Some giant leaps, but SA still a few climate laps behind
SA businesses that have been neglecting their environmental footprints will find 2020 tough. Many would have noticed the centrality of environmental issues at the World Economic Forum (WEF) meeting in Davos. Aside from the hype the Greta Thunberg/Donald Trump showdown created, “How to save the planet” was the most mentioned topic at the event.
This was supported by the mid-January release of the WEF global risk report, which showed that the top five most likely economic risks are environmental, including extreme weather events, failure to invest in adaptation or emissions reductions, and biodiversity loss.
All very troubling indeed, but hardly new news. With highprofile local issues, including flailing state-owned enterprises (SOEs), an imminent credit downgrade, private property insecurity and a sluggish economy, it would seem that we have more pressing fish to fry back home. Or do we?
After years of neglect in environmental, social and governance (ESG) reporting, the environment got put firmly on the SA ESG reporting agenda for the first time in 2019 when shareholders at Standard Bank and FirstRand voted on climate change resolutions at their annual general meetings (AGMs). True, the successful resolutions only went as far as to require reporting on coal lending, as opposed to the more comprehensive resolutions requiring full emissions and climate risk disclosure, but an indicative shift all the same.
Just how indicative merits scrutiny. So let us reflect on recent history and add some context by looking at a timeline of related developments.
In December 2015 the Financial Stability Board approved the creation of the Task Force on Climate-related Financial Disclosures (TCFD) after the Paris Agreement on climate change. It took until June 2017 for the task force to release its 11 approved recommendations with the support of about 101 corporates, but by December 2018 CEOs from 785 organisations had committed their support.
Shortly after this the UN Principles for Responsible Investment (UNPRI) announced its 2,700 global signatories had to report on the governance and strategy components of the TCFD by 2020.
In February 2019 the SA Carbon Tax was passed and two months later, despite the lack of support from the board, Standard Bank’s AGM returned a yes vote on one of two proposed climate resolutions. In June 2019 the European Commission published its technical report on an EU taxonomy to facilitate sustainable investment. In
November 2019 FirstRand committed to releasing a “full road map” on climate risk disclosure by 2020. In January 2020 Bloomberg reported a 78% increase in global sustainable debt finance in 2019, and the world’s largest asset manager, BlackRock, announced its intention to divest from companies that derive more than 25% of revenues from thermal coal by mid-2020.
That’s a giant leap in the demand for sustainable financial products as well as a huge stride forward in environmental reporting on a set of principles that came into existence only in mid-2017. In SA UNPRI signatories include Investec, the Public Investment Corporation, Sanlam, Stanlib, Coronation, Allan Gray, Old Mutual and 62 other financial services providers. They will be required to disclose the actual and potential effects of climaterelated risks and opportunities as well as their strategies to deal with these issues on a portfolio level.
From an investment perspective this could not have come at a more pressing time. The National Business Institute reported in 2019 that SA companies were identified as having the highest proportion of both substantive risk as well as opportunity stemming from climate change in the world. In layman’s terms, we have both the most to lose and the most to gain, depending on how we choose to respond.
Our exposure to extreme weather is clear, the carbon intensity of our energy is high and our position in global supply chains is peripheral. The time for decisive private sector action is now.