‘Go green or lose investors’

A new report from JPMorgan highlights the fact that SA’s carbon emissions are among the top 10 globally, and this could affect its stock market as climate change moves up global investors’ agenda.

The global equities house cites the high level of emissions from Sasol, as well as from Eskom. But JPMorgan is optimistic about SA’s ability to respond to the climate change challenge — as long as it presses ahead with its renewable energy programme and gets it right.

SA’s “ability to shift both petrochemical production and energy generation away from coal to renewables gives it an easy way to cut generation costs via cheaper renewables. The social and political challenges around 90,000 coal mining jobs are the most difficult challenge in this shift, followed quickly by one coal-to-liquids plant emitting more carbon than Singapore, Hungary or Norway.

"Achieving a just transition quickly will be key in a country with South Africa’s social issues,” said David Aserkoff, JPMorgan CEEMEA Equity Strategist.

SA relies on coal for more than 80% of its power generation, with coal accounting for a fifth of all mining jobs and — at current prices — the single largest chunk of SA’s foreign exchange earnings, official figures show.

SA has committed to demanding carbonreduction targets but the promised new rounds of the renewable energy programme have been slow to take off.

Aserkoff made it clear, though, that more and more investors are thinking about ESG (environmental, social and governance issues) in general, and climate specifically.

“What’s happened in the last year or so is investors have got more specific about the impact investment process and stock selection and country selection,” he said in an interview.

“ESG is shifting from a vague idea to very concrete ‘buy this, sell that’.”

Aserkoff urged SA to emulate the United Arab Emirates’ experience of annual solar energy auctions — “that would give business confidence to build local capacity … As well as demonstrate administrative competence in a country with a declining EAF [energy availability] at Eskom and rising load-shedding.”

The report highlights the issue of emissions at Sasol’s Secunda plant, which has a carbon intensity that is way above all other oil refiners globally and “is the single largest spot emitter of CO2 on the planet”.

JPMorgan’s analysts see limited scope for Sasol to substantially change direction.

The report says SA has started 2021 on the right note with President Cyril Ramaphosa announcing rounds of new renewable energy procurement and plans to repurpose one of Eskom’s oldest coal-fired power stations, Komati, which is due for decommissioning.

But it’s scathing about the department of mineral resources & energy’s recent choice of liquid natural gas power ships to add power to the grid quickly — a decision which has, subsequent to the JPMorgan report, been challenged in court on the grounds of alleged corruption.

In a global context, SA’s ESG scores as calculated by JPMorgan’s quantitative team end up in the top quadrant, mainly thanks to improvements particularly on the social metrics of ESG, which saw SA make the largest positive leap over the past year relative to other large emerging markets.

Among the JSE-listed companies that score well on JPMorgan’s ESG metrics are Tiger Brands, Clicks, Bidvest, Old Mutual and Impala.