COP 27: African Businesses Can Leverage Climate Action for Sustainable Business Growth
The 27th Conference of the Parties of the United Nations Framework Convention on Climate Change (COP 27), which ended on Sunday November 20, 2022 in Sharm el-Sheikh in Egypt, opened opportunity for senior government officials and non-state actors to address climate change and its impacts. It was a unique opportunity for African to lend a voice to the costs of climate change and climate action to the continent, writes Emma Okonji
The COP is the largest annual gathering on climate action and seeks to address the existential threats posed by climate change to humanity such as growing energy crisis, record greenhouse gas concentrations, and increasing extreme weather events, through a multilateral and multi-stakeholder advocacy to deliver on the landmark 2016 Paris Agreement, for people and the planet. According to the COP 27 Presidency Action Plan, key focus areas for the Conference are climate finance, adaptation and agriculture, innovation and clean technologies, water security, green entrepreneurship, amongst other themes. An interesting highlight at the COP 27 was discussions on ‘loss and damage’ finance mechanism, which over 130 developing countries successfully brought to the agenda for the first time. In this regard, the COP27 achieved a commitment from relevant parties to set up a financial support structure for the most vulnerable by the next COP in 2023. Stakeholders also agreed on the institutional arrangements to operationalize the Santiago Network for Loss and Damage, to catalyze technical assistance to developing countries that are particularly vulnerable to the adverse effects of climate change. Questions about ‘who pays’ and ‘who gets paid’ for the climate ‘loss and damage’ will likely dominate climate action deliberations over the coming months and years.
About COP 27
The COP 27 builds on the outcomes of COP 26 (Oct. 31st to Nov. 13th, 2021) to deliver action on several issues that are critical to tackling the climate emergency – from urgently reducing greenhouse gas emissions, building resilience, and adapting to the inevitable impacts of climate change, to delivering on the commitments to finance climate action in developing countries. Egypt assumes the incoming Presidency of COP 27 and is expected to lead a multilateral, collective and concerted action towards addressing the global climate threat. Africa is the most vulnerable continent to climate change impacts but contributes the least (7%) to global warming. COP 27 held between November 6th to 20th 2022, with over 30,000 registered participants.
The Concern about Climate Change
Since the 1800s, there have been shifts in temperatures and weather patterns caused largely by human activities, especially the burning of fossil fuels (such as coal, oil, and gas) and garbage landfills, which respectively emit carbon dioxide and methane, both described as greenhouse gases. Long-term heating of the earth’s surface by the greenhouse gases is referred to as global warming. The Earth is now about 1.2°C warmer than it was the pre-industrial (1850-1900) level, and the last decade (2011-2020) has been the warmest on record. The consequences of climate change on humans and the environment have been enormous; from intense droughts, to flooding, water scarcity, severe fires, rising sea levels, melting polar ice, catastrophic storms, and declining biodiversity. Climate change can and does affect our health, ability to grow food, housing, safety, and work. Unfortunately, poor countries, small island nations and other developing countries are more vulnerable to climate impacts, despite contributing the least to it. This is where Africa is badly hit.
Hosting UN Climate Change Conference
COP 27 is the third time Africa is hosting the United Nations Climate Change Conference (Kenya:2006; South Africa: 2011 and Egypt: 2022), but the continent is increasingly exposed to extreme climate change events such as flooding, heat waves, drought, tropical cyclones, changing rainfall patterns and cold waves, with implications for agriculture, food security, migration, and socioeconomic development. According to the State of the Climate in Africa report by the World Meteorological Organization (WMO), the rate of temperature rise across Africa is +0.3°C per decade between1991-2021, higher than global (+0.2°C) average. Over the past 50 years, drought-related hazards have claimed the lives of over half a million people in Africa and triggered US$70 billion in regional economic losses. In October 2022, Nigeria witnessed devastating floods that affected 34 of the country’s 36 states. UNICEF reported that the flooding displaced 1.3 million people and placed 2.5 million people (60% of which are children) in need of humanitarian assistance. It is estimated that 108-116 million people in Africa will be exposed to sea level rise risk by 2030, even as millions of people in the Greater Horn of Africa will continue to suffer the longest drought in 40 years as they brace for more failed rainy seasons. Indeed, all stakeholders should be concerned about how much climate change is altering the fortunes of mankind. The challenge before African leaders therefore is how to build a future that achieves inclusive growth and sustainability, with least carbon possible. For African businesses, this brings both opportunities and threats.
Sustainability for African Businesses and the Future Generations
Sustainability in business therefore demands that companies deliberately operate a business strategy that reduces the negative environmental and social impacts of their operations. Such practice is typically viewed from the lens of environmental, social, and governance (ESG) metrics such as greenhouse gas emissions, water security, energy efficiency, diversity and inclusion, data protection and privacy, board composition, shareholder rights, amongst others. The environmental aspects of ESG metrices focus on the company’s impact on the planet, such as climate-change initiatives. African businesses must see ESG as a tool to drive climate compliant business objectives, and an opportunity to invest in digital technology, improve energy management efficiency, deploy automation, preserve water resources, and eliminate waste, to mention a few. African businesses can leverage the current global push for climate action to drive resilient, and sustainable growth.
Achieving Success in Agriculture
Agriculture is one of the few areas where African businesses can record remarkable quick wins. For context, Africa currently has 600 million hectares (or 65%) of all the uncultivated arable land in the world.
Sub-Saharan Africa accounts for 95% of the global rain-fed agriculture; and smallholder farmers account for 80% of agricultural production in the continent. Only an estimated 5.2% of the continent’s farmlands were irrigated. This presents a huge opportunity for African businesses in the agricultural sector to scale towards less dependence on rain-fed farming to facilitate all-year food production. It is high time African farmers began to take advantage of the continent’s huge water resources and leverage rapid innovation in technology to navigate the challenges of infrastructure deficiency, market access and weather. A good example of available technology solution is the FarmWeather app, developed by IBM in partnership with YARA. The App helps farmers to track weather events (rainfall, temperature, and wind) that could impact their crop growth and farm processes, up to 7 days in advance. Africa’s agricultural sector requires good funding and de-risking mechanisms to flourish, and governments and businesses should leverage global climate finance towards funding sustainable agriculture in the continent.
Use of Modern Energy
Africa has the world’s lowest levels of per capita use of modern energy. Whilst investments in grid interconnections, hydropower and natural gas plants remain key to closing the supply gaps, opportunities are opening in the renewable energy sector.
According to the Africa Energy Outlook 2022 by the International Energy Agency, Africa has 600 million people (43% of the total population) without access to electricity, and 970 million with no access to clean cooking. Nonetheless, Africa is blessed with vast renewables energy potentials: wind, solar, hydro, and geothermal energy. Central and Southern Africa have abundant mineral resources essential to the production of electric batteries, wind turbines, and other low-carbon technologies. Energy transitions and renewable energy are opening opportunities for African businesses to help solve the perennial energy shortages in the continent. The current net zero target is helping to set a new course for global energy sector amid declining clean technology costs and shifting global investment. Recent report by IRENA documented that the annual renewable energy investments in Africa grew ten-fold from less than USD 0.5 billion in the 2000-2009 period to USD 5 billion in 2010-2020. This opens unique opportunity for African businesses to leverage climate action to drive renewable energy solutions, including stand-alone systems and mini grids to supplement (or replace) largely unstable supply from national grid.
Sustainable Finance Through Green Bonds Issuances
African businesses must embrace sustainable finance through green bonds issuances to tap international capital available for climate-friendly business opportunities. Climate action has pushed organisations globally to become more ESG sensitive, hence opening opportunity for innovative green finance initiatives such as green bonds. As defined under the Green Bond Principles, a green bond is “any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible green projects”. Green bonds can be used to finance projects in areas such as energy efficiency, renewable energy, low-carbon transport, green buildings, smart grids and climate-smart agriculture and forestry. Africa accounts for a less than 0.2% of the US$2trillion global green bond market. The continent’s first sovereign green bond was Nigeria’s $29m green bond in 2017, but the African green bond issuances has grown to $3.96bn as at August 2021, a fraction of what other emerging markets have raised. Some notable corporate green bonds issued within the last decade include Nigeria’s Access Bank’s N15bn ($41.8m) green bond in March 2019, Emergence Plaza’s 10 billion CFA franc ($17.8 million) bond (Abidjan) in August 2021. African businesses need to strategically optimise green bonds issuances as a way to tap into climate-friendly funds available globally. Institutions such as the Climate Bonds Initiative, provides very useful resources in this regard.
As the 2022 COP 27 concludes, humanity expects governments and non-state actors to continue to take urgent actions to combat climate change and its impacts in line with Goal 13 (Climate Action) of the Sustainable Development Goals. Ahead of 2023 COP 28 scheduled to take place from 6th to 17th November 2023 in the United Arab Emirates, discussions on the operationalisation of ‘loss and damage’ finance mechanism should dominate the climate action discourse. The COP 27 achieved some minimal multilateral loss and damage compensation pledges from rich countries to the developing nations: Germany (€170 million), Belgium (€2.5 million), Scotland (£5 million), Austria (€50 million) and New Zealand ($12 million).
From a sustainability viewpoint, net zero agenda is a good opportunity for African businesses with credible decarbonization plans to strategically position for resilience and growth. On the energy front, businesses need to accelerate investments in renewable energy to manage energy cost on one hand, and to position for long-term strategic business growth on the other hand. African corporates need to take advantage of the expanding climate finance opportunities for business growth, particularly via green bonds issuances, insurance, and blended finance. This is a good time for African businesses to seek scale and scope expansion through innovative and sustainable products, services and operating models. Companies must also invest in training and development of their staff on climate change and sustainability to ensure availability of talents and capabilities required to put climate capital to work and capture value for stakeholders.
There are first-mover advantages for African businesses that are sensitive to the climate action trends, commitments, innovation, and policy. Expectations are that businesses will optimise every aspect of their business strategy (R&D, operations, supply chain, and sales) for both growth and decarbonization. Opportunities abound to leverage climate action for enhanced brand, product innovation, cost optimisation, funding, and healthy market valuations. Regulators must continue to push for improved climate disclosures, especially for listed African corporates. This will help in one hand to attract more climate finance to Africa, and catalyse improvements in how companies design products, source materials, and manage their supply chains with least carbon intensity.
Verraki strongly believe that African businesses that move quickly to operationalise the difficult, often transformational climate friendly business strategy will emerge as winners in a decarbonized world.
The Verraki’s Advisory Practice provides digitally transformative services to the African market, leading the charge to deliver cutting-edge innovation solutions to local organisations – unleashing their growth potential.