FINANCE & LEGAL
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BANKING’S ROLE in mining’s energy transition By Henk de Hoop, resources sector focus lead at RMB
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he Intergovernmental Panel on Climate Change has just released its sixth assessment report. “It is unequivocal that human influence has warmed the atmosphere, ocean and land. Widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have occurred.” Even before the publication, global momentum behind environmental, social and governance (ESG) concerns, and specifically global warming, has been nothing but astounding over the past 18 months or so. The financial industry in South Africa has similarly seen a strong surge in ESG-related questions and concerns from shareholders, clients, rating agencies, regulators, funding partners and other stakeholders. For the South African financing industry, these concerns are not necessarily focused on our own direct Scope 1 and Scope 2 emissions, which are relatively limited and not considered too challenging to ameliorate significantly over time. Our main focus will be on Scope 3 emissions, or the banks’ attributable share of their underlying loan portfolio clients’ emissions. We will be held accountable in time in driving the energy transition within our portfolio, and to measure and report on this appropriately. We are therefore going through an extremely steep and complex learning curve to make sure we align strategy appropriately to the threats and opportunities this new reality brings.
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We expect also that transparent reporting on transition plans and the emissions footprint will be expected soon from all large entities wishing to borrow in the capital markets. The Task Force on ClimateRelated Financial Disclosures therefore will highly likely become the market minimum standard, and increasingly will be requested by banks and other stakeholders also in the future.
Henk de Hoop.
South Africa has very specific challenges. Its rich endowment of shallow coal deposits has resulted in its electricity generation being heavily coal-dominated. Many decades of some of the cheapest electricity in the world also saw it attract heavy electricityconsuming industries like aluminium, ferro alloy, PGM and mineral sands smelters. Sasol became an amazing success story as it managed to develop into a massive
SEPTEMBER / OCTOBER 2021
www.samining.co.za
industrial complex adding significant and diverse value to millions of tonnes per annum of low-quality coal. And over the past few decades South Africa built a great reputation as a reliable supplier of highquality export thermal coal, becoming one of the largest foreign currency contributors for the country. But this historical advantage is now putting South Africa at an increasingly real future disadvantage. South Africa is in the top five globally of CO2 emissions per unit of GDP generated for economies with GDP larger than US$100-billion, and its coal share in electricity generation is one of the highest in the world at some 80%. Weaning the country off coal is hugely challenging in view of the very significant role it plays across our economy currently. At the same time, it also allows for some very quick emission reduction wins, particularly in view of the already planned retirement profile of Eskom’s older coal fleet. An indirect benefit will come from the seethrough impact on heavy power-consuming industries. This broad set of users will only make real headway in Scope 2 CO2 emission reductions if either Eskom radically changes its power generation mix, or they procure renewable energy independently. Since the embedded generation limit was increased to 100MW, we have indeed seen a strong acceleration, enlarging and broadening of the pipeline of renewable projects from our client base. Where previously the rising cost and reliability of
