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The Triple Benefit of Renewables in Addressing Climate Change

The transition from fossil fuel to renewable energy will positively impact South Africa in several beneficial ways, including reducing carbon emissions, building a secure and abundant electricity supply, and creating millions of direct and indirect jobs.

This was a view shared by Professor Guy Midgley of Stellenbosch University, speaking in his personal capacity, at the second edition of Critical Conversations, hosted by Sanlam Investments.

The event examined climate change from multiple angles, including the emerging social issues, particularly in already marginalised societies. Sanlam Investments assembled a team of experts in the field of climate change and finance to address investors' concerns about the impact of environmental, social and governance (ESG) factors and "net zero emissions" on investment returns.

According to Ramez Naam, Co-Chair of Energy and Environment at Singularity University, dirty energy is the single biggest contributor to climate change.

Commenting on the need to transition from fossil fuels to renewables, Professor Midgley said, "We could employ millions of South Africans to build new energy solutions and sort out our electricity supply problems while mitigating against climate change in one fell swoop."

He noted that those who deny climate change were increasingly struggling to back up their views. "The evidence is incontrovertible; there is no doubt that climate change is real and that our business and industrial activities are causing it," he said, adding that every region experienced climate change differently. For example, in a local context, the Western Cape experiences climate risk as a reduction in the reliability of winter rainfall; in the Northern and Southern Cape, there are more intense droughts; and Gauteng and KwaZulu-Natal experience extreme rainfall events and flash floods.

It seems we are all to blame for the looming climate change catastrophe. Dr Lucian Peppelenbos, ESG Climate Strategist at Dutch-based asset manager, Robeco, said, "Though developing countries are responsible for contributing two-thirds of industrial emissions, both developed and emerging markets were part of the problem and need to be part of the solution." This solution involves leveraging the economic windfall on offer from tackling the climate change crisis.

Dr Peppelenbos estimated that a five-fold increase in investment would be required to achieve sustainable energy system outcomes between now and 2050. The challenge that society faces in this regard is how to generate renewable energy for the buildings, industrial and transport sectors while reducing reliance on fossil fuels.

"To sustainably electrify all of this infrastructure requires us to increase our distribution, generation and storage five-fold; the equivalent of 150 years of energy systems development in one generation," he said. This presents huge opportunities for countries that are well-endowed with natural resources like solar and wind energy.

Given the country's heavy reliance on coal-fired electricity, South Africa's institutional and retail investors are justifiably concerned about the impact of a sudden shift from fossil fuels to renewables. Playing devil's advocate, the panel host asked how coal projects with 40-years' reserves could be abandoned given their ability to create cheap energy and employment.

Jason Liddle, Head of Institutional at Sanlam Investments, said that both government and the private sector were working on a sensible and sustainable transition to renewable energy, which would play out over decades. "Government has started to procure clean energy from independent power producers (IPPs) with a specific emphasis on solar and wind," he said. But the real challenge will be how to meet the funding requirements for the growing appetite for renewable projects.

To this end, Sanlam Investments recently launched its Sustainable Infrastructure Fund, with starting commitments of R500-million. The asset manager hopes to attract R5 billion in institutional investment over the next two years, to invest in environmentally sustainable local projects that drive economic growth and job creation. Much of this investment could find its way into renewable energy.

"South Africa has the opportunity to build a modern energy system with a backbone of solar and wind that could be one of the cheapest on Earth thanks to your abundant natural resource of sunlight and good wind speeds," said Ramez Naam. He noted that fixed investment into renewables combined with job training would go some way towards delivering economic and jobs growth for the country.

Government and investors face increasing pressure to steer South Africa's R6.4 trillion in proposed infrastructure expenditure towards sustainable projects, with around 70% targeted at energy and transport. Again, the private sector will lead the way, with financial sector regulators keen for asset custodians to consider ESG factors when allocating capital.

"These considerations are extremely material to ensure that long-term sustainable wealth creation is achieved. That is why we have a robust investment process that is completely ESG-integrated," concluded Liddle.

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Julie Etheridge
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