(Published in BusinessDay Earth special edition- 11 August 2011)
As the year moves into its second half, the signs for deepening sustainability into business are not auspicious. Still, the call remains as urgent. Weather effects of global warming continue; unemployment is at all-time highs. However, investments are increasing in resource-efficiencies and cleaner, innovative technologies. With world governments gathering around climate change in Durban at the end of the year, are there opportunities for a growing greener economy based on more caring values?
Since July last year all South African companies listed on the Johannesburg Stock Exchange have been required to produce an integrated sustainability report. This represents a powerful governance mechanism to mainstream social and environmental sustainability into corporate mission and objectives by pressuring companies to implement and report on such activities
Companies who may otherwise be focusing solely on profit (and a strict fiduciary duty to shareholders) are now obliged to engage strongly with their social and environmental context, and to take responsibility for their actions and effects as a company.
Apportioning company monies into social good works has however for decades been a hallmark of South African companies. Considering our history and socio-economic circumstances, this is as it should be.
An estimated R5.4 billion of company funds was given over to corporate social investment (CSI) programmes in 2009/10. Out of this, proportionately less corporate funding is directed to environmental sustainability including contributions to biodiversity, wildlife, and community-based conservation. These amounted to some R3.6 million in the same period (CSI Handbook, 13th Edition, Trialogue Publications) . In all, this amounts to a substantial contribution by business CSI to the betterment of our society and environment.
While a lot more could be done, Nick Rockey, managing director of leading CSI consultants Trialogue believes “we are probably more advanced than many developed countries – both in terms of the strategic nature of CSI and the amount allocated to it.”
Much of sustainability attention and investment by companies has thus far extended outward towards CSI stakeholders and not inwards, to core business strategy. Environmental sustainability in companies is not brought often enough into, for example, resource efficiencies, energy savings, procurement, productivity increases and new business development. Which makes good business sense while also lightening the company footprint.
This is partially due to a lack of knowledge of the business benefits of clean and low-carbon technologies and services, or of government and other incentives, as well as the market potential for such opportunities.
Moving sustainability from issues of governance and moral responsibility to include strategic corporate objectives based on reducing risks and increasing profitability through cost cutting, competitive advantage and innovation is where attention should now be focused. Not only is this more motivating within company culture, it also spurs environmental sustainability to gain much greater traction internally because it aligns with core business planning and strategy.
The race for low-carbon tech
For decades, oil and coal energy have been framed as strategic industries by governments (and their lobbies) enabling massive subsidies to support them. This has hugely distorted development and markets for other kinds of energy production and stifled innovation for cleaner energy. Now however the writing is on the wall for fossil fuel based energy, and various factors are combining to foster the development of renewables.
Internationally the race to produce low carbon technology and services at scale is accelerating. Countries and their government are taking leadership in sectors best suited to their conditions and resources. Notable are Denmark with wind energy, Germany with small-scale solar and passive building design, Japan with hybrid transport, and China with photovoltaics. South America has pioneered ethanol production while the US is moving on smart grid IT-based systems.
South Africa is putting much weight behind large-scale solar energy with the government’s proposed creation of a R150 billion 5 000 MW solar park, Eskom’s planned 100 MW station, and construction company Group Five’s R5-billion solar power plant, all in Northern Cape province . Wind energy investments too are fast increasing, with over 80 projects now in development mainly in coastal areas around the country.
Independent renewable power project developers however must be tearing their hair out with Eskom’s prevarication over its pricing and purchasing arrangements. Surely the Treasury regulations concerning procurement can be amended to simplify independent energy purchasing. It is certainly in the country’s long term interests to do so.
Support to reducing electricity demand is also not being given sufficient attention or budget. This is unacceptable but possibly understandable from Eskom’s perspective as it requires stable (and rising) demand and corresponding revenue income to service the massive loans which are paying for the huge new Medupi and Khusile coal fired electricity plants.
The greening economy
Several factors are hastening the take-up of sustainability within South African business. An obvious one is the rising electricity price which is bringing sustainability under the direct purview of financial directors and CFOs who are exploring the positive cost/benefit cases of investing in energy efficiencies and own-energy production.
This interest in efficiencies is in turn, driving up the South African market for energy-efficient lighting, heating, and air conditioning technologies which is expected to nearly double from R248 million in 2009 to R421million in 2016, according to research company Frost & Sullivan.
Another increasingly important factor is the government’s interest in a greening economy and the jobs which this could create, which in turn is linked to the international intergovernmental climate adaptation process.
Billions for climate adaptation
When the South African delegation, including President Zuma, returned from the Copenhagen UN conference on climate change in 2009, they brought with them an important message: the so-called developed countries have acknowledged that they are morally obliged to support developing countries to continue to grow, but on a low-carbon path. The mechanism of support is the UN administered Green Climate Fund.
In addition, those developing countries which have their act together – i.e. have a green economic development strategy in place – will be first in line to receive funds from the Fund to which major developed nations have pledged over $100 billion annually in financing from 2020 onwards.
This may shed light on why our government’s carbon reduction targets are fairly stringent (34% by 2020 and then 42% by 2025) – as they are conditional on support from the developed countries. It also helps explain the government’s quickly assembled Green Economy Summit in May 2010 which brought government officials and cabinet ministers including the president, to discuss how the country could green its economy.
Since then, R25-billion has been earmarked by the state to support green economy industries as one of the six key sectors in its Integrated Growth Path. This amount is being managed through the Industrial Development Corporation (IDC) into such areas as clean energy, waste and water management, green buildings, sustainable transport, resource conservation and agriculture. How this rolls out effectively remains to be seen.
The government’s appetite for supporting a greening economy is also being whetted by the prospect of considerable job creation in this new field. Estimates are some 300 000 direct jobs to green the economy by 2020, rising to 400 000 by 2030.
Just how the UN Green Climate Fund will feed through the promised billions in low-carbon funding to countries like ours remains to be seen. Fortunately, Trevor Manuel, Minister in the Presidency in charge of the National Planning Commission, has been appointed to co-chair of the fund, so will be in a good position to represent South African interests and those of the developing countries.
COP17 and beyond
In the lead-up to 17th Conference of the Parties to the UN Framework Convention on Climate Change (COP17) taking place in Durban from 28 November to 9 December, there is a further positive sign for business. One of the government’s lead representatives at the Copenhagen COP16 conference and former Deputy-Director General in the Department of Environmental Affairs, Joanne Yawitch has recently took over as CEO of the National Business Initiative (NBI).
The NBI is a major force for sustainability in the private sector and also houses the South African chapter of the World Business Council for Sustainable Development (WBCSD) founded at the Rio Earth Summit in 1982. As such, the NBI is helping the UN co-ordinate a business presence at the Durban conference. This will ensure at least some business involvement at the conference because the official proceedings are regrettably for governments only.
It is a tragic failure of international governance that there is still wrangling over who should do what and for how much, at this critical point in humankind and Earth’s history. The overshoot that our technological and industrial prowess has occasioned in terms of damage to our planetary life-support systems is immense and must be restored. Yet it also a reflection of how deep the issues and interests are that agreement on them is so difficult.
COP17 has a heavy mandate – to come up with binding frameworks to regulate the reduction of carbon emissions in coming years. How much progress can be made considering the complexity of the process and divergence of national interests is doubtful. African countries are working together under the AU for a common position to push for a continuation of the Kyoto protocol, which will give some much-needed predictability for business decision-making.
It is a however faint hope at this stage for business to expect clear intergovernmental climate change measures to be set down as guidelines which will foster investment and action.
Rather it is more realistic and smarter to do what forward-thinking business people are doing the world over: getting to grips with understanding what a green economy is all about, seeing where the resource efficiency, cost-cutting and other opportunities are, tracking national and international markets and bringing sustainability thinking into core strategy, R & D and new business development.
Companies who sit back and wait for government to set the pace will lose out. Those who are most open to change and learning will profit most.
Broad-based sustainability in business is certainly a moral imperative for social betterment, environmental conservation and climate mitigation. It is also now fast becoming a strategic imperative that will create lasting resilience and real value add alongside other core mainstream business objectives.
To step up to sustainability leadership and take advantage of opportunities arising in the new greener economy requires courage, openness, ingenuity and persistence. Fortunately, there are many South African business people who have these qualities. Now is the time to make the most of them.
– Hugh Tyrrell runs GreenEdge, a Cape Town-based environmental sustainability communications and consulting business.