S energy CAPITAL
S energy CAPITAL ALLOCATORS FOR CLIMATE CHANGE The role of capital allocation is one of the single-most vital tools in the world’s climate change response to date. By Robert Lewenson, head of responsible investment, Old Mutual Investment Group At COP26, it was announced that South Africa had secured funding commitments totalling US.5-billion from developed countries to invest towards a just transition to net-zero carbon emissions. The funding is an opportunity to reset, not only from a governance perspective, but also to imagine a new reindustrialisation pathway for the South African economy. Global listed markets have already seen a big shift away from primary producers of fossil fuels, which today account for only 2.5% of the MSCI World Index. But decarbonisation is not as simple as steering portfolio investments towards listed companies with high ESG ratings. Yes, investors should start thinking about decarbonising their investment portfolios; but we must also consider the real-world infrastructure investments in, for example, renewable energy, needed to achieve net-zero targets over the next three to four decades. Support for portfolios that achieve ESG outcomes, including decarbonisation, is on the rise thanks to growing evidence that sustainable investing enhances rather than impedes investment returns. Stewardship will emerge as our biggest impact in delivering sustainable development outcomes; our North Star is to achieve impact-aligned sustainable development goals through our proactive stewardship. In this context, all stakeholder engagements take place in cognisance of factors like climate risk, ethical leadership, social inequality, sound pay as well as social justice and transformation. South Africa will have to clear some tough socio-economic hurdles to achieve a just transition away from fossil fuels. These hurdles will 10 | Service magazine
energy S be overcome by a combination of reallocating capital from areas with high fossil fuel exposure towards renewables and ongoing engagements with listed companies on their transition plans. The country’s main carbon culprits are easily identifiable, offering clear wins for purposeful policymakers. More than 50% of the JSE’s carbon intensity links to electricity use which in turn causes electricity grid emissions from Eskom’s ageing coal-fired power infrastructure, while much of Sasol’s carbon footprint stems from its steam reformation hydrogen extraction process. AN ACCELERATED SHIFT South Africa is in the top 5% of the world in terms of the quality of both our solar and wind resources; and modelling has been done to show that our base load peak demand can be met with renewable energy. Our private sector developers and funders, in partnership with the government, already have a solid track record of bringing solar and wind power projects on stream, quickly. All that is needed for South Africa to meet its 2050 net-zero emissions target is to scale our renewables response. S Dr Nkosazana Dlamini Zuma Photo ParliamentofRSA “In charting the path towards an appropriate energy mix and a just energy supply we require more and not less state. Everywhere in the world, it is the state that drives generation and distribution towards social goals such as education, rural development, health and recreation. Even in the most capitalist of countries, it is the state that issues conditional licensing for private generation and distribution, which is tied to social outcomes. Often it is the local state that takes this licensing responsibility if it does not produce itself. The American Public Power Association makes a strong case on how “not-for-profit, communityowned locally-controlled” utilities provide better services at lower rates than privately-owned utilities while also providing jobs and revenue for their local communities. It says, “Public power utilities also deliver more reliable electric service. Outside of major adverse events (eg storms), customers of a public power utility are likely to be without power for less time – 62 minutes a year, compared to 150 minutes a year for customers of private utilities.” These municipal and community utilities are important in powering local economic development, as they can be more responsive to local needs while supporting the local revenue base as well as local businesses. Of course, our problem with regards to ownership in South Africa is not the private, but the drive to unjustifiably privatise the already uncompetitive, pricey and monopolistic public entity. Even as the unbundling is being planned, it is planned with private owners in mind and not with the most logical and more social justice prone municipal and community/cooperative models in mind. We must therefore pay attention to the specific challenges that have not enabled our municipalities and their entities to position themselves as Independent Power Producers (IPPs). A study recently undertaken by Sustainable Energy Africa, found that only 50% of our municipalities are equipped with any form of small-scale embedded generation processes. A further 25% do not have the internal capacity to establish or manage these processes, while the remaining 25% are not in a state to handle any additional responsibilities owing to governance and financial challenges. Thus, we should not just theorise and speak of the research, but we must find ways to establish the capacities to develop and maintain the energy infrastructure capabilities of all municipalities. As we propose communal and municipal ownership, we must maintain certain national norms and standards which will ensure better education, health, recreational, cultural and economic outcomes. We must remember that ours is a unitary state which functions through the cooperation of all spheres and entities of government and collective governance. We must maintain reasonable costs and reliability, which must be observed throughout the country. We must remain cognisant that a sustainable and clean energy transition must be underpinned by economic justice.” Dr Nkosazana Dlamini Zuma at the 2022 Association of Municipal Electricity Utilities Convention, 3 October 2022. Service magazine | 11
