Thursday, 22 November 2012 12:28

Turning risk into reward

The South African business sector is increasingly anticipating and responding to climate change issues, according to the recently released Carbon Disclosure Project: South Africa 2012.

As the global understanding of climate change and the associated risks continue to develop and the scramble for an international agreement continues, investors are increasingly demanding more advanced corporate disclosure on sustainability.

Building on previous years, the results of Carbon Disclosure Project: South Africa 2012 reflect the trend of increasing engagement by the South African business sector in anticipating and responding to climate change issues. 25 Degrees in Africa looks at the key issues.

About the CDP

This is the sixth successive year in which the Carbon Disclosure Project (CDP) has sent a request to the chief executive officers (CEOs) of South Africa’s top listed companies, asking them to measure and disclose what climate change means for their business. Written by Incite Sustainability in partnership with the National Business Initiative (NBI) as the long-standing local partner of CDP, the report, sponsored by KPMG, provides a concise analysis of the responses to the CDP 2012 questionnaire that was sent to the JSE Top 100 companies on behalf of 655 institutional investors (CDP signatories) representing US$78-trillion in assets.

A promising response rate
The JSE Top 100 response rate reaffirms South African business as a global leader in terms of their participation in the CDP. According to the report, South Africa’s sixth CDP information request generated a response rate of 78%. As a result, the South African CDP response rate is ranked second-highest internationally by geographic region. “The slight drop on last year’s response rate (83%) is largely due to new companies entering the JSE 100 sample, most of which chose not to participate in their first year,” states the report. This suggests that there may be low levels of climate change reporting outside of the JSE Top 100.

Of the 78 responding companies, eight companies chose not to make their submissions publicly available – the same as in 2011. The report states that two companies who completed the information request in 2011 declined to participate in 2012, namely the Mr Price Group and Naspers.

The real estate sub-sector continues to show the lowest response rate, with only three out of ten companies responding. Consumer staples showed the highest levels of participation, with only one company (out of 12) declining to participate.

According to the report, there has been an encouraging increase in the voluntary participation of companies that fall outside the JSE Top 100 sample. This year, 13 companies outside the JSE Top 100 sample responded voluntarily to the CDP questionnaire.

Continuous improvements

CDP 2012 saw continuing improvements in disclosure by South African companies in all key indicators. The average carbon disclosure score of all publicly responding companies is 82, up from 76 in 2011, 74 in 2010 and 62 in 2009. This compares favourably with the average disclosure score of 77 for the Global 500, according to the report.

The range of scores for the top 10% of companies that qualified for the Carbon Disclosure Leadership Index (CDLI) has also improved, from 87-98 in 2011 to 95-100 in 2012.
A total of 12 companies qualified for this year’s CDLI. Exxaro Resources Ltd is the overall leader with 100 normalised points (the first time a South African company scores full points), followed by Gold Fields Ltd with 99 points and Harmony Gold Mining Co Ltd with 98 points. The Energy and Materials sector achieved the highest average disclosure score for a sector, followed closely by industrials and healthcare sectors.

Scope 1,2 and 3 disclosure

All but one of the 76 company responses disclosed figures for global scope 1 and/or scope 2 emissions. This represents a significant improvement on measurement and disclosure since the CDP first engaged the JSE Top 100 in 2008, when only 41 companies reported emissions. This has been accompanied by a continuation of high levels of voluntary disclosure of emissions data in annual reports, with 74 companies (97% of respondents) reporting greenhouse gas (GHG) information in their annual reports.

The report goes on to state that there has been an increase in the number of companies calculating and disclosing scope 3 emissions – this is up from 61 (78%) companies in 2011 to 71 (93%).

Furthermore, there has been an increase in levels of emissions verification: 37 companies (49% of respondents) have emissions verification complete or underway for scope 1 and 2 emissions (reported and approved), up from 27 (35%) in 2011. A total of 22 companies (29%) have verification complete or underway for scope 3 emissions (reported and approved).

Better climate change strategies

The report highlights that the improvements in disclosure have been accompanied by more efficient climate change governance, risk management and performance.

There has been a general increase in rating in terms of carbon performance bands, accompanied by an increase in the number of companies qualifying for the Carbon Performance Leadership Index (CPLI). This year six companies qualified for the CPLI, namely Anglo American PLC, Barloworld, FirstRand Limited, Gold Fields Ltd, Mondi PLC and Woolworths Holdings Ltd – up from two companies in 2011, namely British American Tobacco and Gold Fields Ltd.

Encouragingly, according to the report, the number of companies with GHG emissions reduction targets continues to increase. This year, 43 companies reported having emissions reduction targets – compared to 40 in 2011. These targets comprise a mix of both absolute and intensity-based reduction targets, and continue to show significantly varying levels of ambition and time frame. Consumer Staples have the highest proportion of companies with targets (73%), followed by the Energy and Materials (68%) and Financials (63%) sectors.

A total of 73 companies (96% of respondents) report having a board committee or executive body with responsibility for climate change. A total of 47 companies (six sectors) achieved their climate change objectives.

Energy-efficiency remains a core focus. The report states: “A total of 57 (75%) of the companies reported implementing energy-efficiency initiatives related to processes, building services and building fabrics. Several companies continued to report that a significant proportion of these initiatives have relatively short payback periods.”

Material reductions in GHG emissions

There has been a material reduction in the reported GHG emissions of South Africa’s top companies. The total reported direct (scope 1) emissions for 2012 decreased from 137-million tonnes of carbon dioxide equivalent (tCO2e) in 2011 to 132-million tCO2e in 2012, while indirect (scope 2) emissions reduced from 98,4-million tCO2e in 2011 to 86,6-million tCO2e in 2012. “Most of these emissions reductions are attributable to reductions achieved by leading emitters in the materials sector, as well as by the non-inclusion this year in the JSE100 of a top emitter in 2011, Evraz Highveld Steel And Vanadium Limited,” states the report.

Direct GHG emissions

A few carbon-intensive companies continue to dominate South Africa’s direct GHG emissions. The data highlights the continuing predominant contribution of a few large emitters, such as Sasol with reported annual scope 1 emissions of 61,4-million tCO2e. This is followed by BHP Billiton with 3,2-million tCO2e,  Anglo American with 3-million tCO2e and Sappi with 2,8-million tCO2e. “Placing this in context, Eskom’s publicly reported calculated emissions of carbon dioxide for the year ending March 2012 is 231,9-million tCO2e. Additionally, Transnet’s total GHG emissions for 2011/2012 were reported at 4,3-million tCO2e5,” states the report.

Together with Eskom, the responding companies in the JSE account for 64% of the country’s total estimated emissions of approximately 510-million tCO2e.

A new phase of stocktaking

According to the Minister of Water and Environment Affairs, Edna Molewa, companies who are acknowledged for improved or good performance in this year’s report deserve special recognition for their efforts. “Within the national context, our priority is to focus our efforts on implementing our climate response measures,” she commented. According to Molewa, this includes actions to mitigate emissions while giving equal attention to building our resilience in areas such as water, agriculture and forestry, health, biodiversity and human settlements. “This focus requires collective action from all sectors of our society,” she added.

Why is the CDP important?

According to Paul Simpson, CEO of the UK-based Carbon Disclosure Project, the pressure is growing for companies to build long-term resilience in their business. “The unprecedented debt crisis that has hit many parts of the world has sparked a growing understanding that short-termism can bring an established economic system to breaking point. As some national economies have been brought to their knees in recent months, we are reminded that nature’s system is under threat through the depletion of the world’s finite natural resources and the rise of greenhouse gas emissions,” he says.

“It is vital that we internalise the costs of future environmental damage into today’s decisions by putting an effective price on carbon. Whilst regulation is slow, a growing number of jurisdictions have introduced carbon pricing with carbon taxes or cap-and-trade schemes. The most established remains the EU Emissions Trading Scheme, but moves have also been made in Australia, California, China and South Korea among others,” he noted.

The CDP has pioneered the only global system that collects information about corporate behaviour on climate change and water scarcity on behalf of market forces, including shareholders and purchasing corporations.

Internationally, the CDP works to accelerate action on climate change through disclosure and more recently through its Carbon Action Programme. In 2012, on behalf of its Carbon Action signatory investors, the CDP engaged 205 companies in the Global 500 to request they set an emissions reduction target – 61 of these companies have now done so.

The CDP continues to evolve and respond to market needs. “This year we announced that the Global Canopy Programme’s Forest Footprint Disclosure Project will merge with the CDP over the next two years. Bringing forests, which are critically linked to both climate and water security, into the CDP system will enable companies and investors to rely on one source of primary data for this set of interrelated issues,” says Simpson.

He believes that, accounting for and valuing, the world’s natural capital is fundamental to building economic stability and prosperity. “Companies that work to decouple greenhouse gas emissions from financial returns have the potential for short- and long-term cost savings, sustainable revenue generation and a more resilient future.”

Joanne Yawitch, CEO of South Africa’s National Business Initiative, reiterates this notion by stating that companies must support their discussion of risk, strategy and targets with management systems that deliver consistent, verifiable data. “The needs of science and the requirements of national policy will require us to perform with increased rigour. Furthermore, although climate change is an important issue, if there is one thing 2012 has taught us, our collective consideration of implementation needs to extend to the subtle interactions between economic, social and environmental issues. We need a holistic, participative approach as we transition to a green and sustainable economy,” says Yawitch.

A vested interest

In the context of the international climate change negotiations and the disappointing outcome document of the Rio+20 Summit, it is encouraging to see the continuing improvements in performance and disclosure for almost all indicators by the participating South African companies, according to the report. However, the report states that significant further progress will be required in emissions reductions by South African business to make a fair and equitable contribution to the global ambition of limiting warming to 2°C on pre-industrial levels that was reaffirmed at the United Nations (UN) Climate Summit in Durban in December 2011.

About the International Carbon Disclosure Project

Since 2000 the Carbon Disclosure Project (CDP) has challenged the world’s largest companies to disclose their GHG emissions, identify the perceived risks and opportunities that climate change presents for their business, and describe their strategic responses to these risks and opportunities. The increase in fiduciary backing of the 2012 CDP questionnaire, up from 551 signatories in 2011, is illustrative of the investor community’s growing interest in environmental, social and governance (ESG) issues.

The CDP has been engaging South African listed companies since 2007 through its local partner the NBI. In the first year it approached only the JSE Top 40, but since 2008 it is has been engaging the JSE Top 100. The CDP questionnaire focuses on three key areas: climate change management; risks and opportunity identification; and GHG emissions accounting and performance. By benchmarking company actions across and within specific sectors, the CDP reporting process encourages knowledge sharing, the setting of informed reduction targets and the uptake of best-practice initiatives.

The data from the CDP reporting process is made available to a wide audience including institutional investors, corporations, policymakers and advisors, public sector organisations, government bodies, academics and the public, with the aim of facilitating more informed engagement with business on climate change. In 2007 the CDP established the Climate Disclosure Standards Board (CDSB), an international organisation committed to the integration of climate change-related information into mainstream corporate reporting.

Full thanks and acknowledgement are given to “Carbon Disclosure Project: South African business: shifting the focus to performance” for the information given to write this article.