Ort Jet sustainability climate change strategy presentation final

Green is the new Black: Exploring the business implications of the

Sustainability & Climate Change Agenda

in South Africa

February 2012

©2009 Deloitte LLP. All rights reserved.

1. What does sustainability mean?

2. Background to the emergence of Sustainability and Climate Change as an

international discussion

3. Update on the South African Policy Position

4. Update from the Budget Speech 2012/2013

5. Key Issue to Consider for South African Business

6. Immediate Priorities for South African Businesses

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Presentation Agenda

What is ‘sustainability’ and where did it come from?

©2009 Deloitte LLP. All rights reserved. 4

Defining „Sustainability‟

ECONOMIC

ENVIRONMENT

SOCIAL POLITICAL

Economic Contribution

Employment

Security of Energy &

Resources

Catalyst for Economic

Change

Cost of Natural Resources

Human Capital Costs

Operating Infrastructure

Costs

Finance and Funding

Taxes

Natural Resource

Emissions

Energy Efficiency

Carbon Emissions & Carbon Tax

Pollution

Noise

Water

Asset Performance

Skills Development

Transformation

Community Development

Employment Creation

Role in Social Change

B-BBEE

Employee Considerations

CSI

Investor Expectations

Customer Expectations

Climate Change Commitments

Regulatory Engagement

Sustainability in one organisation isn’t necessarily the same as sustainability in another.

It is important at the outset to define what ‘sustainability’ means for your organisation. Which aspects

are material? Through workshops with Executives the definition of ‘sustainability’ could include aspects

of the Economic, Political, Environmental and Social Spheres to determine which facets of these are

materially relevant to your organisation.


1987: The UN Brundtland Commission definition

• Change from ‘Global Warming’ to ‘Sustainability’

• Sustainability or sustainable development is that which “meets the needs of the current

generations without jeopardising the ability of future generations to meet their own needs”

1992: Rio UN Earth Summit

• Gave rise to the UN Framework Convention on Climate Change (UNFCCC) – 194 signatories

1995: UNFCCC Conference of the Parties (COP 1 Berlin)

• Climate Change specific focus

1997: COP 3 and the Kyoto Protocol

• First voluntary global agreement on Climate Change – needed to be ratified

• Based on an acceptance of climate change science

• Based on an acceptance that industrialisation (and the associated growth in carbon emissions) is

accelerating the earth’s warming cycle.

• Focus on carbon reduction in industrialised countries

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The emergence of sustainability as an international

conversation


2002: Jo‟burg UN Summit on Sustainable Development

• Took the definition further by defining sustainability in terms of social, environmental and economic

factors

• Became known as the 3 pillars of sustainability & Triple bottom line reporting

2004 - 2012: International Sustainability Reporting Standards

• Global Reporting Initiative

• King III on corporate governance in SA

1998 – 2008: COP 4 – COP 14

• Emergence of a number of treaties and accords on climate change

• Ratification of the Kyoto Protocol in 2005

• Placed a burden on ratifying developed countries to introduce climate change legislation

• Implementation of various ‘incentive’ based mechanisms (such as the CDM carbon credit

mechanism)

2009: COP 15 Copenhagen

• Global pressure for a ‘legally binding’ global agreement on climate change, including Developing

countries.

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conversation


2011: COP 17, Durban

• Still no legally binding agreement on climate change

• Agreement on the continuation of the CDM

• A degree of commitment on financing for low carbon development in Developing Countries by

Developed Countries (commitment to create the Green Climate Fund of $100bn per year for low

carbon projects).

• Establishment of new negotiating groupings by common issues and implications. SA is part of

BRICSA and the African Group.

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conversation

Sustainability Policy Position – South Africa

• Presidential commitment to reduce South Africa’s greenhouse gas emissions

compared with business as usual (34% by 2020 and 42% by 2025)

• National Climate Change Policy White Paper published in 2011 and sets the

framework for regulating carbon in the South African economy.

• National Treasury: carbon pricing policy paper published in 2011. It sets out the

proposed introduction of a carbon tax in South Africa

• DTI & Treasury: grants and incentives available for R&D (including energy and

carbon), a number of grant programmes support development of large-scale

renewable energy (CIP), and some manufacturing grants now demand in-built

energy efficiency.

• Eskom: security of supply (keeping the lights on) and electricity price

escalations.

• NERSA Renewable Energy Bid Process: significant drive to establish

independent power production capacity in SA with a view to feeding RE into

Eskom’s grid. Lowering the carbon footprint of SA and assisting with securing

supply whilst accelerating economic development in local communities. 3 725

MW.

• King III: places sustainability firmly at the centre of good corporate governance

(Integrated Reporting)

Recent policy shifts

Carbon Tax

• Second version of a draft policy paper on carbon tax will be released in 2012.

• Carbon tax will be introduced in 2013/14.

• First phase will run to 2019.

• The carbon price will be R120 per ton CO2e in 2013/14 and increase by 10% per year.

• No clarity on what scopes of emissions will be taxed.

• Companies will need a verified carbon footprint each year.

• All companies will be given a tax-free threshold of 60% so they only pay for 40% of their

emissions, until 2019.

• Some sectors will get additional tax-free threshold percentages – trade exposed

sectors and sectors with process emissions that cannot be reduced in the short term

(cement, paper etc.)

• In phase 2 (2020 to 2025), the tax free threshold will be reduced or removed completely.

• Offsets are allowed into the carbon tax and will reduce the impact of a carbon tax for

companies.

• Revenue will not be ring-fenced.

National Budget Speech 2012/2013

Electricity Levy

• The electricity levy generated from non-renewable sources will be increased by 1c/kWh

to 3.5c/kWh.

• The additional revenue will be used to fund Eskom energy efficiency initiatives such as

solar water heater programme.

• This will replace the current funding mechanism that is incorporated into Eskom’s

annual tariff application.

• The net impact on electricity tariffs should be neutral.


Fuel Levy

Increase by 20c/l with effect from 1 April 2012.

Infrastructure

The Budget Review lists 43 major infrastructure projects, adding up to R3.2 trillion in

expenditure. R300 billion of this is in the energy sector. Uncertain whether any of this is

ring fenced for alternative or renewable energy investment.

Green Fund

Government will initiate a national green fund in April 2012, with capitalisation of R800

million over two years to support green-economy activities.

Likely to fund low-carbon projects, but will also come with additional requirements like

minimum contribution to job creation, skills development and economic development in local

communities.


Finding balance & resilience in your business

• Educate yourself – existing and pipe-line regulations and incentives could pose

risk or present opportunity for your business. Education is key to avoiding risk

and identifying opportunities.

• Define „sustainability‟ for your own organisation – establish where the risks

and opportunities are in your business and establish which economic, social,

environmental indicators are material to your organisation.

• Start measuring material sustainability indicators – mandatory carbon

reporting is here… and it isn’t simple. Integrated Reporting requirements are

here… and they’re not straightforward. Get on the learning curve early.

• Understand your organisations role in the value chain – can your

organisation have a positive impact on material sustainability issues of your

customers? Or worse… could the way you service your customers create an

additional burden for them?

Minimising burden & maximising opportunity

• Understand the supply chain – are there emerging liabilities in the supply

chain which are likely to be passed on to you at some point? Are your suppliers

pro-active in identifying risks and opportunities for you?

• Engage in the policy-making process – The time is now. Legislation, policy

and regulations are still evolving. Business must mobilise to engage in this

process to ensure that structures for carbon reduction and sustainability

reporting are appropriate. Business needs to do their own assessments on

impact of carbon tax etc.

• Begin with the end in mind – revisit business strategies & practices, capital

projects, product development and supply chain decisions to identify risks and

opportunities – ensure grants and incentives are built into decision making

process.


• Get buy-in from the top – it is essential the CEO & Board understand the

implications for their business & provide their staff with a mandate to respond to

risks and opportunities.

• Adopt an integrated approach – sustainability is no longer a matter for

sustainability or green specialists on the sidelines, it should be central to your

business’s vision and strategy.

• Communicate with all stakeholders – talk to customers, investors, staff &

suppliers. Keep it relevant and substantive and listen to feedback.


First Steps

• Get to grips with the implications of the carbon tax for your business in the

immediate, medium and long term. Look at your value chain, your supply chain

and your organisation's role in wider supply chains.

• Understand the requirements around mandatory reporting on carbon – look

for the risk areas and distil the potential opportunities.

• Begin the journey towards an integrated report.

• All new projects should aim to qualify for carbon credits, capital grants &

incentives, R&D tax allowances (11D), energy savings allowances (12L).

Include this as part of initial due diligence on investments.

• Start identifying future projects which will result in energy savings. Energy

price escalation combined with carbon taxes can create 'shut down' situations

for many businesses

Start now

Lee Swan

Manager : Sustainability & Climate Change Strategy

[email protected]

072 812 0751

Contact us

mailto:[email protected]

Ort Jet sustainability climate change strategy presentation final

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