04 May 2021
By David Renwick, Head of Investment Banking Division. Absa Corporate and Investment Banking (CIB)
As we head towards COP26 in Scotland, the world is reeling from the impacts of COVID-19 and its resultant human and economic costs. The pandemic has reminded us that global challenges require global coordination and bold action. At the upcoming 26th UN Climate Change conference scheduled to take place in Glasgow, Scotland, governments, businesses and broader society will, once again, have to confront the challenges posed by climate change. As with COVID-19, climate crises do not discriminate, and we have seen how any vulnerability that arises elsewhere in the system can cause significant devastation in other parts.
Given the urgency that the global climate challenges have caused, we can reasonably expect that global action on climate-related issues will be accelerated. On the one hand, rapid, collective action and change are required to reduce emissions to levels that will prevent an ecosystem collapse and widespread human suffering. On the other, we live in complex, multi-layered societies, in which stability is maintained through the predictability of long-standing, slow-changing norms and standards.
A careful and difficult balance must be struck on the global transition journey between moving fast enough to avoid climate-tipping points, but slow enough to maintain global societal stability. For fossil-fuel dependent countries, significant resources will be required to avert a series of humanitarian and economic crises. If not managed properly, the transition could result in greater socio-economic instability and fragility, as well as increased migration and security risks across the globe.
An equitable and just transition to net-zero emissions will require concerted efforts of all societal layers, that is, individuals, civil society, the private and public sectors. On an individual level, it is important that, where we can, we implement energy efficiency plans within own households and environments. At Absa, we continue to work to not only reduce our carbon footprint as a business, but also develop innovative climate finance products to support our clients on their transition journey. As individuals, we must also not forget the power we hold in our purchasing and investment decisions.
At a business level, companies have an important role to play in mitigating global warming and in ensuring a just global transition to net-zero emissions. They can do this by investing in research, new energy technologies, energy efficiency measures, and smarter business practices. For our part at Absa, we have shown our commitment to this transition by being the first South African company to voluntarily include a climate change resolution on our AGM agenda last year, and secure support from shareholders for that; being a founding signatory to the UN Principles for Responsible Banking, and being one of the leading financiers for the country’s extensive Renewable Energy Independent Power Producer Procurement (REIPPP) programme.
It is encouraging to note that Absa Group is not alone in these efforts. There is a growing number of businesses that are similarly committing to the global transition, as illustrated by the growing support for initiatives such as the Task Force on Climate-Related Financial Disclosure; WeMeanBusiness; Science-Based Targets and the Global Compact. However, like other businesses, Absa is constrained by resources, local and global regulations and policies, as well as unique country contexts. For the business sector to have a significant impact in stemming the tide of global warming, more companies need to be involved.
Widespread resource mobilisation is required in order to achieve just transition. In line with the Paris Agreement, advanced economies must reconfirm the $100-billion annual transfers to lower-income countries and raise that figure to ensure that countries across Africa and other emerging markets can leapfrog old technologies and move directly to using green technologies. Furthermore, concessional funding to support the transition to a green economy is required across the continent.
International frameworks and guidelines to manage and mitigate against climate risks need to be enhanced. As part of the financial sector, we are accustomed to the use of regulatory instruments to improve financial stability. At an international level, Basel Accords have contributed to banking sector resilience. It would be useful if international standards bodies, including the Financial Stability Board (FSB) and the Basel Committee, and multilateral organisations such as the OECD and IMF, collaborated with national regulators to enhance existing frameworks that can support the financial sector’s response to the climate crisis. At Absa, we also believe that there is scope for work to be done by the G20/IMF to model the economic and social consequences of the climate transition.
Lastly, regulatory and policy decisions that address climate change and financial stability risks require multilateral rules-based regimes. Thus far, the work of the UN Framework Convention on Climate Change (UNFCCC) has provided broad governance and understanding of climate issues. The next phase will require a cross-sectoral responses and leadership to bring together the multiplicity of issues that are interconnected and interrelated when solving social inequality and climate change: from women, water, health and hygiene, to pollution, emissions, trade and, economics.