Companies around the world have joined governments in setting net zero carbon emissions targets, but the decarbonisation journey is a complex one and concerns remain about how some will manage their energy and related decisions. Nicole Martens, Associate Senior Consultant at Trialogue, explains how the private sector can make a successful transition, challenges notwithstanding.
Prior to this year’s COP26, we witnessed a growing number of countries, cities, and companies committing to ‘net zero’ by 2050. How are countries in Africa faring and what does this mean for local companies?
By August 2021 more than 100 countries had pledged to get to net zero emissions within the next 30 years. Six countries, including the United Kingdom and New Zealand, had enshrined the commitment into law, and a further six, together with the European Union, are en route to do the same. Many African nations are on the list of intended net zero commitments, including South Africa, whose ambition is for a net zero by 2050. Egypt, Algeria and Kenya are also making significant strides in progressive energy policy, with Egypt selected to host COP27 in 2022. Companies in these countries should prepare themselves
for the implementation of drastic policy and regulatory intervention. Further, local companies with global investors or that trade across borders will need to familiarise themselves with the regulation and requirements of other jurisdictions if they are to stand a chance of maintaining competitiveness and relevance on a global scale.
What are some of the local existing and anticipated regulations of which companies must be aware?
In May 2020, the National Treasury released its paper on Financing a Sustainable Economy, in which it made very clear recommendations around, among other factors, setting a national net zero target, developing a national green finance taxonomy (a draft of which was released in June 2021), mandating reporting in alignment with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and the implementation of minimum mandatory requirements for financial services sector leadership in terms of climate competence. South African companies need to get familiar with the reporting requirements of the TCFD and with the concept of a green finance taxonomy. They further need to reflect on their role and positioning in a low-carbon world. And they need to do this in the context of the upcoming carbon tax, which is set to have tangible implications on the financial viability of a number of companies in terms of the investment proposition they present.
Are transition strategies only relevant for the big emitters? Or should every company be thinking about this?
Every company, regardless of where they operate or what they do, must be thinking now about what this inevitable transition means for them. If you don’t have a clear idea of where you need to be and how you’re going to get there based on the position from which you’re starting, you’re in serious danger of missing the boat entirely.
Can you provide an example of a local company that has developed and publicly disclosed an ambitious, yet realistic transition strategy that meets the requirements of the Paris Agreement?
Making a commitment to a net zero goal is a first and crucial step. Developing a strategy for getting there is more complicated. Nedbank has taken a science-based and ambitious approach, acknowledging the need for “immediate, rapid and profound” change – it is aiming for zero fossil fuel exposure by 2045 and has acknowledged that “without urgent, unprecedented action and cooperation from all stakeholders, future prospects for economic development, political stability, and societal wellbeing are expected to deteriorate”.
What guidance and tools are available for organisations wanting to make commitments and develop transition strategies?
Financial services companies can look to any of the net zero alliance initiatives for support – including the Net-Zero Asset Owner Alliance, Net Zero Asset Managers Initiative, and Net Zero Banking Alliance. Investors can also join a collaborative engagement like Climate Action 100+, which aims to push the largest emitters of the world toward net zero. For companies not in financial services, resources like the Science-Based Targets initiative are invaluable for setting appropriately ambitious but pragmatic targets. The National Business Initiative is the local partner of the We Mean Business Coalition and has been producing valuable research regarding South Africa’s Just Transition Pathways.
How do you recommend that companies start on this journey?
The most important thing you can do is to empower yourself with information. Invest the time, money and effort needed, as appropriate to your context, to ensure that you are equipped with a base level of competence on transition issues. Trialogue is ideally placed to aid you in thinking through the complexities with which you are faced in the context of the transition. Once you have understood the issues, and the potential impact they have on your industry and company, you need to take appropriate action – this includes developing risk management frameworks, setting clear targets, and communicating your intentions to key stakeholders.
