SA firms 'not preparing for climate change risks'
October 23, 2009
By INGI SALGADO
Law firm Webber Wentzel, a sponsor of the South African Carbon Disclosure Project (CDP), is warning companies that climate litigation has started to become a reality - and is likely to increase as the effects of climate change become more acute.
Webber Wentzel partner Johann Scholtz said potential claimants included individuals whose health had been affected, those who had suffered property damage or economic loss, NGOs and local and national governments.
"An analysis of these lawsuits shows that they comprise actions against regulators for failing to have adequate standards, challenges to the application of laws and regulations, cases alleging liability for the costs of combating and adapting to climate change and cases based on the failure to curb emissions, including class actions, actions against directors and product liability cases," he said.
"Most commentators agree that those entities who practice denial and deceit and who take no active steps to curb emissions will bear the brunt of this litigation."
The CDP, an initiative in 20 countries, attempts to encourage the world's biggest corporates to start measuring and reporting their greenhouse gas emissions, and integrate climate change into management systems.
The results of the South African 2009 CDP, which secured a response rate from 68 percent of the JSE's top 100 companies, were released this week.
There has been a steady increase in the number of local companies that are reporting their greenhouse gas emissions, as well as an improved quality of reporting and improvement in performance.
Certain sectors fared poorly by not participating in the CDP, particularly food products, real estate and hotels, leisure and entertainment.
Fifteen companies did not respond to the CDP questionnaire. Another 15 declined to participate, although the CDP said many of these companies felt ill-equipped to respond comprehensively at this stage but indicated a willingness to do so next year.
Moses Kgosana, the chief executive of KPMG Africa, which co-sponsors the South African CDP, said if companies were not yet convinced that climate change required a focused and tactical approach, they should consider that investors were starting to evaluate businesses on the basis of their preparedness.
"Every day, more and more money is flowing towards companies that are demonstrating an understanding of how climate change is impacting their business and are implementing actions to thrive in the new, carbon-constrained global economy.
"They are limiting their carbon exposure, maximising energy use and evaluating products and supply chain impacts - and they're out-competing their dawdling peers in the increasingly competitive market for capital and consumer revenue," he said.
This year, the Government Employees Pension Fund became a signatory to the CDP - which could motivate some of the non-responsive companies to participate in future.
Jonathan Hanks, the managing partner of Incite Sustainability, which prepared the report, said it was encouraging to note an increased number of companies were voluntarily measuring and publicly reporting their emissions, as well as setting emission reduction targets - despite the absence of national emission reduction targets for South Africa because of its developing country status.
However, much remained to be done "if business is to demonstrate the leadership required to respond in a sufficiently timely manner to the global climate challenge".
In a detailed assessment of the South African results, the CDP found several South African companies displayed only a "generic" understanding of the risks and opportunities presented by climate change.
"Few companies show evidence of being rigorous in quantifying the potential financial implications of climate change, and questions remain regarding the extent to which companies are responding at a sufficiently strategic level to the risks and opportunities that they identify," the report said.
As for opportunities, FirstRand said climate change had prompted it to launch a new weather derivatives product, which offers portfolio insurance for the agricultural sector.
Gold Fields said gold could be a "hedge against turmoil", with sales increasing if climate change were to create economic, political or social unrest.
Significantly more of the JSE's top 100 companies measured and reported their greenhouse gas emissions this year - 87 percent of respondents reported on their Scope 1 and Scope 2 emissions against 77 percent of a smaller pool of respondents last year.
Most that failed to report this year said they had either started doing so or planned to soon, although Aquarius Platinum blamed "severe economic constraints and budget reprioritisation" for the delay in quantifying its emissions.
Scope 1 emissions are defined as direct greenhouse gas emissions from sources owned or controlled by a company. Scope 2 emissions are those associated with the generation of purchased electricity, which tend to be large in South Africa because of Eskom's reliance on burning coal. Scope 3 emissions are a result of the company's activities, and include those generated in the supply chain and as a result of staff transport.
Nearly double the number of companies (24) were found to have verified their reported emissions data compared with last year.
While an increase in the number of companies setting targets was noted, the report said these were "generally low" and tended to be relative rather than absolute.
South African corporates were found to lag their foreign competitors in implementing renewable projects.
Only five local companies reported generating their own renewable electricity, although many had plans to do so, such as Exxaro and Sasol.
Some companies, mostly the large emitters of carbon, said they had started integrating climate abatement and carbon pricing in their investment appraisals. More were developing strategies to adapt to climate change.
Companies are increasingly integrating climate change issues into broader governance activities.
More than four in five respondents had a board committee responsible for climate change, almost as many included climate change issues in their annual reports, and nearly one in three provided incentives to management for climate change objectives.
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