Climate risk is our reality, and we need to understand that our actions today will shape the future of business and society.
Economists have warned of the potential economic costs of damage from climate-related disasters and extreme weather could be staggering. In 2018 the US alone incurred a loss of around $160 billion due to such disasters, and these numbers are only expected to increase as hazards become more complex and unpredictable.
In Africa, the energy crisis coincides with the dual threat of climate change, which is driving the imperative for renewables, not only to plug energy gaps but also to deliver power to drive sustainable economic growth as the continent has seen a rapid escalation of extreme weather events such as tropical cyclones, severe droughts, wildfires and floods. Already, climate change in Africa has caused an estimated $38 billion in damage in two decades. Adding to this is a heavy reliance on fossil fuels – South Africa, which relies on coal for 80% of its power, is also said to be warming twice as fast than the rest of the world.
Rolling power outages are red-flagged as a high-risk scenario that’s expected to continue until at least April 2023 and probably a lot longer. In June last year, President Cyril Ramaphosa raised the licensing threshold for self-generation power to 100 MW, with an option to sell into the grid, which will allow residential estates, shopping centres, mines, factories and other providers to not only generate their own electricity but also to power nearby communities and help support economic recovery. This will help reduce dependency on Eskom and the government, and the first power-generation project in the private market has recently been approved by the National Energy Regulator of South Africa.
As the green bank, which has been on a sustainability journey for some years, Nedbank has fine-tuned our solutions for the market and offers specialised finance structures such as longer payback periods, structured repayments around the savings that the infrastructure provides, and offtake deals where the user does not own the equipment.
That said, going green encompasses far more than turning to renewable energy, and our first recommendation is to find ways to operate more efficiently before investing in costly systems.
There are always ways to use electricity more efficiently, reduce water use in operations, recycle water wherever possible and process waste in a more resourceful manner.
Understand what your goal is. If you are planning to go off the grid, understand the size of the inverter (how much power you are going to need) and then build your system by buying components and adding more as and when required or as budget allows.
While it is inescapable that there is a need for urgent action to mitigate the risks associated with climate change, as failure to act now could result in huge financial losses and irreversible damage to the planet, businesses must take the lead in the fight against climate change by adopting sustainable practices and reducing their carbon footprint.
That is why funding solutions become an integral part of the solution. Nedbank Commercial Banking, for example, offers term debt funding for its commercial and agriculture clients. This provides for funding of capital expenditure to expand public access to safe and affordable drinking water, provide access to adequate sanitation facilities, improve water quality to be fit for human consumption, and increase water use efficiency through water recycling, treatment and reuses.
In short, this solves for rising water costs, mitigates against water interruptions due to drought, water scarcity or failing infrastructure prevents unnecessary or preventable wastage and avoids business downtime.
Another is funding provided for construction, maintenance, manufacture and other components for clean energy to generate or transmit energy that would include wind, solar, hydro, biomass and geothermal power, or funding of energy efficiency initiatives that include energy-efficient technologies in new and refurbished buildings, energy storage, district heating, smart grids and appliance products.
The benefits are that this would enable businesses to generate sufficient energy for their own use, thereby mitigating the impact of rising energy costs, minimising the impact of power interruptions, and ensuring income generation capacity for the company and employees during power cuts. Both options could take the form of an extended repayment term of up to 10 years, considering the savings when calculating cash flow or affordability, competitive pricing and direct ownership versus third-party ownership.
Nedbank Commercial Banking also provides term debt funding for commercial and agriculture clients to invest in environmentally sound technologies and processes that promote the recycling of post-consumer products, the upgrading of infrastructure and retrofitting of industries to facilitate increased resource efficiency, substantially reduce waste generation through prevention, reduction, recycling and reuse and promote sustainable agricultural practices. This addresses the rising energy and raw material costs hindering businesses from sustained growth, enabling community upliftment through job creation and the prevention of missed revenue opportunities.
In this regard, structured solutions are tailored to each business, with competitive pricing and off-balance sheet financing.
South Africa is not alone in facing energy and water scarcity challenges – it affects the whole world. Businesses must prioritise awareness around energy challenges and water scarcity in their operations and supply chains to mitigate against climate risks, while ensuring that clients derive value that will ensure that they are on a sustainable path while reducing their carbon footprint.
Jehaan Anthony is Nedbank Commercial Banking Area Client Manager: Cape Town Western Suburbs
