Tackling climate change and achieving sustainable growth in Africa: How can African businesses make a difference?

Tania Swanepoel, head of ESG at Old Mutual Alternative Investments, is speaking at SuperReturn Africa 2023. She argues that tackling climate change the right way, means leaving no one behind: We spoke to her on the matter ahead of the event.

Will COP28 affect Africa’s approach to climate change and global net zero targets?

Talks at COP28 in Dubai will once again be centred on restricting global warming to below 2°C and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels, and there is likely to be a push from the European Union for deals to phase out CO2-emitting fossil fuels, triple production of renewable energy and halt the building of coal power plants.

But the question is, should Africa bear the same responsibility for cutting emissions as the rest of the world? Africa is home to about one in six of the world population but was responsible for only 2.8% of global fossil fuel emissions between 1850 and 2021, during the industrialization of the global north, and for just 4% of emissions in 2019, the most recent year for which there is comprehensive data.

Yet, despite its minimal contribution to environmental damage, according to the Intergovernmental Panel on Climate Change, Africa and the Global South already face the most severe impacts, tackling devastating challenges caused by rising global temperatures and severe weather causing disasters such as floods and drought. Seven out of the ten most vulnerable countries affected by climate change in 2021 were on the Continent.

It is not surprising that many now argue that the economies that have contributed most to the problem have a responsibility to show the greatest commitment to counter climate change in the transition away from fossil fuels, as well as invest in those most affected. This is why significant money was committed to helping developing nations with the Just Transition at COP27 and the announcement regarding the loss and damages fund on the first day of COP28. There is a clear acknowledgement of the vast inequities of the climate crisis. What we need to see is that money making a real difference on the ground.

In 2022 South African President Cyril Ramaphosa called on parties to honour their pledges because their failure to do so after COP26 in Glasgow and COP21 in Paris had created a lack of trust between developing and developed countries.

We expect that COP28 will impact Africa with renewed targets for more drastic reductions in CO2 emissions, and hopefully actual funding committed to projects in Africa to respond and react to the ongoing climate disasters, infrastructure deficits, and for the Just Transition.

Can Africa achieve sustainable growth and tackle climate change?

Yes, but it needs to be done in the right way. When funding is committed, it must be in the interests of everyone and appropriate to the needs of the different African regions and the conditions they face.

Tackling climate change and the Just Transition the right way means leaving no one behind. Is change fast enough? Are we moving in the right direction? These questions will get us nowhere and are perhaps less relevant in the African context because we are not the main polluters. For the South African economy, which is still heavily reliant on fossil fuels, the intention is clear, but the real threat is doing it in a haphazard, stop-start way and coming unstuck due to a lack of planning. We must recognise that the transition and road to decarbonisation has to take place within a realistic time frame. Hurrying the transition without due consideration to alternative growth and economic opportunities, could have a disastrous impact on all South Africans who are still dependent on our major industries such as resources, mining, and coal generation infrastructure.

This is why at Old Mutual Alternative Investments we are hard at work trying to provide a sustainable ecosystem for generations to come.

Under our broad investment focus areas, our asset classes provide the opportunity for positive impact through the themes of climate change, decent work, diversity and governance. We align these themes with specific United Nations Sustainable Development Goals. Our investment professionals understand that each of these themes are critical in every investment. In 2022 OMAI invested about ZAR 3 billion directly into green and socially inclusive assets under the Old Mutual Green Taxonomy.

When it comes to responding to climate change, through our business unit African Infrastructure Investment Managers (AIIM), we have invested in about 2GW of renewable energy (two levels of load shedding in South Africa), producing 5,089 GWh of renewable energy in 2022 (equivalent to powering 1,533,182 homes with clean energy) and avoiding 5,484,894 tCO2e emissions. Much of this has been achieved through support of the Renewable Independent Power Producer Programme and investing in projects that promote energy liberalisation in South Africa and off-grid renewable power.

How can African businesses make a difference?

We need to prepare at a business level, because although the African continent is largely not the culprit, we are and will continue to be most vulnerable to the impacts of global warming.

The electricity crisis in South Africa has shifted the priority to renewable energy with, for example, solar energy and wheeling projects already ramping up. In addition, the relaxation of regulatory requirements for the licence-free, private generation of power is unlocking various parts of the value chain, enabling business to take advantage of these opportunities.

As one of Africa’s leading private alternative investment managers with over R117 billion in assets under management, we proactively seek investment opportunities that create value through positive sustainability outcomes. This means that it is imperative that the companies we are invested in have mitigation strategies to ensure resilience to climate change. We work with the boards of companies to ensure that there is a plan in place to assess and manage both the physical and transition risks of the business, and make sure that this informs business decision-making every step of the way.

In preparing for the effects of climate change, the most important first step is to understand how your business is, or will be, impacted (directly or indirectly) to allow you to have meaningful conversations about business preparation. Look at where your business can have the most material impact in terms of mitigating or adapting to the climate change threat, and then where you are most vulnerable. Consider forming partnerships with trusted advisors to help assess your risks.

In the run up to the world’s target of net zero by 2050, start with what you can do in the short term, and then move on to longer-term initiatives . By asking what are the big-ticket items, you can plan and budget accordingly. Crucial for planning is to remember that although we may not have the technology readily available today at a reasonable cost, this is likely to change. For example, green hydrogen – a gas that presents a significant opportunity for SA – should be in place by 2035, if not sooner. What can be done by 2030 given where technology will be then? This insight may influence or shape your company’s decarbonisation plan. Already we have seen that when the advent of technology in renewable energy increases, the cost of making such technology accessible decreases as it comes online. We have already seen this play out in the case of solar photovoltaic panels (PV).

The South African power sector must transition to a lower carbon energy mix, become more resilient through diversified energy sources and grow the supply of energy. But we must also address climate change by investing in a fair and responsible manner, and not lose sight of this imperative and critical outcome for the future generations of all South Africans. What should this look like? We need to work towards minimising harm and maximising benefits, with a just transition emphasising the urgent protection and empowerment of those most vulnerable to climate change. We need to invest in reskilling and upskilling programs for workers in the fossil fuel industry, ensuring their meaningful employment in the emerging energy economy. Additionally, fostering innovation and technology development is crucial, not only for achieving sustainability goals but also for stimulating economic growth and job creation. There are gaps in the grant component in international financing that needs to be addressed through action, not promise, for any real chance of a just transition. And critically, urgent private sector participation and investment in renewable energy projects will pave the way for a more inclusive transition.