-friendly policies that will limit deforestation. A global carbon market that confers monetary value to forests and farmland soils could benefit not only Brazil and the Amazon, but also rainforest countries, such as Indonesia.

Challenging weather conditions have impacted food production and resulted in increased consumer prices across the globe. Sustained commodity price increases have demonstrated the need for a more stable food supply and present investment opportunities for credit issuers who can lead with innovative solutions to meet rising global demand and consciously work to mitigate the social impact of climate change.

Credit issuers should work to provide local farmers with education and capital investments, possibly in the form of micro loans or other local partnerships to implement best practices in land management, water efficiency and crop resiliency. Credit investors would be able to earn an investment return while also contributing to overall increased agriculture sustainability and reduced greenhouse gas emissions through lower tilling needs, improved crop resiliency and increased farmer profitability.

One of the biggest opportunities for companies to mitigate the risk of higher input costs resulting from shrinkage of supply-induced impacts related to climate change is by investing in agricultural innovation and technologies that support more sustainable land practices, more resilient crops and higher crop yields. The debt capital markets currently provide some of the best investment vehicles to address the wide scale mitigation of climate risk in our food supply.

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ESG – Taking a purpose driven approach to creating value and impact in Africa

“ESG” stands for Environmental, Social, and Governance. ESG has become a ‘buzzword’ (or, better put, another three-letter acronym) in the corporate world.

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JSE unveils Sustainability and Climate Disclosure Guidance

The Johannesburg Stock Exchange (JSE) has released its Sustainability and Climate Disclosure Guidance that aims to promote transparency and good governance, and guide listed companies on best practice in environmental, social and governance (ESG) disclosure.

In December 2021, the bourse published the Draft Sustainability and Climate Disclosure Guidance for public comment, which paved the way for a comprehensive consultation process with a broad group of stakeholders including market participants, sustainability specialists and corporate governance bodies.

“The JSE recognises the need to create an enabling environment for better disclosure practices, especially in light of regulation and guidance that are changing rapidly globally. The Sustainability Disclosure Guidance is intended to help companies to align with recent and imminent changes in global standards and international best practice regardless of their experience in sustainability reporting,” says Leila Fourie, Group CEO at the JSE.

The JSE disclosure guidance combines global best practice with local relevance, and simplifies ESG disclosure for both listed and private companies in a context of a myriad of frameworks, guidelines, standards and ratings in the market.

Unpacking the JSE Disclosure Guidance

The Sustainability Disclosure Guidance is an impact-focused, overarching reference document that has a basic set of metrics which are rooted in existing, well-established global standards. It is the blueprint which will assist companies to understand what matters, both on a local and global landscape, and start disclosing.

Parallel to that, is the Climate Disclosure Guidance which specifically aims to clarify current global best practices in climate-related disclosure and provides a step-by-step guide to get issuers started on this journey. The guidance can be a starting point for those tasked with preparing reports with the goal of integrating climate-related information for the first time, while also providing additional resources that can help deepen the journey into climate-related disclosure for those that are more advanced.

“It is our hope that the JSE Disclosure Guidance will help to improve business leadership, performance, accountability and transparency across the entire sustainability ecosystem,” concludes Fourie.

While organisations will have the prerogative to draw fully or in part from the guidance framework to augment their existing disclosure practices, the JSE supports the understanding that the structure of any high-quality disclosure is similar for organisations of all forms and sizes.

The JSE has long championed sustainability as it was the first emerging market – and the first stock exchange globally – to introduce a sustainability index in 2004. It is also a signatory to the United Nations-backed Principles for Responsible Investment and a founding partner of the Sustainable Stock Exchanges Initiative. The JSE is also home to the existing FTSE/JSE Responsible Investment Index and launched the Green Bond Segment in 2017, which was expanded to a fully-fledged Sustainability Segment in 2020.

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Bank of America: Food security — where environmental and social collide

  • Environmental meets social: food security is becoming an ESG issue given current geopolitics and climate change risks.
  • Food insecurity hurts EMs most, but also hits retail, beverages, hospitality, etc. Telecoms & media may see wage inflation.
  • Over 2bn people face food insecurity, yet 1/3 of food produced is wasted. We look at recipes for change from now to 2050.
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ICMM Members Commit to Consistent Reporting on Social and Economic Contribution

The International Council on Mining and Metals (ICMM) has published a new Social and Economic Reporting Framework which commits members to report against a set of social and economic indicators, empowering stakeholders such as communities, governments, and investors to assess the contribution of mining to social and economic development more easily.   

ICMM members, representing around a third of the industry, have committed to report on eight key indicators which includes country by country tax reporting on revenues, payment and tax, workforce composition, pay equality, wage level, training provided, local procurement, education and skills programmes, and capacity building.

This disclosure will also help companies to better assess and strengthen the delivery of their social and economic contribution programmes, and provide a clearer overview of the contribution mining is making to economic growth, employment, skills, health, education and a range of other development opportunities in the regions close to their operations. 

Rohitesh Dhawan, CEO, ICMM said: “Mining plays a significant role in driving social and economic development in the regions where it takes place. What has been missing until now is a consistent set of indicators that measure these contributions, like for like. ICMM’s Social and Economic Reporting Framework raises the bar in several areas including the disaggregation of data by gender and ethnicity, and reporting of employee wages compared to the local living wage. This commitment represents a major step forward, and I encourage all mining companies to adopt the Framework to provide a more complete picture of the industry’s social and economic contribution and collectively identify areas for improvement. 

We recognise that there is still more to do to measure, prevent and manage the negative impacts mining activities can have on local communities. We will continue to work closely with stakeholders to assess the potential evolution of the Framework so that we can build on the data already being provided to give a clear picture of our members’ performance.”

Chris Griffith, CEO Gold Fields, said: “Along with other ICMM members, Gold Fields was actively involved in the development of the Framework as we believe the reporting of social and economic indicators is critical to help provide a clear picture of the contribution we make. This transparency is key to winning the trust of our stakeholders, particularly host communities and governments. We are already aligned with several of the indicators – as reported in our annual Report to Stakeholders – and are working towards disclosure against the full Framework.”

The Framework was developed through an assessment of existing reporting frameworks and company practices relating to social and economic contribution. It was informed by consultation with a range of external stakeholders including investors, civil society, customers, and international organisations and tested at sites by ICMM members. It builds on existing frameworks such as the Global Reporting Initiative (GRI), thereby ensuring a streamlined approach to reporting. Where indicators were not available in existing frameworks, new ones have been developed and included in the Framework.  

ICMM members have already started the work needed to incorporate these indicators into their reporting systems and are committed to disclose against the indicators by 2024, except for country-by-country tax, for which reporting is expected from 2025.

Rohitesh Dhawan will be moderating a panel at African Mining Indaba, where ICMM Council member Chris Griffith (Gold Fields CEO) and Anglo American South Africa Chair Nolitha Fakude will discuss mining’s overall contribution to society, the importance of consistent reporting on contribution, and how transparent reporting will help to build trust across the sector.

  • You can view the Social and Economic Reporting Framework and Guidance here


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ESG in the Mining Industry: What’s Missing?

By Nomsa Mbere, Partner & Sebastian Steenkamp, Associate by Webber Wentzel

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