Medium sized SA companies urged to invest in decarbonisation and climate resilience
Johannesburg - A recent survey of a small sample of Nedbank Commercial Banking clients' awareness of climate resilience and decarbonisation revealed a mixed picture of varying levels of awareness of their climate impact and the impact climate change may have on their operations, with listed companies having a fairly robust understanding of the transition process required and the resources that should be allocated to manage it effectively.
At the other end of the scale, smaller companies either had not considered climate resilience or decarbonisation initiatives as yet due to the impact of the sluggish South African economy on operations and income statements or were not able to justify the cost of transitioning at this stage. The survey covered companies in such segments as mining, iron and steel, coal, real estate and agriculture with annual turnovers of R30m to R2.5bn.
Mark Boshoff, Head Climate Resilience and Sustainability Strategy at Nedbank Commercial Banking says it is clear that some companies have yet to appreciate the importance of commencing with a climate risk assessment to identify the impact of climate change on their suppliers, the business operations and their customers and clients. Identifying the risks to the business is a big step toward climate resilience and assists in determining where investment in transition and decarbonisation plans for business survival and continuity is crucial.
He gives the example of energy, where investing in renewable energy to mitigate the impact of rising costs of energy, ensure reliable energy supply to the business and reduce reliance on fossil fuels is now a critical business survival strategy. The same applies to water security owing to the changing weather patterns characterised by droughts, flooding and water shortages.
"There are varying levels of awareness among our medium to large sized clients regarding their climate change impact with JSE listed clients in Corporate Banking having a more robust understanding of the transition process required and having allocated more resources to manage it effectively. This may be due to the JSE requirements, Accounting Standards and ESG reporting obligations on listed companies. Medium to Large clients in the fossil fuel and heavy manufacturing sectors are notably more advanced in managing their carbon footprint compared to other sectors such as agriculture due to these industries requiring compliance and accurate reporting of carbon emissions," Boshoff says.
"However, only a very limited number of clients have formal transition plans, while a larger percentage have committed to some form of positive climate action. There are clients who demonstrated very little desire to have an engagement on decarbonisation either now on in the future changed their mind when advised of the Carbon Border Adjustment Mechanism (CBAM) that Europe is introducing to restrict 'carbon heavy' imports with penalties. Similarly, many large corporates are now similarly restricting procuring goods from high carbon emitters who may be mainly reliant on carbon heavy energy from Eskom as these large corporates need to reflect their Scope 1, 2 and 3 levels and prefer purchasing goods from 'greener' suppliers."
Boshoff says despite South Africa's lack of regulation to proactively drive private sector decarbonisation, companies will face increased pressure to decarbonise and this will be mainly driven by Carbon Border Adjustments, investors, suppliers, service providers as well as pressure from clients. "We expect this pressure to increase and will motivate clients to proactively mitigate their climate impact. Energy issues are currently the largest driver of positive climate action," Boshoff says.
He says Nedbank Commercial Banking is urging its clients to seriously consider the impact of climate change on their business operations, suppliers and customers, determine how to mitigate the impact and survive into the future. Nedbank has available funding options for climate resilience and decarbonisation to ensure business growth and sustainability.
"We are engaging with clients to assist with their transition with for example financing for renewable energy and water solutions to mitigate the impact of the cost of load shedding and water shortages on their operations with the long-term objective of running a sustainable business," Boshoff says.
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