South Africa’s top companies are leading the way globally on measuring and disclosing their greenhouse gas (GHG) emissions.
This followed after 83 of the JSE’s top 100 companies responded to the 2011 Carbon Disclosure Project (CDP) report. It was the second-highest response rate among 60 countries in which some 3 700 of the world’s largest corporations were surveyed. The latest CDP report, which was released in December during the world climate change summit in Durban, illustrated significant progress since 2010, when 74 companies responded and SA was ranked with the fourth-highest response rate.
The high response rate, said the CDP report, “suggests that, despite short-term concerns and the pressures associated with the economic downturn, climate change remains high on the South African corporate agenda”. The report added that not only has the response rate been “particularly commendable”, but that “there has also been a clear improvement in the quality of the responses across all reported issues and business sectors”.
South Africa closely followed the Europe 300, which had a response rate of 89%. In addition, the statistics highlighted the positive engagement of the South African corporate sector, particularly when compared with leading emerging market countries such as Brazil, Russia, India and the People’s Republic of China (BRICS). The Brazil 80 had a response rate of 67%, the China 100’s response rate was only 11% and the India 200 reached a response rate of 28%.
Of the 100 companies that were sampled, 83 answered the questionnaire, seven declined to participate, while 10 companies did not respond in any manner. Of the 83 companies that answered the questionnaire, eight elected to have their response “not public”, as compared with ten last year and 15 in 2009. This continues the trend of increasing transparency rates. Four of the eight were first-time respondents. All the companies that participated last year agreed to partake in the report this year.
The South African sample was limited to companies that are listed on the JSE and did not include large emitters such as Eskom or Transnet, nor did it include potentially large emitters from non-listed private companies.
The South African Minister of Water and Environmental Affairs, Edna Molewa, welcomed the fifth CDP. “It shows business’ commitment to achieving disclosure of their carbon footprint and how they are pro-actively working towards its reduction.
“The various indicators of exponential improvement in not only the response rate, but the improving quality and scope of data, rising levels of strategic importance given to this process and the increasing refinement in the identification of risks and opportunities, are all signs of the progressive significance that companies are attaching to the impacts of climate change.”
Valerie Geen, director of climate and energy at the National Business Initiative (NBI), which is the South African partner of the London-based CDP, stated that the CDP has been one of the main instruments in facilitating a mind shift. “The report promoted awareness among companies of the need to restructure and align themselves with climate change and sustainability imperatives,” said Geen.
The CDP 2011 leaders
An underlying objective of the CDP was to review and assess the disclosure and action of companies and sectors against what is seen as a best-practice response to the challenges of climate change. The CDP questionnaire focused on three key areas: climate change management, the identification of risks and opportunities, and GHG emissions accounting and performance in reducing them and adapting to climate change.
The CDP ranked companies on two key issues: the nature of the disclosure of their emissions and activities, and the quality of their performance in responding to climate change. A Carbon Disclosure Leadership Index (CDLI) rated companies in terms of the levels of transparency and quality of disclosure of their GHG emissions. A Carbon Performance Leadership Index (CPLI) ranked the companies in terms of their emissions reduction targets and progress in meeting them.
The mining group Gold Fields achieved the highest scores in both indices. It was closely followed by Nedbank in the CDLI. Together with Sanlam (8th), these companies had the distinction of featuring in the CDLI for the past three years. Nedbank came second with 96 points and Exxaro Resources was third with 94 points.
For this report companies included in the CDLI were a lot more balanced across the different sectors. The more even spread across sectors was an encouraging development as it suggested that all sectors are taking climate change seriously, devoting time and resources to managing data, assessing risks and opportunities and disclosing climate change related information.
To qualify for inclusion in this year’s CPLI, a company had to achieve a GHG emission reduction of at least 2,65% as a result of emissions reduction activities over the last year and must measure, report and verify scope 1, or direct emissions from sources owned or controlled by the company, and scope 2, or indirect emissions from the consumption of purchased electricity, heat or steam. As a consequence of more stringent CPLI entrance criteria on emissions, reductions and verification, only British American Tobacco and Gold Fields qualified for inclusion in this year’s JSE 100 CPLI.
Exxaro Resources, Nedbank and Woolworths Holdings did not meet the CPLI criteria as they did not achieve a 2,65% reduction in carbon emissions.
Pick n Pay Holdings and Remgro did not meet the CPLI criteria as they did not verify their scope 1 and 2 emissions.
The top performers in 2010 were Barloworld, Gold Fields, Nedbank and Woolworths Holdings. However, in 2011 the majority of top performers came from the consumer staples sector. The list of top performers did not include any companies from the IT and telecoms sector, which was disappointing considering the great potential the sector has in providing the market with low carbon products.
The fact that 74 companies received a performance band compared to 59 in 2010 reflects that more companies are responding to the CDP’s information request and that more companies are providing adequate information to assess their performance. The sector with the highest average performance band is the financials sector, followed closely by the materials sector. The health care sector scored the lowest average performance band.
Assessing the performance of the JSE 100
Highly rated for their responsiveness in disclosing their greenhouse gas (GHG) emissions and for voluntarily working to reduce them, SA’s top companies are nevertheless still major contributors to the country’s high total emissions.
Reflecting the carbon and energy-intensive nature of SA’s economy, the JSE’s top 100 companies accounted for about 20% of SA’s total annual carbon emissions. The coal-based electricity generator Eskom accounted for another 45% of SA’s emissions. The GHG emissions were estimated at 510-million metric tons, ranking the country among the world’s top 20 highest emitters.
As in the CDP 2010, Sasol was the biggest emitter with 61,2-million metric tons of carbon dioxide equivalent (CO²e), followed by ArcelorMittal South Africa with 11,9-million metric tons.
ArcelorMittal acknowledged that steel making is energy- and emissions-intensive, but because steel products are durable and strong it can help to save energy and hence emissions over the longer term. The company is of the opinion that steel will play a major role in any adaptation measures needed in the future.
Other companies in the top ten emitters list included Pretoria Portland Cement, BHP Billiton, Evraz Highveld Steel and Vanadium, Anglo American, Sappi, Harmony Gold Mining, Mondi Group and Gold Fields.
Paul Simpson, chief executive officer of the CDP, said managing carbon emissions and protecting the business from climate change impacts is fundamental to achieve sustainable and strong shareholder returns. “Business must continue to forge ahead, innovate and seek out opportunities by doing more with less.”
Businesses seemed to acknowledge this fact as they are taking definite steps to mitigate climate change.
As in 2010, energy-efficiency initiatives relating to processes and building services was the most common emission-reduction activity type. Behavioural change was the second most common approach. The popularity of these activities related to their short payback periods with 47% of behavioural change activities having a payback period of less than one year.
Reported investments in emission reductions activities also increased from R9,5-million to R17,9-million.
Identifying and managing risks and opportunities
South Africa had the highest proportion of companies identifying climate-driven risks and opportunities of all the countries participating in the CDP. Only two companies identified no risks and five companies identified no opportunities.
About 90% of the responding companies reported having a board or executive body with responsibility for climate change. Most of these companies were in the energy and materials sector, while all the responding companies in the health care, IT and telecoms sectors reported having a board or executive body with responsibility for climate change.
Nedbank indicated that they are not yet in the position to assess the financial implications of their climate risk exposures on a full-book basis, but that they plan to do a complete assessment in the near future.
Woolworths Holdings predicted that consumer demand for products that are more sustainable and produced in an environmentally and socially responsible manner will grow in South Africa over the next two years, as the country recovers from the recession. The company said if they failed to respond appropriately, Woolworths will lose the connection and trust that they would like customers to have with their brand.
The JSE stated in the report that even though they do not have a climate change specific policy or committee, they regard climate change as an opportunity to provide both thought leadership - and potentially market-based solutions.
Additionally, in the latest report, 95% of the respondents indicated that they report on climate change in their annual reports. There was a marked increase in climate-related business partnerships either through business-to-business climate initiatives such as those administered by national business associations such as the NBI or Business Unity South Africa (BUSA) or non-governmental, academic and government partnerships.
The CDP report also noted that there was “an encouraging increase in the number of companies that report on having GHG emissions reduction targets”. It said that 40 companies, including almost all the high emitting companies, reported having emissions reduction targets, as compared with 31 companies in 2010 and 20 in 2009.
The report further stated “an encouraging increase” in accounting for scope 3 emissions, which consists of a wide range of other indirect emissions, for instance transport-related activities in vehicles not owned or controlled by a company, business travel, the use of sold products and waste disposal emissions.
“While it is important to track the performance of the larger direct emitters, this should not be at the cost of losing focus on these companies that have the potential to inform the behaviour of organisations and individuals within their sphere of influence,” commented the report.
According to the CDP report, “banks, for example, might have comparatively small direct emissions, but collectively they have the ability to exert a significant influence on the carbon performance of the broader business sector. Large purchasers often have a similar ability to effect change through their supply chain.
“Although there has been an encouraging increase in scope 3 emissions accounting, and evidence of some companies including adaptation aspects in their community engagement initiatives, there remains further potential to promote mitigation and adaptation measures throughout organisations’ spheres of influence.”
Addressing areas of concern
Albeit these positive developments, there remained significant scope for further action if business is to play the leadership role that is expected of it. “The valuable improvements in disclosure and performance evidenced over the last few years through the CDP analysis process are not sufficiently widespread within and between sectors, or appropriately ambitious, to constitute the level of leadership and action that many observers deem necessary to mitigate, and adapt to, climate change,” said Jonathon Hanks, director of Incite Sustainability and lead author of the CDP report.
“While this year’s CDP process has shown improved performance and disclosure across all sectors, there are still certain high-profile companies and sectors, such as real estate, that do not appear to have sufficiently considered the potential risks and opportunities that climate change presents,” Hanks said.
The low number of companies that are currently verifying their emissions data is also a concern. For this report, 30 companies verified or are in the process of verifying the elements of their scope 1 and 2 emissions. This is relatively static as compared with last year, when fewer companies responded and was low in comparison with international peers.
While there was evidence of some exciting initiatives on adaptation – with some companies for example exploring opportunities to develop hardier drought-resistant crops, changing product ingredients or redesigning production processes – the current level of response on adaptation was not proportionate with the anticipated likely impacts that will need to be managed.
The CDP report commented that companies are taking action on climate change in the “absence of any legislative requirement in South Africa to disclose or reduce emissions”, and that “these continuing positive improvements in disclosure, target setting, mitigation action and climate change governance practice are indicative of an increasingly proactive engagement by the South African corporate sector on climate change issues”.
However, businesses expressed concern about the government’s proposal to introduce a carbon tax as a key instrument to reduce emissions and meet international climate change commitments.
As an example of these concerns, the CDP report quoted a cross section of business views.
“Carbon taxation or emissions taxation will increase operational costs for the business, reduce company profitability, reduce shareholder dividends, reduce the internal rate of return on business expansion ventures and indirectly result in job losses,” said the mining group Exxaro Resources.
“The proposed carbon tax for South Africa is burdensome as it will result in between a 100% and 200% increase in the scope 1 cost for our South African operations,” commented the paper maker Sappi. “For example, our Ngodwana Mill operation purchases coal at R250 per ton. The proposed low and high emission taxes will increase the costs to R550 and R750 per ton respectively. Because our South African operations have a high dependence on fossil energy, the net effect of this will cause some if not all operations to run at a loss.”
In contrast, Gold Fields advocates that a carbon tax should be ring-fenced and that all income generated should be used for renewable energy projects.
Joanne Yawitch, chief executive officer of NBI, reiterated that the CDP has been a catalyst for action, driving business to integrate climate change into strategy and in the identification of risks and opportunities, promoting the link between environmental, economic and social imperatives. Although the execution of strategy and realisation of opportunities is the next big challenge, the CDP disclosure provides encouraging evidence of revised business models and a significant investment in mitigation activities.
“Companies who have consistently and sincerely participated in the CDP will be well positioned to lead the transition to a green economy. They will be better positioned to mitigate their carbon emissions and respond to the government’s aspirations.”
To download the full report, visit www.nbi.org.za, to which full acknowledgement and thanks are given.
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