HERMAN DE KOCK: Business investment in green economy is key to fight against climate change

Climate change continues to be a looming risk from which no business is immune. The catastrophic consequences of Covid-19 on the entire globe’s economic system, regardless of which philosophy underpins different economies, highlights the severity and scale of risks such as climate change.

With the devastation of a pandemic the question remains whether society, business and governments across the world will now start to take more pertinent and committed steps towards mitigating the risk of global climate disruption.

The World Economic Forum (WEF) stated that climate change will affect every country and economy, not sparing any business or society. However, the effect will be disproportionate across different economies, as we have seen with Covid-19.

One concerning example is how the pandemic aggravated inequalities that will last for a long time. With the effects still evident in all societies across the world, the realisation of climate change and the subsequent devastation it can bring at a similar scale to that of a pandemic, cannot be ignored. Hence the urgency to invest in greener production and consumption.

The WEF states that governments cannot solve this challenge in isolation. They need to address the challenge and invest in greener economies in strong collaboration with society, business and other governments. Only through this strong collaborative approach can the investment in a green and inclusive economy, focused on short-term performance indicators to address gaps in health, education, employment and social safety, result in sustainable outcomes. The latter underpins the importance of a comprehensive definition of sustainability.

To define sustainability only within the parameters of alternative energy is limiting, and is doing society and business a huge injustice. Stepping back and observing the impact of the pandemic from a distance reveals that everything is interrelated. We cannot look at any variable in isolation. As a result, we cannot solve variables and the risks or opportunities they bring in isolation. We must understand the effect one variable has on another.

For this very reason Nedbank’s response to the practise of environmental, social, and governance (ESG) initiatives consists of a combination of as many as 14 sustainable development goals, including clean energy, clean water & sanitation, food security, job creation, innovation, waste management and recycling.

ESG initiatives are growing fast among institutional as well as retail investors as they prioritise ethical practices that consider ESG issues with real and quantifiable results over the long term — for firms, people and the communities where they do business.

Assets in dedicated sustainable investing strategies have grown at a rapid pace in recent years, and this trend is showing no sign of slowing down. In 2020 alone investment research company Morningstar reported that the European sustainable fund market reached a milestone in the third quarter of 2020 with almost £800bn (nearly R17-trillion) of assets under management, an impressive feat when viewed against the backdrop of the Covid-19 crisis.

Regulators and governments have also been driving this growth by expanding their focus on incorporating sustainability into investment information and decision-making. The three primary drivers of ESG investment are a change in global focus, a shift to socially conscious investors, and a rise in evolving data and analytics.

Banks are already integrating sustainability into their core businesses by incorporating ESG practices into risk management processes, product design, purpose statements and long-term strategies. In 2019 Nedbank became the only SA bank that took an unequivocal policy decision to stop funding “dirty energy” amid mounting concern about climate change and environmental damage.

The lack of investment in sustainability, coupled with a pandemic, has had dire consequences, including poverty, famine and social decay. This emphasises the sobering reality that investment in sustainable business and operations is the responsibility of every business owner. It is all about investing in recycling technologies, equipment and processes that reclaim raw materials from waste or produce energy from biomass (plant or biological material). These activities substantially reduce waste generation through prevention, reduction, recycling and reuse. This can result in job creation with its subsequent upliftment of the community and additional income streams from the sale of recycled materials.

Considering this context, it is clear that every business, regardless of industry, can contribute to sustainability, and investment cannot happen in isolation. Your investment in, for instance, clean energy or clean water and sanitation, will have far-reaching implications for good. Think, for example, of how your business may mitigate the effect of rising costs of raw materials required for your production processes through sourcing cost-efficient recycled or reclaimed inputs.

Within the context of clean water and sanitation your company can mitigate the consequences of rising water costs in the face of drought, scarcity and failing infrastructure. This can translate into saving costs over the longer term through generating “free” water from recycling and alleviating the effects of water restrictions to maintain production and working conditions.

• De Kock is executive head of business banking sales at Nedbank.