Fiddling while Rome burns – October 2018
The Intergovernmental Panel on Climate Change says that “the next few years are probably the most important in our history” for taking action to avoid catastrophic climate change. But the pace of change in South Africa is far too slow: shareholders must demand more.
The IPCC has today released its report on the impacts of global warming of 1.5ºC above pre-industrial levels.
The report highlights that the 1ºC of warming that has already occurred is clearly manifesting itself “through more extreme weather, rising sea levels and diminishing Arctic sea ice, among other changes”. The report emphasises that “every extra bit of warming matters, especially since warming of 1.5ºC or higher increases the risk associated with long-lasting or irreversible changes, such as the loss of some ecosystems”.
It is still possible to limit warming to 1.5ºC, but “doing so would require unprecedented changes” and “the decisions we make today are critical in ensuring a safe and sustainable world for everyone, both now and in the future”.
However, neither the South African government, nor most of our corporate and financial sectors, are even acknowledging the extent or urgency of this risk, and they are certainly not taking robust steps to tackle it. Recent illustrations of this include:
- The draft Integrated Resource Plan published in August 2018 still contains 1000MW of new coal-based electricity from two new coal Independent Power Producers, Thabametsi and Khanyisa. This is despite the undisputed evidence that these power stations will have severe climate change impacts, the fact that South Africa does not need any new coal fired power capacity, and the evidence that these two projects will add around R20 billion to a least-cost energy system.
- Four of South Africa’s biggest private banks, Standard Bank, Nedbank, ABSA and FirstRand, as well as the Development Bank of South Africa, are all assessing the financing of one or both of these projects, despite their public expressions of support for the Paris Agreement, and their purported commitment to the transition to a low-carbon economy and/or to financing only environmentally and socially responsible projects.
- In June 2018, Sasol, the JSE’s largest greenhouse-gas emitter, refused to table a resolution submitted by shareholders for tabling at the company’s 2018 AGM. The resolution would have asked shareholders to consider Sasol’s massive greenhouse gas emissions (67.6 million tons in 2017), and to vote on a proposal for the company to provide much more comprehensive climate risk disclosure. Sasol has now committed to adopt the recommendations of the Task-Force on Climate-Related Financial Disclosures, but these recommendations do not cover everything dealt with in the resolution, and it could be years before shareholders see meaningful results.
- In September 2018, the Asset Owners Disclosure Project released a report ranking the world’s 100 largest global pension funds on their approach to climate-related risks and opportunities. South Africa’s Government Employees Pension Fund (GEPF) scored a “D”, meaning it has “little or no response to climate change and its implications”. This is particularly concerning given the size of the GEPF’s investments, and its claim to be “among the leaders in socially responsible investment in South Africa”.
It is now indisputable that climate change poses material financial risks for all investors. Pension funds in particular have a duty to invest in the long-term interests of their members, and should therefore be investing in a manner that stimulates and supports the transition to a low-carbon economy, and contributes to South Africa meeting its commitments under the Paris Agreement.
As the IPCC report makes clear, “the next few years are probably the most important in our history”. The pace at which South Africa is moving means that, if we continue as we are, we will completely miss this opportunity for meaningful, sustainable change.
Global institutional investors at the forefront of climate issues are publicly declaring that they will not support the allocation of capital which is incompatible with the Paris Agreement goals, and are demanding the following of their portfolio companies:
- That company business strategies are consistent with Paris Agreement goals;
- That companies have assessed the physical risks of climate change to company facilities in accordance with a range of scenarios (i.e. 2/3/4 degree);
- That company directors and auditors are “climate competent”; and
- That companies are transparent around lobbying and trade association membership which aims to weaken climate obligations.
In contrast, most South African asset managers and institutional investors, including most of those which are signatories to the Principles for Responsible Investment, do not include a clearly articulated position on climate change in their investment policy statements. In fact, you won’t even find the term “climate change” on many of their websites.
Climate change is not an “environmental problem”. It is a global threat to us all, and failure to take robust action now will ensure that we leave a legacy of disaster for future generations. This is a challenge which requires action from each one of us, and shareholders are in a powerful position to take action which can effect change.
You can start by simply asking your asset manager or pension board for its public position on climate change, and for details of the carbon footprint of your portfolio.
If you’re interested in taking action, but don’t know quite what to do, please contact us email@example.com and we’ll help!