South African companies are finding it increasingly difficult to penetrate world markets as international buyers are more concerned about the environment.
The coal industry is likely to face a squeeze as Europe — its largest market — turns its back on South African coal, deemed dirtier than coal from other countries because it produces greater amounts of nitrogen.
SA’s CO² production doubled from 1980 to 2004 and is now higher than that of Brazil (with four times SA’s population) and only slightly below that of the UK (with 3,6 times SA’s gross domestic product).
Growing fears about climate change and its impact on livelihoods and the global economy have spurred a flurry of activity to mitigate the human impact on the planet. These concerns have spilled into investment.
In terms of the CDP, companies’ contribution to climate change through emissions of greenhouse gases is measured, as well as the implications to climate change of its activities.
Underpinning the initiative is the realisation that the world is increasingly moving towards a “carbon constrained” future which could have significant implications for business.
It is the first time that developing countries will participate, with SA, Brazil and India set to produce carbon reports this year.
“This is a concrete step in a direction where environmentally unsustainable practices will carry a material market value and a large carbon footprint will become a significant liability,” said Peet du Plooy, trade and investment adviser to the Worldwide Fund for Nature (WWF). He likened carbon reporting to SA’s black empowerment guidelines.
While empowerment is not legislated, the pressure to comply in order to retain contracts has had an impact on the whole value chain, making action on empowerment imperative, even for relatively small companies.
Products that are manufactured through carbon-intensive processes will increasingly be frowned upon and will be penalised in the marketplace.
South African exporters are already feeling the heat, as large retailers such as the UK’s Tesco and Marks & Spencer have moved to implement carbon labelling and some in the European Union (EU) — SA’s biggest trading partner — are calling for punitive trade measures to root out environmentally unsustainable production processes and force business into action to mitigate their impacts.
Carbon reporting will also increasingly influence investment decisions.
Taking a long-term view, large pension funds are expected to move their funds out of carbon- inefficient investment and into stocks which support a sustainable environment, such as renewable energy.
Earlier this year, the Bill and Melinda Gates Foundation, one of the biggest charitable organisations in the world, said it would reassess its investment strategy, and might divest from companies that are perceived to be socially or environmentally irresponsible.
The CDP was launched in the UK in 2000 and the first survey included FT500 company responses. Currently, 2100 international companies participate.
Last year’s CDP report was supported by 225 investors with assets worth $31-trillion under management.
The South African leg of the survey, the first developing nation to participate, is sponsored by fund managers ABN Amro, Fraters Asset Managers and Macquarie First South. Participating companies have until the end of May to complete questionnaires. The first South African CDP report will be launched in October.
SA appears to be lagging in the global race to go green. In global terms, SA is not a large producer of carbon emissions but, measuring carbon emissions against gross domestic product, it has a dismal footprint.
