South African business must address the risks and opportunities of climate change

Globally, the last few years have seen a fundamental shift in thinking and planning around global warming – and from this shift a vision of a sustainable and carbon constrained future is emerging.

Fuelled by a growing awareness of the potentially catastrophic impacts of climate change, and an acceptance that global warming is caused by human activity, governments and businesses worldwide are beginning to appreciate the role they must play to avoid an irreversible climate crisis.

In South Africa, business for the most part has been slow to react to the impacts that climate change will have on the way it operates. With no regulatory policies or targets yet in place to reduce carbon emissions in South Africa, there is reduced incentive for companies to act on this issue.

Climate change has serious implications and will present significant risks and opportunities to businesses across all sectors. Short-sighted companies that fail to mitigate the associated risks or capitalise on the opportunities today, may pay dearly in the future.
The risks to business are threefold.

Firstly, there are the policy implications of climate change, with carbon taxes, emissions reduction policies and incentives all likely to come into being at some stage in the future. Businesses that plan ahead and implement strategies to lower their carbon emissions now will be a step ahead of the rest when these policies become law.

Secondly, there are the physical impacts of climate change that will affect many sectors – including, perhaps most significantly, the agricultural sector. While the effects are difficult to predict, many scientists warn of the increasing intensity and frequency of extreme weather events, as well as significant changes to current rainfall patterns. The damage to infrastructure from severe weather, or a scarcity of water in some regions such as the Western Cape, will disrupt business operations. The insurance industry globally has already felt the impact in recent years as claims from fierce weather events continue to escalate.

Lastly, the market-related risks of ignoring climate change will increase, as investors continue to interrogate the carbon emissions of companies and as consumers move towards buying carbon neutral and more environmentally-friendly products. Companies with a “green” reputation stand to win over a growing market share of conscious consumers, and businesses in the supply chain will be expected to clean up their acts to retain access to foreign markets. Tesco, the supermarket giant, has already begun asking local South African farmers to consider the carbon footprint of their produce, and it is anticipated this trend of supply chain interrogation will continue to spread throughout all sectors.

Climate change needs to be recognised by South African business for what it is – a critical economic and social issue, and not simply an environmental concern.

In November last year the first Carbon Disclosure Project report was released in South Africa. The report suggests that while awareness around this issue is growing, many of the country’s top companies are still failing to grasp the extent of the challenge. Very few have specific plans in place to reduce their carbon footprint or have given sufficient thought to the risks and opportunities relating to the physical and policy impacts of climate change.

The Carbon Disclosure Project (CDP) is an independent not-for-profit organisation that facilitates dialogue between companies and investors by requesting information from 3000 global companies, regarding their greenhouse gas emissions and strategies for dealing with the risks and opportunities associated with climate change.

Last year the CDP approached the Top 40 companies on the Johannesburg Stock Exchange (JSE) and this year will extend the survey to the JSE Top 100. This type of interrogation is set to escalate in the years ahead with business analysts, investors, government and the media increasingly seeking carbon footprint disclosure from South African companies.

The first step business needs to take to manage carbon output is to measure it. Once the carbon footprint of a company is calculated and a carbon inventory – or account of emissions – has been created, steps can then be taken to reduce emissions, set targets and look at creative solutions, for example around energy efficiency and transportation.

The CDP findings illustrate that the companies currently doing the most to offset their emissions are also the largest emitters. However, businesses large and small, across all sectors, need to come on board and collaborate with government and other industries to reduce their emissions.

The move towards more sustainable business models will be difficult but cannot be ignored. It requires a new way of thinking, and, most importantly, a restructuring of price signals. In South Africa, we have grown accustomed to cheap fuel and cheap energy – ironically this was previously one of our chief attractions as a business destination. But in the context of the energy supply crisis, and with highly carbon-intensive electricity generation practices, South Africa needs to find a new niche in international markets.

This is where business can make the most of the opportunities presented by climate change. Tomorrow’s Bill Gates will be the entrepreneur that understands the implications of a carbon limited future and finds energy or transport solutions.

South Africa needs to recognise this trend and start innovating – there are exciting opportunities to seize, but local businesses are currently at risk of falling behind international standards.
Jonathan Hanks is Director of the new course Reducing the Carbon Footprint at the UCT Graduate School of Business (GSB) in May. He is Founding Director of Incite Sustainability and a Visiting Lecturer at the UCT GSB. Email abrahams@gsb.uct.ac.za.