10 minute read

100 SECONDS TO MIDNIGHT

By Mark Dytor, AECI’s Chief Executive

AECI AND CLIMATE CHANGE ARE THE SAME AGE.

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The history of AECI goes back to 1896; to the opening of the world’s largest “dynamite factory” in Modderfontein, 19,3 kilometres from the 10-year-old corrugated-iron town of Johannesburg, with its burgeoning population of 102 078 people! In the same year, a Swedish scientist by the name of Svante Arrhenius was the first to use the basic principles of physical chemistry to calculate the extent to which increases in atmospheric carbon dioxide (CO2) increase earth’s surface temperature through the greenhouse gas effect. These calculations led him to conclude that human-caused CO2 emissions are large enough to cause global warming.

76 years later, the 1972 United Nations (UN) Conference on the Human Environment in Stockholm was the first global conference that made the environment a major issue. Despite the early warning signs (and there were plenty), climate change barely featured on the agenda. Atomic bomb testing, chemical pollution and whaling were the priority.

Fast forward to the 2021 UN Climate Change Conference (commonly referred to as COP26) in Glasgow, and the tables are turned. COP26 is described as “the world’s best last chance to get runaway climate change under control” with UN Secretary-General, António Guterres, warning that it’s “make or break” time.

In the nearly 50 years since Stockholm, there’ve been too many accords, pledges, protocols, reports and summits; and too little progress. All the while, atmospheric CO2 is growing higher and higher. In 1972, it was 327,46 parts per million (ppm); and in 2021, it was 416,45 ppm, the highest level ever. The excess heat trapped by that CO2 has already raised global temperatures by approximately 1°C and the Intergovernmental Panel on Climate Change has declared code red for humanity. The 2022 Doomsday Clock is ticking at 100 seconds to midnight.

And South Africa is in the thick of it. The country is the 12th largest CO2 emitter in the world and local science shows that some regions are expected to warm at twice the rate of the global average. Temperature increases of up to 4°C in the east increase the risk of heavy rains and tropical cyclones, and temperature increases of up to 6°C in the west increase the risk of droughts and heat waves. The consequences are dire: decrease in productivity and well-being, economic slowdown, food and water insecurity and more inequality, poverty and unemployment (already at a staggering 46,6%).

At the same time, some of South Africa’s top exports are severely vulnerable to transition risk:

• One-third of the demand for Platinum Group Metals (PGMs) comes from the component parts of the internal combustion engine. The last internal combustion engine will probably be manufactured before 2035, 13 years from Are we ready? Under the auspices of Business Unity South Africa and the National Business Initiative (NBI), the South African business community is committed to pathways to net-zero by 2050 and is supportive of initiatives like the Just Energy Transition announced at COP26. In this regard, the country is set to receive US$8,5 billion to help end its reliance on coal” now. This will effect PGMs and vehicle/ vehicle parts manufacturers

• Coal is unlikely to have a major role in the global economy post-2050 and will no doubt phaseout around 2040, 18 years from now. This is a significant export commodity currently

• According to the Department of Trade, Industry and Competition, South Africa is the second-most vulnerable country by trade-weighted distance, and tourism makes up 10% of gross domestic product (GDP)

Mark Dytor, AECI’s Chief Executive, says that the days of ignoring reality belong completely in the past. “It’s time to stand up and be counted.”

To have a chance of limiting global warming to 1,5°C, COP26 agreed that CO2 emissions must reduce by 45% by 2030 (vis-á-vis 2010) and reach net-zero by 2050. In response, governments and private sector entities are considering a range of options, which could result in disruptive changes across economic sectors and geographic regions.

Are we ready? Under the auspices of Business Unity South Africa and the National Business Initiative (NBI), the South African business community is committed to pathways to net-zero by 2050 and is supportive of initiatives like the Just Energy Transition announced at COP26. In this regard, the country is set to receive US$8,5 billion to help end its reliance on coal.

Welcome to the age of the green economy where green industry and greening industry are the new “new normal”!

The Department of Forestry, Fisheries and the Environment defines the green economy as:

• Growing economic activity in green industry

• Shifting the economy as a whole towards cleaner industry

New York Times bestselling author, blogger and internet entrepreneur, Mark Manson, writes that life is essentially an endless series of problems; the solution to one problem is merely the creation of another. “When you solve your problem of not spending enough time with your partner by designating Wednesday night “date night”, you generate new problems, such as figuring out what to do every Wednesday and making sure you have enough money for nice dinners. Problems never stop; they merely get exchanged and/or upgraded.”

The same can be said for transitioning AECI to the green economy and net-zero. “Deeprooted, well-established companies with long histories and legacies – like ours – must approach the green economy on two fronts: we must invest in green industry while greening existing infrastructure and operations. In many ways, we’re modifying the plane while we’re flying it! A level of ambidexterity is required,” claims Mark.

Businesses that are establishing themselves now have an inherently green mindset. Off the starting blocks, they’re designing processes, products, services and systems that are supportive of the transition. Think carbon capture, clean energy, energy efficiency, green buildings, sustainable transport, waste and water management. “This is why we’ve invested in startups like Clariter, Khula and Origin Materials. We’re able to draw on their cutting-edge knowledge and state-ofthe-art technology as we transition AECI.”

Mark is deeply pragmatic and recognises that there’s no quick fix or silver bullet. “We have a commodity-driven economy, high unemployment and subdued growth. Going green is great; managing it in the current reality is greater. Like the slow recovery from the COVID-19 pandemic, it’s another steep learning curve and there’s no business school programme, TED Talk or textbook on how to do it. “Strategic arbitration” is the leadership imperative of our age.”

He explains that while electric vehicles and renewable energy are inevitable in their absolute necessity, so is managing the risk to the mining industry and the country’s economy. “In 2020, the mining industry accounted for 8,2% of GDP (there are plans in place to get it to 12%) and employed 451 427 people. At AECI, it was 46% of Group revenue. We can’t just “flick a switch”; we have to be empathetic, responsible, visionary, and work together to find a way to net-zero. Groups like the NBI are playing a key role in this regard, engaging business, facilitating dialogue and mapping pathways to a low carbon economy. One of the NBI’s aims, for example, is to open and channel local and international support for high-impact areas while mobilising coordinated cross-industry collaboration.”

Among the high-impact areas that are being discussed are:

• Carbon-neutral aviation and shipping

• Carbon-neutral ferro alloys, gold and iron ores as well as hydrogen fuels and liquid fuels

• Electric vehicles

• Hydrogen and fuel cell technologies

A report by the Business and Sustainable Development Commission outlines the scale of the opportunity for business. Achieving the global goals could create 380 million jobs and unlock at least US$12 trillion in opportunities for business. It also identifies six actions that business can take to inspire commitment and purpose.

1. Support for the global goals is the right growth strategy

As more business leaders grasp the business case for the global goals, there will be more progress towards better business in a better world.

2. Incorporate the global goals into company strategy

- Aim innovation and planning at sustainable solutions

- Appoint board members and senior executives to take charge of implementation

- Make use of the global goals to guide capital allocation, leadership development and women’s empowerment

- Market products and services that inspire sustainable choices

3. Drive the transformation to sustainable markets with sector peers

- Develop new jobs and skills profiles

- Identify tipping points

- Map pathways to a competitive and sustainable playing field - Prioritise key levers (policy, technology, etc.)

- Quantify new financing requirements

- Specify elements of a just transition

4. Work with policy-makers to pay the true cost of resources

- Shape fiscal and regulatory policies in line with the global goals

- Work openly with business, civil society and regulators

5. Push for a financial system orientated towards longer-term sustainable investment

- Champion consistent, transparent league tables of sustainability performance

- Endorse blended finance instruments that attract private investment and share risk

- Support the alignment of regulatory reforms for long-term sustainable investment

6. Rebuild the social contract

- Adopt open, responsible advocacy

- Work with civil society, consumers, governments and workers to achieve the global goals

This approach is consistent with the findings of the 2022 EY US CEO Survey, which shows that CEOs in the US are growing their businesses while pivoting deliberately towards ESG and sustainability initiatives. 82% see ESG as a value driver and nearly all of them have a sustainability strategy in place. Encouragingly, 73% have adopted ESG for strategic reasons – such as competitive advantage and lower cost of capital – rather than in response to pressure from regulators. This is aligned with the call by Larry Fink, CEO of the world’s largest asset manager, BlackRock, for businesses to “find a purpose” and “take account of issues like climate change”.

The US SIF Foundation’s 2020 Report on US Sustainable and Impact Investing Trends says that one out of every three dollars under professional management in the US – US$17,1 trillion – was managed in line with sustainable investing strategies.

The Morgan Stanley Institute for Sustainable Investing indicates that sustainable funds outperformed traditional peer funds and reduced investment risk in 2020.

For a listed entity such as AECI, the Task Force on Climate-Related Financial Disclosure and the recent disclosure guidance on sustainability and climate change issued by the Johannesburg Stock Exchange (JSE) are important steps in establishing a universal reporting benchmark that will guide investment decision-making in the future. AECI will begin adopting the new guidelines in its relevant suite of reports from 2023.

High-quality ESG disclosure is a win-win situation. Through transparent disclosure, companies are able to reap the benefits of attracting capital that’s increasingly being directed to the top ESG performers.

Equally important is that the reporting process becomes a catalyst for action. “By analysing historical information and emerging trends for the future, climaterelated issues can make a material difference to investments, plans, strategies and – in some cases – core businesses. From a societal perspective, how we address climate change in South Africa and the rest of the world can also have a positive effect on tackling the realities of inequality, poverty and unemployment,” maintains Mark.

“The business case for sustainability is strong,” he reiterates. “It opens up new opportunities and significant efficiency gains; it secures more resilient supply chains and stability; it drives innovation; and it enhances reputation. With a solid reputation in the sustainability arena, companies attract and retain highperforming employees and loyal customers; and grab the attention of socially conscious consumers and investors. All of this translates into superior business growth and returns – responsibly.”

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