Funding climate change adaptation
AFTER the disruption and pain we went through with the Covid-19 pandemic, it is said that we face an even larger existential crisis, in the form of climate change and global warming.
The thought of going through something far worse than the pandemic is petrifying and one hopes those sentiments are exaggerations.
Sadly, all signs are that the fears are quite reasonable and climate change and global warming could hurt us even more than what the past two years have done.
Zimbabwe has been no exception to the adverse effects of climate change, for example the destruction suffered from Cyclone Idai in 2019, and now the erratic rainfalls we are experiencing. The rains have the potential to cause considerable negative effects on food security in the coming periods.
Other countries within our vicinity are enduring floods, while we have inconsistent rains. In my view the rains will disrupt any economic revival initiatives, further compounding fuel price shocks due to the Ukraine and Russia situation, which has already started to hit our pockets.
Coming back to climate change and global warming, at the United Nations Climate Change Conference (COP26) in Glasgow last year there was consensus around the need to act now!
Even as a nation we have pledged to lower our emissions. As much as Zimbabwe and Africa in general have not contributed much to the greenhouse gases, we have to play our part.
This point is thorny because as the developing world we are more vulnerable to the effects of climate change and yet we are the least contributors.
In order to start driving this agenda and turn the discussions into tangible results on the ground, we need to address the usual issue for any major undertaking funding.
I was recently on a panel discussing this very issue at an event that the Institute of Chartered Accountants of Zimbabwe (Icaz) co-hosted with the Financial Markets Indaba, and one thing is very clear. Any initiatives will require deliberate and focused effort especially around funding.
The buy-in and commitment, I feel, is already there at all levels but we now need to take the key steps with specific reference to funding.
The productive sectors
As earlier alluded to the productive sectors are the key drivers for economic success, whilst they are in turn one of most energy intensive.
This translates to the level of carbon output as well.
Key areas that will be essential in meeting any targets to reduce our carbon footprint include infrastructure, industry, agriculture, waste, energy, forestry and land.
Each of these sectors has specific considerations to be made and the corresponding funding requirements demanding action. I will breakdown a few of these down below:
Energy - Leap-frogging fossil fuels
We are in the process, as a nation, of adding electricity generation units at our largest thermal power station in Hwange and going forward there is unlikely to be any backing for similar projects.
As earlier insinuated, the developed world is where it is today, in part, due to these so-called ‘dirty’ fuels. The developing world thus has a proven model that we could make use of and frankly speaking can be argued to be the lowest hanging fruit.
However, we then need to make a conscious effort to avoid fossil fuels as we ramp our own industrialisation efforts.
This of course, means massive investment in new technologies around energy. Examples include the familiar option which is solar and other sources like wind, geothermal, hydro and geo-thermal.
Solar is the go-to option as we have an abundance of sunlight and the operational costs for solar power can be lower than traditional sources.
The reliability is the disadvantage as you do not get solar power on demand but it rather despatches itself. This is therefore the reason to have a good mix of various sources.
Funding required for this is both short term and long term. Energy requires players in both short term and long term financing to support the sector.
There is a huge outlay of resources at the set up phase of most energy projects. Derisking the sector is important and there are a few pioneers that have already started to put capital into the new projects, but more needs to be done.
Funders have to hope onto the wagon quickly to provide both short term and long term financing. In addition, availability of foreign currency is an area requiring constant attention.
Besides my own experience and conflict,
I chose to expand energy in detail because, in my view, it is arguably the most critical by any measure. This sector is also an enabler for growth.
Furthermore, energy has the greatest potential given the current deficits. To wrap I would also like to reiterate the current crisis emanating from Eastern Europe and how it demonstrates the importance of energy.
Agriculture
This sector is also at the base of most economic activities. The climate change induced rainfall patterns are threatening food security and will hamper a lot of other processes.
Failure to adequately produce our own consumption needs results in the loss of vital foreign currency as we import food.
The sector needs to adapt to climate change and global warming. Climate change is proving agriculture requires significant investment.
For example, we need to have early warning and predictive forecasting for possible droughts.
There is a need for adoption of technology to improve efficiency.
Research and development in the area of climate change tolerant strains of crops is a must. Entities in this space do have budgets for such, but need additional support from both the financial services sector and even the government.
The outlay of resources in research and development can have the disadvantage of not yielding immediate results thus the need to support.
The AFC Holdings is an interesting development as it provides development finance, commercial banking, insurance and leasing for the sector.
Tailored solutions with a focus on climate change adaptation are an important aspect to help prepare the sector for climate change and global warming.
Industry
Value addition which, I always like to highlight as one of my favourite areas requires an input of resources and energy. Over and above increased economic activity, employment, prosperity and so on, the other outputs are processed goods and carbon.
Whilst there are more ingredients, the combination of energy and agricultural produce (and other extractive sectors’ output) is what gives rise to industry.
It is very easy to focus on all the benefits and forget the impact on the environment that industry has.
This has a bearing on climate change and global warming.
Industry should look into ways to reduce its carbon footprint.
For example, this can be done by reorganising waste habits, increasing awareness among employees, customers and stakeholders. Over and above one’s own efforts, it is imperative to select sustainable suppliers. With reference specifically to funding, the financial services sector can also actively participate by shifting capital from high to low carbon activities.
This is the trend that institutional investors around the world are pursuing and Zimbabwe should not be left behind.
Final thoughts
The other areas I did not touch on will be looked at in another piece. In conclusion though, it is important to note that transitions to net zero come at a financial cost that all players must accept.
The alternative cost is more than just financial, it is existential.
Mavengere is the technical director at the Institute of Chartered Accountants of Zimbabwe (Icaz), which is the largest and longest standing PAO in Zimbabwe, having been established on 11 January 1918, and is a body corporate incorporated under the Chartered Accountants Act [Chapter 27:02]. ICA Z provides leadership on the development, promotion, and improvement of the accountancy profession focusing in the areas of accounting education, assurance, good governance practices and leadership and organizational excellence. Owen can be contacted on technical@icaz.org.zw or twitter: @OwenMavengere.