The global focus on achieving sustainability imperatives that provide businesses with the social licence to operate is gaining similar momentum in SA. In fact, building a green economy where corporate SA conducts its business in a sustainable manner is rapidly becoming table stakes in terms of attracting foreign investment.
A recent Financial Mail Green Economy conference, in partnership with Old Mutual Investment Group, unpacked the shift towards cleaner industries and renewable energy solutions to realise economic growth, competitiveness and inclusion.
Tebogo Naledi, MD of Old Mutual Investment Group (OMIG), put the spotlight on capital allocations and how investment managers can drive impact through the listed market. SA’s current policies, he said, are doing little to fast-track a just energy transition. If the country is to meet its intended carbon emission reduction targets it needs to urgently start implementing actions that will make a meaningful difference, particularly given the growing demand from trade partners that the companies they do business with need to have a plan to reduce their carbon emissions.
Demand for responsible finance is intensifying with policy interventions growing exponentially in the last 20 years, said Naledi. Despite policy interventions and greater demand from managers, he warned of a tendency by some companies to greenwash their ESG claims.
OMIG, which manages more than R400bn of investments, believes firmly in responsible investing, said Naledi. The business is cognisant that a transition to a low carbon society needs to factor in that SA is an emerging market. As such, disinvesting in fossil fuels overnight is not a good idea.
“Our priority is on ensuring that the transition to net zero is just and that we achieve real world decarbonisation,” he said.
Matthew Cruise, head of PR and Business Intelligence at Hohm Energy, a solar solutions and financing business, discussed the state of the national utility post SONA, the State of Disaster and the budget speech.
Delays in the unbundling of Eskom and the democratisation of the energy sector coupled with corruption and a lack of proper incentives for private power producers to supply the grid don’t auger well for the energy sector, said Cruise. Conservative predictions are that load shedding will double over the next five years. Energy prices are also projected to double over the same period as the cost of diesel continues to rise.
In Vietnam, a government-driven solar PV incentive scheme was very successful. Key to the success of the initiative was that the Vietnamese government committed to a long-term feed-in tariff which provided measurable financial returns. SA, however, determines the price of electricity every two years. “If we want to encourage and incentivise funding we need to confirm the price of electricity for the next two decades,” said Hohm.
A panel of experts discussed how to solve SA’s energy crisis through renewable energy. James Cumming, GM of renewable energy company ACED said renewables can only do so much until battery storage improves. To solve the current energy crisis requires that Eskom’s current fleet of power stations performs more optimally while at the same time getting renewables onto the grid.
Although ACED has a number of renewable projects in the pipeline, he said more precedence needs to be created to get projects online more quickly.
Neither green hydrogen nor gas energy projects are an ideal solution to the current energy crisis given that they both take a long time to implement, said Cumming.
Jan Fourie, Sub-Saharan Africa EVP of renewable energy producer Scatec said we need to accept that Rome is burning which requires urgent concrete actions rather than more meetings. Not only do we need all hands on deck to fix Eskom, expand the grid and get better at implementation but the gloves need to come off in the relationship between government and private sector.
The problem with nuclear power, he added, is that these projects are typically always over budget and take a lot longer to build than expected. Given the failures at Kusile and Medupi, SA should not mortgage its future for nuclear energy. He said focusing on gas to solve SA’s energy crisis was a similar fool’s errand.
Kyle Durham, head of Sustainable Finance and ESG Solutions at FNB Commercial revealed that sustainable finance for commercial businesses is still a relatively new concept. Although a significant amount of capital has been pledged, he questioned whether it was going to the right projects. He conceded that commercial banks need to play a more active role in procuring solutions for customers.
Franc Gray, the chief lending officer at Hohm Energy pointed out that although capital is available, it is often not deployed timeously into the right areas. He called for better transparency of the value chain. Hohm Energy is primarily focused on providing solar solutions and finance to the residential sector. Gray revealed that SA is very short of solar installers.
A second panel discussion put the spotlight on driving investments into the green economy with a focus on utilising green local production, production and resource efficiency.
Robert Lewenson, head of Responsible Investment at OMIG pointed out that responsible investing is a driver of green economic growth. OMIG, he said, allocates capital that makes a positive impact. There is a growing acknowledgement that material risks can have a significant impact on a business. However, SA requires more shareholder activism. He said ESG and sustainability metrics need to be incorporated into the remuneration of chief executives.
Diana Sibanda, group head of Sustainability at Coca-Cola Beverages Africa, said Coca-Cola believes that sustainability is about doing business the right way. It also believes that a world without waste is possible and focuses on sourcing sustainably.
“Gone are the days that sustainability is merely the right thing to do. It’s become key to our survival. We recognise that without water there is no Coca-Cola. Water is a resource that we can’t replicate which is why we need to protect our water sources.” Coca-Cola has committed to replenishing 100% of the water it uses in terms of sales volume.
Shabeer Jhetam, CEO of The Glass Recycling Company, the producer responsibility organisation (PRO) for glass packaging in SA, said while recycling used to be a nice thing to do, environmental legislation has pushed companies to focus on sustainability and environmental issues. Extended producer responsibility legislation, which requires that producers assume responsibility for the end life cycle of the packaging they use, has changed the mindset of corporates who are now starting to realise that sustainability has advantages.
Richard Kriel, the strategic Projects & Sustainability manager at HEINEKEN South Africa, pointed out that while profits and productivity were the key focus areas for most companies a decade ago, there has been a growing realisation that ESG is material to bottom line. The challenge in SA is that most boards don’t understand ESG goals. “Sustainability is not a one size fits all and getting to net zero, particularly in SA, will be a challenge.”
He added that HEINEKEN South Africa is particularly focused on water usage and efficiency; opportunities for circularity; and water re-use. The business has committed to putting 1.5 litres of water back into the water shed for every 1 litre that it uses.
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