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Climate Risk in South Africa - Articles by Climate Risk Specialist Brandon Abdinor

Brandon has been writing about climate change, sustainability, green building, environmental law and energy efficiency for over 12 years. His writing has appeared in mainstream media, trade publications and internal communications. More recently he has become a regular contributor to the Daily Maverick, often appearing in the Burning Planet series which focusses on the climate crisis in South Africa.

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Contents

- How climate change law will affect the way you do business in South Africa

- Business in a changing environment

- Climate change litigation in South Africa

- Full Disclosure: What SA's top 10 greenhouse emitters are doing about climate risk


How climate change law will affect the way you do business in South Africa

Published in Daily Maverick, 11 July 2019

Besides adapting to the more visceral but seemingly far-off climate change effects such as sea level rise, drought, flooding, climate refugees and resource shocks, South African businesses (and the economy) are going to be impacted by the intensifying legislation and legal activism around climate change. What do we already know? And what might be coming from our lawmakers, as well as market and civil society policing agencies?

The Carbon Tax Act

The first piece of enacted legislation directly inspired by the country’s need to reduce carbon emissions, this act came into force on 1 June 2019. Evoking consternation on both sides of the fence, opponents say it will stifle business and harm the economy by driving up the costs of doing business. Climate activists are saying it is not sufficient to change our trajectory towards a lower carbon economy quickly enough. The tax rate is considered low by global standards, and the scope is fairly limited initially.

Phase one of the implementation of the act (from now until December 2022) sees relatively modest effects coming into play. According to Treasury, only Scope One emissions will be taxed, that is those who own or control direct sources of emissions. Obvious examples are Sasol, fuel refineries, mining and certain large manufacturing concerns. Depending on various factors, tax payable will range between R6 and R48 per tonne of carbon dioxide equivalent. There are a number of allowances built-in to the act that reduce tax liability, including incentives to adopt measures to reduce greenhouse gas (“GHG”) emissions.

The implication of Treasury’s announcement is that Scope 2 and Scope 3 emissions could well be taxed after December 2022. These are indirect emissions, with Scope 2 covering the emissions arising from energy purchased, for example the emissions linked to the electricity that is purchased by a business. Scope 3 emissions are all of those that occur in an enterprise’s value chain, both upstream and downstream. An example would be the emissions generated in the manufacturing of equipment that is purchased.

Eskom is exempt from taxation under this act during phase one, the rationale being that it is already paying via an electricity generation levy and a renewable energy premium for power purchased from independent power producers (IIPPs”). Good news there for customers of the parastatal who would no doubt end up footing the extra cost.

There is no such good news for buyers of petrol and diesel, who can expect to pay an extra 9 cents per litre as a result of the tax levied on fuel producers. The effect of fuel price increases on all levels of the economy is well known.

Significant emitters should also expect to see increased policing of compliance with the National Greenhouse Gas Emissions Reporting Regulations. In effect since April 2017, these regulations, falling under the Air Quality Act, and the required emission reports will be used to quantify taxes to be paid.

The Climate Change Bill

Eleven years after the Climate Change White Paper sent the first policy signals from government, the Climate Change Bill was tabled for comment in June 2018. Comments closed in August 2018 and according to the DEA the Bill was scheduled to be presented to cabinet by June 2019. It remains to be seen how much the Bill will change after this.

Eleven years after the Climate Change White Paper sent the first policy signals from government, the Climate Change Bill was tabled for comment in June 2018. Comments closed in August 2018 and according to the DEA the Bill was scheduled to be presented to cabinet by June 2019. It remains to be seen how much the Bill will change after this.

Much of the Act is administrative and concerns itself with the setting up of frameworks and the devising of appropriate plans at national, provincial and local government levels. These give us no quantifiable indication of how the eventual Act will impact on business. Chapter 5 however (“Greenhouse Gas Emissions and Removals”) is where we see the architecture that could well result in financial and operational implications in the future.

The Minister is obliged to establish a binding National GHG Emission Reduction Trajectory. Empowered through the requirement to set Sectoral Emissions Targets (“SETs”) for all sectors and sub-sectors, the Minister will effectively allocate targets for applicable sectors and sub sectors. The ball then gets passed to those ministers responsible for the identified sectors and sub sectors, and they need to establish Sectoral Emission Reduction Plans (”SERPs”). Future regulations will determine how the SETs and SERPs are policed, and with what targets.

Provincial MEC’s responsible for the environment, and mayors are compelled to support SETs through locally applicable and relevant Climate Change Response Plans.

A more generalised mechanism, the Carbon Budget, will operate in parallel to the target reduction system. Potentially a more immediate tool, carbon budgets will be allocated to all persons (including companies) who emit beyond a certain threshold level. Here we see a potentially powerful limitation on those whose emissions are not consistent with the reduction trajectory. These entities will also have to submit greenhouse gas mitigation plans demonstrating their commitment to staying within their carbon budget.

A more generalised mechanism, the Carbon Budget, will operate in parallel to the target reduction system. Potentially a more immediate tool, carbon budgets will be allocated to all persons (including companies) who emit beyond a certain threshold level. Here we see a potentially powerful limitation on those whose emissions are not consistent with the reduction trajectory. These entities will also have to submit greenhouse gas mitigation plans demonstrating their commitment to staying within their carbon budget.

The pressure from increased policing of existing laws.

The most immediate pressure on certain types of business is already coming from existing laws which, while they haven’t essentially changed, are being used more assertively as the awareness of climate change and the evolving science is influencing culture and the standards of environmental protection.

Arguably the most advanced climate change litigation matter in South Africa, the case of Earthlife Africa Johannesburg and Another vs Department Of Environmental Affairs, Thabametsi Power Project (Pty) Ltd and Others is illustrative. After going through various phases of challenging procedural and administrative issues, the applicants are now challenging the rationality and appropriateness of granting environmental authorisation for the proposed Thabametsi coal fired power station This is a venture by a privately owned IPP which is finding its ambitions being met with formidable and perhaps unexpected opposition.

Using the latest report from the United Nation Intergovernmental Panel Climate Change (IPCC), along with various other local and global reports, the environmental NGO’s have built a solid case that the the government is acting irrationally and illegally by allowing another coal fired plant to be built. The outcome remains to be seen, but it seems that the days of ignoring the need to curb GHG emissions are numbered.

Both the legislation used in this matter (the National Environmental Management Act) and the Constitution don’t specifically single out climate change as a harm that needs to be avoided, but it is becoming generally accepted that this is major risk, and business will have to take it into account when seeking environmental authorisation for intended activities.

An emerging culture

As the legal net tightens, the business community will respond to ensure compliance and legal risk management. Audits will happen, not only for the enterprise itself, but also its suppliers and partners. Reduction plans will be formulated and implemented. Scorecards and ratings systems will be developed and training and awareness programmes offered.

As the legal net tightens, the business community will respond to ensure compliance and legal risk management. Audits will happen, not only for the enterprise itself, but also its suppliers and partners. Reduction plans will be formulated and implemented. Scorecards and ratings systems will be developed and training and awareness programmes offered.

https://www.dailymaverick.co.za/article/2019-07-11-explainer-heres-how-climate-change-law-will-affect-the-way-you-do-business-in-south-africa/

 


Business in a changing environment

Published in Opportunity Magazine, 18 November 2019

Climate change is here, and it is already impacting on business in South Africa. These impacts are set to intensify as the climate, as well as social and regulatory pressures introduce new risks to the commercial landscape.

Taxation

The Carbon Tax Act came into effect on 1 June 2019. In the first phase of its rollout, those businesses that own and control direct sources of greenhouse gas (GHG) emissions are liable for the tax. A low carbon price (of between R6 and R48 per tonne) and various allowances mean that the financial burden is initially relatively moderate for most operators until the end of phase 1 in December 2022. The Act does envisage a broadening of scope, and eventually all of the emissions in an enterprise’s value chain will be accounted for and taxed.

Fuel prices are affected and the tax is expected to contribute to around 9 cents a litre, which of course has ripple effects throughout the economy.

Regulation and Legal Compliance

South Africa’s Climate Change Bill was published for comment in June 2018 and is currently the subject of consultation. It was allegedly to be presented to cabinet by June of this year. While much of it provides for an administrative and strategic framework for all three tiers of government, we can see certain prescribed mechanisms that will impact on business.

The state is obliged to establish a binding GHG Emissions Reduction Trajectory. Sectoral Emissions Targets will be set and Sectoral Emissions Reduction Plans will be implemented by those departments under which various sectors fall. A Carbon Budget will also be set for all “all persons.” In this way businesses are going to be compelled to address emissions throughout their value chains or face penalties.

In a number of High Court actions, the National Environmental Management Act is increasingly being used to intensify the need to take climate change considerations into account when performing impact assessments. Government is being taken to task for not adequately addressing climate impacts when approving climate unfriendly activities. This kind of scrutiny and challenge is likely to increase as civil society increases the pressure in an organised and focussed manner.

Shareholders and investments.

In May 2019, Standard Bank shareholders (with a 55% majority) voted favourably on a resolution that compels the bank to adopt and publicly disclose a policy on lending to coal-fired power projects and coal mining operations. A second part to the climate-related resolution (defeated by a 62% majority) would have required the bank to report to shareholders its assessment of the GHG emissions resulting from its financing portfolio and its exposure to climate change risk. Activism in this sphere is increasing and a number of institutional investors voted for the climate friendly initiatives.

Pension fund trustees are being lobbied and trained to scrutinise climate unfriendly investments and make investment choices accordingly. Globally we are seeing giant investors such as Norway’s Government Pension Fund and the UK’s National Trust divesting from fossil fuel investments, and local investors and asset managers are likely to be increasingly pressured to follow suit.

Reputational risk.

Globally consumers, business partners and investors are becoming more knowledgeable about climate change risk and are expecting businesses to be addressing the issue. A 2017 report by the Shelton Group revealed that consumers who stopped buying a company’s products based on environmental reputation jumped from 11% to 33% in a 12-month period.

Unilever and IBM are two examples of companies that have been lauded for proactively addressing and communicating carbon reduction measures. On the other hand, we see the local example of Sasol (SA’s second largest emitter after Eskom) drawing ever increasing negative publicity in the press for its contribution to GHG emissions. /span>

People risk.

Earlier on this year, over 8000 Amazon employees banded together and demanded that the company formulate a climate change strategy. This was ultimately rejected by the company, but the dynamic sets the tone for strained industrial relation going forward.

Physical risk.

Physically, climate change manifests as extreme weather, water shortages, food supply disruptions and seafront damage. Durban has seen intense flooding and damage from oceanic storm surge in the past few years. Both of these phenomena have been linked to climate change. Cape Town’s near disaster with water shortages last year is also climate change related, and the broader business community sustained considerable financial losses as consumption had to be severely curbed. These risks need to be understood and managed, not only directly for a business itself, but for all roleplayers in its value chain. All of these physical effects are widely understood to create conditions for social unrest and increased financial burden

The future

Risk management has gained a whole new dimension with climate change becoming a reality, and businesses are well advised to address this sooner rather than later.

http://www.opportunityonline.co.za/articles/business-in-a-changing-climate-29872.html


Climate change litigation in South Africa

Published in Daily Maverick, 7 November 2018.

As activists and citizens become increasingly anxious about the perceived inaction of governments and business to meaningfully address climate change, the courts are ever increasingly being approached to compel action. The Sabin Center for Climate Change Law at Columbia Law School (with US law firm Arnold & Porter) maintain the Climate Change Litigation database. The database has over 950 US based cases logged, and 271 cases logged for the rest of the world.

Global developments

Governments the world over are finding themselves defending climate change related suits. The Dutch government was sued in 2015 by the Urgenda Foundation in collaboration with nearly 900 Dutch citizens. The plaintiffs claimed that the government is not taking sufficient action to reduce greenhouse gas (“GHG”) emissions. Last month the Hague Court of appeal upheld a 2015 lower court decision that compels that government to reduce GHG emissions by 25% as compared with 1990 levels, and has given it two years to do so.

In the UK, a legal support group called Plan B, along with twelve citizens, has launched legal proceeding against the UK government calling for it to revise it’s 2050 ‘carbon targets’ as the current targets are inconsistent with Paris Agreement goals and are ‘not safe according to the science’.

In Juliana et al v The United States,twenty one youth plaintiffs are suing the federal government for allowing activities that ‘harmed the climate.’ Similar actions at various stages of implementation are to be found in Pakistan, India, Uganda, Philippines, Portugal, Belgium and other countries.

Another angle being taken is to sue the businesses perceived as major contributors to climate change. The cities of San Francisco and Oakland sued five major oil companies for the costs of protecting against sea level rise and similar adaptation measures. That case was dismissed by the court, but other US cities, including New York, are pursuing similar claims. A Peruvian farmer, Saul Lliuya, is suing German energy giant RWE, arguably Europe’s largest single GHG emitter, for causing glacial melt and consequent flooding in his home region. The case is still underway and being watched closely .

South African litigation - at the coal-face

The litigation database records three actions in South Africa. The most advanced is the case of the proposed Thabametsi power station, to be constructed and run by the Thabametsi Power Company (Pty), an independent power producer (“IPP”). In 2015 the Department of Environmental Affairs granted an environmental authorisation in favor of Thabametsi for construction and operation of the plant despite the fact that the environmental impact assessment did not include a comprehensive climate change impact assessment as arguably required by the National Environmental Management Act (“NEMA”).

In 2016 the Minister, in an appeal against the authorisation, acknowledged the deficiency and instructed Thabametsi to conduct a climate change impact assessment within six months, but at the same time unprocedurally upheld the authorisation. Environmental NGO Earthlife Africa, represented by the Centre for Environmental Rights (“CER”), launched an application in the Gauteng High Court, challenging the legitimacy of the decisions by the Department and the Minister. In addition to defending its unprocedural actions, the Department also argued that the government has no specific domestic or international legal obligations to consider climate change impacts.

The Court upheld Earthlife’s claim in it’s March 2017 judgement, setting aside the Minister’s ruling and instructing the Department to fully and properly consider a complete climate change impact assessment. This took place and again the Department issued an authorisation, and again the Minister upheld it on appeal. Earthlife, along with fellow environmental NGO Groundwork, instructed the CER to sue the government earlier this year, this time on the basis that its reasoning for granting and upholding the environmental authorisation was flawed, ‘unreasonable and irrational’.

Interestingly the authors of the final climate impact assessment determined that although the greenhouse gas emissions were going to be “Very Large,” the impacts thereof would have a “Medium to Low” significance. In contrast, a peer review assessment by another consultancy (commissioned the Minister), found that the risk posed by the high emissions should have been recorded as “Very High.”

The applicants take issue with the Minister incorrectly relying on the 2010 Integrated Resource Plan (“IRP”) as having addressed climate change impact concerns. She is also challenged for overlooking deficiencies in the assessment in that the social impact, water scarcity factors, the impact on local climate resilience and inadequate mitigation measures are not addressed. The Minister also concluded that the benefits of the power station outweigh the climate change harms that will result from its construction and operation.

This application is still to be heard but the entire matter is noteworthy in that it has evolved from a largely procedural challenge into a legal challenge of the substantive aspects of how government is handling climate change impacts of the power generating activity it authorises. The courts will probably now have to start interrogating the science behind climate change and its broader impacts. The other two cases being fought, both by Goundwork with the CER, are similarly based on the issue of improper consideration and handling of climate change factors. There are also a number of administrative challenges underway around the granting of water, waste and atmospheric emissions licenses. NERSA has also approached with objections to the granting of licenses for the IPP funded and operated coal plants.

Where to from here?

We can see that civil society is increasingly going to challenge government’s unprocedural approach and neglect to address climate change concerns on a case by case basis. But what about it’s overall policy approach? After the state published it’s Climate Change Response white paper in 2011, official policy signals went relatively quiet until the introduction of the Climate Change Bill in June of this year. Comment on the Bill had to be in by early August. Already there has been dissatisfaction from certain quarters around the state providing insufficient opportunity for meaningful consultation, opening it up to being challenged on procedure yet again.

Among other things, the Bill purports to provide for an integrated response to climate change and its impacts, and enable a ‘fair contribution’ to global efforts to reduce GHG emissions. This will be provided for by the Bill’s inclusion of Sectoral Emissions Targets (SETs) and carbon budgets. This will likely open the stage for a tussle between business interests which will resist limitations and costly interventions, and environmental interests which may well conclude that targets and timeframes are inadequate to stave off catastrophe. Government would find itself in the middle of some of these opposing interests, and may find itself facing legal challenges from both sides as to how it is implementing and enforcing the legislation.

Local business enterprises potentially face the prospect of specific legal challenges to their activities. Sasol, South Africa’s largest JSE listed emitter, has claimed that carbon tax proposals could cost it R1bn per year, money it is unlikely to give up without a fight, Eskom, South Africa’s largest emitter (accounting for nearly 50% of the countries emissions), would be a relatively easy target and may find it’s polices and approaches subject to challenge.

There is a colossal balancing act underway, and the courts will almost certainly be the arbiters in many of the increasingly intense battles that are both current and looming.

https://www.dailymaverick.co.za/article/2018-11-07-climate-change-litigation-in-south-africa/


Full Disclosure: What SA’s top 10 greenhouse gas emitters are doing about climate risks

Published in Daily Maverick, 17 December 2019

Last week the Centre for Environmental Rights (“CER”) released its Full Disclosure 5 Report (https://fulldisclosure.cer.org.za/2019/). Described as being “The Truth about South African Banks’ and Companies’ Ability to Identify and Address Climate Risks,”the report focuses on the country’s top ten greenhouse gas (“GHG”) emitters, and the five largest banks. The emitters covered are responsible for no less than 61% of South Africa’s emissions.

While the label could perhaps talk about ‘willingness’ rather than‘ability,’ the report offers important insight into these companies’ perception of the need to voluntarily address climate issues, and disclose what they are doing in this regard.

Juristic personality, agency and ecological conscience.

Corporations are in many respect beings in their own right. And inordinately powerful ones at that, given their extensive rights and limited obligations, as well as (usually) significant financial resources. The well entrenched construct of juristic personality creates them as ‘persons’ with legal rights and obligations. But in and of themselves, they do not have conscience, They are regulated and have norms and codes of conduct which they need to observe, such as obligations to shareholders to generate profit. But this is not the same as having an innate sense of right and wrong.

The recently implemented Carbon Tax Act now compels GHG emitters to pay for the ‘facility’ of adding to the atmospheric load of human caused GHG emissions. But taxes are low and allowances rife. The incoming Climate Change Act will eventually compel emissions reduction through Sectoral Emissions Targets, Emissions Reduction Plans and Carbon Budgets, but some of these may be as far as 2 years down the line once the Act is promulgated, which might be in March 2020 if the latest murmurings are correct.

So in the absence of tight regulation, the climate conscience of a corporation will be set by its people. Shareholders, boards and executive management will determine and implement policy and practices that either place the business as clinging on to what is known as the ‘brown (carbon intensive) economy,’ or as a visible aspirant to operate in the ‘green economy’ and display responsible corporate citizenship. Civil society and the market will score the performance.

The previously clear standard of making profit above all, has become more murky as the data keeps pouring in. If long-term climate responsive investments are not made, even at the expense of short-term profit, more and more businesses are starting to realise that there may be no profits to be had in a climate (and ensuing socio-economic) breakdown scenario.

The Report.

The Disclosure Report measures the companies’ levels of voluntary climate related disclosure as measured against recommendations of theTask Force on Climate-related Financial Disclosures (TCFD). Established by the G20 Financial Stability Board, the TCFD has formulated recommendations for voluntary and consistent climate related financial disclosures. This work is supported by 240 organisations and 150 financial institutions from around the world.

It must be borne in mind that the report talks specifically to what has been disclosed by the companies, and it may well be that what is being disclosed is not the same as what is happening behind closed doors. But given that nine out of the 10 companies are publicly listed, and the other is an SOE, disclosure arguably forms a fundamental tenet of ecological accountability.

Recommendations fall under four main headings: Governance, Strategy, Risk management and Metrics & Targets.

The top 10 emitters collectively emit more GHG’s than Spain (and each of 164 other nations). Eskom heads the list with 39% of South Africa’s GHG missions. Sasol in second place (with 13,5%), emits more than ‘every car, truck, bus, train, and plane in South Africa combined.’

The share of the emissions drops dramatically as we go through the remainder of the rankings: ArcelorMittal (2,8%), South32 (2,74%), Anglo American (1,4%), PPC (0,8%), Sappi (0,53%), African Rainbow Minerals (0,4%), Exxaro (0,16%) and Gold Fields (0,1%).

The Findings: Governance

8 of the 15 companies disclosed clear board accountability for climate risk. Two companies left this in the hands of management and / or committees, and in 5 cases it was unclear where responsibility for assessing and managing climate risk resided.

Remuneration Policies were also examined to see if senior executives were incentivised to address climate risks. They were in 4 cases, but in 10 cases they were not, with 1 being unclear.

The Findings: Strategy

This aspect looks at the extent to which companies disclosed an assessment of actual and potential climate related risks and impacts. 10 companies view climate change as a material business risk, and 5 do not.

6 companies fully described how resilient and adaptable their strategies are to address climate risk and opportunities, 7 had a limited description and 2 had none.

More disturbingly, only 2 out of the 15 companies described climate change scenarios against which the resilience of their strategies is measured. The TCFD recommends for instance that a climate change strategy is measured against a “2°C or lower” scenario (which accords with the intention of the Paris Agreement to limit temperature increase to 2°C above pre-industrial levels). Another recommended scenario is to measure the strategy against the host country’s NDC (This is the Nationally Determined Contribution – a country’s pledge to lower emissions in terms of the Paris Agreement. South Africa’s current NDC is commensurate with a 3 to 4°C temperature increase). These recommendations compel the corporation in question to understand and respond to the science–based forecasts of what will happen in a warmer world. This is not only limited to physical risks such as severe weather, drought and other natural impacts, but also a look at the resultant socio-economic likelihoods. Not a comfortable situation to consider.

The banks have an additional benchmark to consider, that being whether they disclose their credit exposure to carbon related assets, and the percentage of carbon related assets relative to total assets. In other words, just how invested they are in the brown economy. Only one bank is currently prepared to do this proactively. The 4 others are leaving their shareholders and depositors guessing.

The findings: Risk Management

A gratifying 12 of the companies have processes for identifying, assessing and managing their climate related risks. Although, as pointed out above, if these processes are not established against an assessment of real-world scenarios, one is left wondering how thorough these process are.

The findings: Metric and Targets.

Where the rubber meets the road, the companies are measured against TCFD recommendations that GHG emissions are disclosed. 11 companies disclose all their emissions (direct and indirect). However, only 7 have gone further and set key climate related targets, which include emissions reduction, water and energy usage targets.

Where to from here.

Civil society and market instrument, such as the Full Disclosure Report, will keep increasing pressure on companies to do the right thing, and be seen to be doing it. And while the state may arguably be slow out of the starting blocks, dramatically increased regulation is coming. Minister Barbara Creecy made mention of the Climate Change Act in her opening address to the recently concluded COP 25 climate talks. Climate unfriendly business is going to cost more and more, with the only question remaining being: who will foot the bill?

https://www.dailymaverick.co.za/article/2019-12-17-full-disclosure-what-sas-top-10-greenhouse-gas-emitters-are-doing-about-climate-risks/