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08 Oct 2021

COP26: Are we racing to net zero blindfolded?

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Campbell Parry, Global Resources Analyst at Investec Wealth & Investment joins Business Day TV host, Michael Avery, and Andrew Gilder - Director of Climate Legal, to discuss the race to net zero and what needs to happen to ensure it doesn't amount to zero. 

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WATCH | COP26: Turning the tide

Episode 2 of Climate Conversations on Business Watch with Michael Avery. 
An eight-part series in the lead-up to COP26 to discuss whether we’re turning the tide on climate change. 
This week Michael chats to Campbell Parry, Global Resources Analyst at Investec Wealth and Andrew Gilder Director of Climate Legal on the numbers behind net zero and what it will take for signatories to the Paris agreement to reach it by 2050. 
 
Episode 2 of Climate Conversations on Business Watch with Michael Avery. 
An eight-part series in the lead-up to COP26 to discuss whether we’re turning the tide on climate change. 
This week Michael chats to Campbell Parry, Global Resources Analyst at Investec Wealth and Andrew Gilder Director of Climate Legal on the numbers behind net zero and what it will take for signatories to the Paris agreement to reach it by 2050. 
 

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  • MA: Michael Avery – TV and radio personality and Business Watch host on Business Day TV
  • AG: Andrew GilderDirector of Climate Legal 
  • CP: Campbell Parry – Global Resources Analyst at Investec Wealth & Investment
  • 00:00 Introduction

    MA: Welcome to the show, you're watching Climate Conversations on Business Watch with me, Michael Avery as we build up to COP26 to discuss whether we're turning the tide on climate change brought to you by Investec.

    Now is our emissions problem so big that it's now the world's problem. According to the Centre for Research on Energy and Clean Air, Eskom is the world's biggest emitter of sulphur dioxide and the quantum we produce relative to the major economies of the world is just staggering.

    And in the race to net zero clearly, South Africa is a major cog, despite our relatively smaller size and overall emissions profile when compared with the world's major emitters, like the US and China.

    And while sulphur dioxide isn't a direct greenhouse gas, like carbon dioxide or methane, it is considered an indirect greenhouse gas because when coupled with elemental carbon, it forms aerosols.

    Now I've read somewhere that net zero is going to require 18 times the renewable energy capacity that we had last year. So it's a big challenge. To talk about the race to net zero in part two of this eight-week series of Climate Conversations it's a great pleasure to welcome Andrew Gilder Director of Climate Legal and Campbell Parry, Global Resources Analyst at Investec Wealth.

    Welcome gents. Andrew, this concept of net zero, it's got adherents it's got, detractors. Firstly, what is it and why has net zero taken on the momentum that we see it has over the last year in particular?

  • 01:44 - Pressure mounts for nations to adopt net zero commitments

    AG: Morning Michael and thank you. So, net zero is a scientific formulation of the objective under the Paris Agreement. So it's formally termed the long-term temperature goal under Paris.

    And it's expressed as achieving a balance of emissions of greenhouse gases by sources and absorption of those greenhouse gas emissions by sinks by the second part of the 21st century.

    So it's important from the perspective of the International Climate Legal Regime because that expression literally as net zero in the Paris Agreement, is the first time that the science gets expressed quite as explicitly in the international legal regime, the instruments underpinning the legal regime.

    Why has it become such an enormous talking point of late is because there is a rush globally for governments for public and private sector, to nail their colours to the net zero mast if you like, and to claim to have established or to have put into their governance structures a march towards net zero. Now that's a good thing.

    The less good thing is quite a lot of criticism that is being directed to those kinds of initiatives in that claiming net zero and claiming to have established a net zero target is not quite as simple as saying, we are going to do this.

    The primary criticism that is being directed, particularly by some elements of the scientific community and certainly civil society is that the idea of net zero is being taken up by emitters and those responsible those who should be responsible for reducing our greenhouse gas emissions profile as a reason to delay taking action.

    So in short, the idea is net zero is something that will allow us to postpone taking action until 10 or 15 years from now, when the correct technological solution is available. That is patently incorrect and net zero is not a reason to avoid taking action.

    MA: There are obviously critics who point to the fact that the timescale is so long so as to make it almost meaningless in terms of accountability, because it's going to be not this management team, not the next management team or the next or the next, but maybe the one after that issue and problem to deal with in terms of accountability.

    But I just want to move Campbell on to Investec's approach here because we see that investors are increasingly concerned with net zero.

    I think 43 trillion dollars’ worth of assets under management currently have some kind of ESG or net zero mandate. What is your opening take on what net zero means in this greater push towards combating climate change?

  • 05:07 - How does Investec manage portfolios with net zero in mind?

    CP: Yeah thanks, Michael, good to be here and hello, Andrew. I think we at Investec take the approach and obviously it relates to both debt and equity. With respect to debts, there are obviously people better informed than I can to talk about our lending policies to the likes of fossil fuel companies and things like that.

    But I think we don't take an exclusionary approach. We, whether it's debt or equity will always consider companies, I think that are getting better from time to time, or getting better from year to year, I should say and it's particularly true of some of our portfolios.

    We do engage these companies because I think that that's absolutely critical. We do engage them regularly on their on not only their greenhouse gas footprint, it's all issues to do with the environment.

    So in that engagement, we feel we're having, we're making a difference, which ultimately will contribute to their net zero plans. And just while we're talking about next net zero, I think it's important to come back to people's cynicism with the long-term nature of these commitments.

    I believe it has to be long term, because if you look at just the scale of the energy transition required, and you look back historically, energy transitions take at least 50 years, and we're asking this one to happen in 30 years.

    So I think there's a sense of urgency setting in from both government and companies to make sure that this relatively short time span over which this current energy transition needs to happen, can indeed happen.

    MA: And indeed, if we look at past energy transitions what they've tended to do is to stick to new technologies on to existing fossil fuel-based technologies.

    Really, what we're asking this time around is to do away with three of the major fossil fuel-based technologies in oil and gas and really speed that up into these new technologies of renewable and maybe supplement them with nuclear, and maybe hydro as well.

    Now, I just want to come back to the issue here around and Andrew to bring you in on the nationally determined contributions because this is going to become a key talking point as we head into COP26.

    And we've recently seen South Africa's own NDC as they call them, really ambitiously revised as we head into COP26. What does that revised NDC say about net zero?

    AG: Not a lot interestingly enough. It ties the NDC, so the nationally determined contribution is the expression, a national expression of climate change ambition if you like, and in line with our peer developing countries.

    The South African NDC deals both with mitigation and adaptation. It is the mitigation aspect of it, that tends to get the lion's share of the attention correctly so because if you tie it back to conceptually what's happening under the Paris Agreement, the long-term temperature goal is tied to the scientific principle of net zero.

    So then the question goes, well, then what does the South African NDC say about mitigation? Well, the good news is, is that driven I would suggest by the good advice of the Presidential Climate Change Coordination Committee, the cabinet has recently as September approved a revised NDC.

    So looking at the revised NDC, particularly as preparation for this discussion today it's interesting to see that's the NDC doesn't tie the mitigation targets that are set to net zero. Is that surprising?

    No, not really, because we have formulated mitigation in this country, going back some 12, 13 years and the formulation of our mitigation policy has never been tied to net zero.

    It's been tied to a number of other matrices, including responding from a mitigation perspective by what is required by science.

    Now, the point that is important to understand now is that what is required by international science today, is net zero.

    And so I am very interested to see where the government will go over time, by way of introducing or modifying existing policies that are on the table or in development, to tie them to a net zero obligation.

    I suspect we will be a bit reticent to do that from a negotiation perspective, but it is what is required.

     

  • 09:48 - Developing countries using net zero as a negotiating tactic

    MA: Are we not through the policy of our low emission development strategy the LEDS tying us off already to that net zero goal of 2050?

    AG: So it doesn't deliberately tie us to net zero, it talks about, so net zero is a kind of a concept in isolation, what we tend to do as a developing country, and it's part of our negotiation tactic.

    It's the part of the negotiation tactics of all of the countries that are negotiating around climate change is we tie the achievement of our climate change objectives to various conditionalities.

    Among those conditionalities are that the underlying premise of our climate change response is a just transition so it's a just economic transition.

    And that in itself is tied to the provision by the international community of sufficient financial and other in-kind resources that will permit us to achieve those goals. 

  • 10:35 - National energy limitations add extra complexity to COP26

    MA: And to as developing countries lobby developed countries for the financial and other technical support in order to ensure that we can transition in that just manner very interesting.

    Listening to the Minister of Minerals and Energy at the Joburg Indaba today, saying that he won't allow the South African economy to be collapsed by various agendas around this transition away from coal.

    Now read into that what you will. Campbell, how is this goal being treated in the build-up to COP26 and what are your expectations for COP?

    CP: Well, I think it's important to look at COP in the current context, it comes hot on the heels of the IPCC's report, which issued a stern warning to us all.

    And there was a follow-up report, just I think two weeks ago from the United Nations that said that greenhouse gases would be up 16% by 2030, not half, which is what is required under the terms of Paris.

    So and I also think that the host country is very keen to make a deal, Boris Johnson is undoubtedly under pressure, because at the moment, he's right in the middle of what's looking to be a full-blown energy crisis in the UK.

    It's something that we're seeing in Europe as well there's not be enough gas, wind hasn't blown, and hydro is in short supply and it's forced many countries to go back and consider coal as an energy source, which is the very thing COP seeks to eliminate.

    So very, very interesting times, an interesting backdrop for the Conference of the Parties.

    I also think that there's growing criticism that the Paris Accord has been a total flop, I think there's a huge amount of frustration that the very things that COP sets out to achieve aren't being achieved at all.

    And it's interesting because we did some work on this. So we went back and looked at the initial at the 26 years spanning COP1 which is in 1995 and over that time to the current point in time, greenhouse gas emissions are up 15%.

    The global temperature anomalies have risen by half a degree versus long-run averages, which doesn't sound like much, but it's scientifically relevant.

    Global forest coverage is down a percent doesn't sound like much either but that's five and a half million square kilometres it's a big chunk of land.

    Global biodiversity down 40% over that time, and then the number of coral bleaching events, for example, which is a thing, it's measured by an initiative called 100 reefs initiative that's been rising at an average rate of 3% per annum.

    So going into COP here the message is that people are fine, because let's face it, life on earth is vastly better than it's been at any time in history, but the planet is most definitely not.

    So I think the number one objective with COP is to restore credibility and for me, there are a number of ways that it can do that. I think if they can just deal with a couple of issues it's not too late and as John Kerry said earlier this year, this is our last best chance.

    MA: Andrew, how do we do that?

    AG: So if I may respond to that thanks, Michael.

    So the value of being a lawyer is the ability to hold two contrary thoughts in your head simultaneously so cognitive dissonance. So I absolutely agree that we are not where we need to be.

    But I offer this thought, there is no other game in town, we only have the international climate change negotiations, which are at the moment framed under the Paris Agreement, which is a subsidiary convention to the Framework Convention on Climate Change.

    We don't have another option for dealing at a global level with the climate response. So we've got to go with what has been set out under Paris.

    What has been set out under Paris is a series of good ideas and very clear pathways. So it's not Paris or the negotiations or the legal instruments that are at fault, it's the parties to those instruments, who have over time faltered and had greater or lesser ambition as we moved on.

    And by the way, net zero is a really interesting example of this because there's a lot of criticism, as I said, in various circles at the international and at the local level of what net zero seems to be driving as a response by public and private sector. Ideology is sometimes a luxury.

    So simply to criticize net zero from that perspective often fails to take account of the fact that Campbell, as you've said, you are seeing changes in the way organizations are doing business.

    So for example, the rapid rise of work being done on electric vehicles is a single example of a shift away from business as usual. Is it soon enough? No. Is it enough? Absolutely not. But it's the only thing we've got?

     

  • 13:51 - Crucial steps for COP to regain credibility

    MA: Campbell how would you like to see this COP trying to regain or restore some credibility?

    CP: Thanks, Michael, I think there are a couple of things that I would look for. The first and in no particular order here, I think the first thing that I would look is for stronger national climate plans.

    We've just been talking about nationally determined contributions and honestly, I'd like to see more binding pledges from some of the signatories to Paris of the 194 companies that signed that agreement initially, only 116 have made any changes to them.

    So but we've seen nothing from the high emitters, like China, from India, from Australia, Indonesia, Mexico, Saudi Arabia, and the like.

    So that that's the first thing so stronger national climate pledges. The second thing, I think, will be and we discussed this earlier a call for more cash to flow from developed markets to emerging markets to help fund climate mitigation and adaptation strategies.

    In terms of Paris, there was a loose agreement for that number to be $100 billion annually. But we've fallen well short of that I think, at most, it's been something like 70 billion I stand corrected on that number, but it's fallen well short.

    And in terms of net zero, I think vastly more is needed something like 500 billion.

    Thirdly, I think, and this is going to be really interesting is whether or not they decide to put a more formal price on carbon, to force all of those causing the damage to actually pay for it.

    There are a number of carbon pricing mechanisms around the world, but they only cover about 20% of global emissions at a price that averages just $3 a tonne.

    I mean, it's really not a disincentive to emitting at all. There was a recent OECD report that said that you need $150 a ton in order to force net zero.

    And I mean, that may be a foolish thing in terms of the world economy, we don't know but we need to be more, I think draconian with a price on carbon.

    And finally, sorry, I'm taking up quite a bit of time here. It'll be very interesting to see what happens with China and this may be the most important thing, will they make a concession or not?

    There's this realization we have to go harder on them, they have said they're going for peak emissions in 2030, and net zero by 2060. It's all part of what's called China 3060.

    They have a massive renewable energy installation plan going forward but they also are very, very committed to rolling out coal-fired utility.

    180 gigawatts over the next five years in terms of its national or 14th Five Year Plan. So will the Conference of the Parties concede a little bit on China remains to be seen.

    Maybe they'll move that target of one and a half degrees to two degrees, we don't know just that half a degree is going to make a big difference to the planet.

     

  • 18:22 - How China is handled at COP26 is crucial

    MA: And we do see Chinese President Xi Jinping announcing that they are going to cease funding of any offshore coal-fired power stations, but they certainly continue to pump money and resources into their local, as you say, coal fired power fleet.

    Andrew, coming back to some of those critiques and I think I just want to come back to what's wrong with net zero as well.

    Is this fact this idea that we there's no limit to the way we can compensate our own emissions and offset them against these various other factors and targets.

    And we really do run the risk here of falling into this trap of thinking that that will be enough.

    AG: And it's a correct critique. So the notion that we can simply offset all of the greenhouse gas emissions that are trapped in future burning of fossil fuel is entirely incorrect.

    May I say though, that very often the kind of polemic that is expressed simply takes the point that you've just made that we can't offset our way out of here and presents that idea as the only thing that is being discussed at the negotiations or the only mechanism that the international community is considering around mitigation. 

    That is simply not the case. Offsetting is one aspect and if I may tie into what Campbell has said, so, elevated the cost of carbon, so elevated cost of greenhouse gas emissions to emitters is an essential element. 

    But only one element of a much broader and quite complex set of rules and regulations that we need to agree to, in order to achieve mitigation.

    But may I say offsetting is one of those ideas, it's not the only idea but it has to be correctly and fundamentally expressed in order to make some kind of difference and to contribute to the greater objective.

     

  • 20:30 - What SA's big polluters doing to transition

    MA: I want to bring this now into what companies are actually doing.

    And Campbell, if you look at which South African companies have actually made pledges here to adopt climate targets and plans and how they're actually implementing that, that really for me is where the rubber hits the road.

    Take us through the big emitters here in South Africa, your Sasol’s, and the like, and what their plans are?

    CP: Absolutely, I mean, we look at all companies in line, you know, in terms of their emissions targets, and what they say, and their pledges with respect to aspects right across the ESG spectrum.

    But on the environment, I mean, maybe I should just talk about the mining sector generally, our assessment of their environmental management in that sector goes beyond just making a net zero commitment.

    We place a lot more relevance on things like shorter-term targets related to operational emissions. So that would be scope one and two emissions. 

    In the mining sectors case, locally, they've made pledges from between 30 and 50% reduction by 2030 and in all of those cases, they've made interim milestones or set interim milestones and all of those milestones are linked to executive remuneration.

    This is something that we engage them on every single time we meet.

    In the context of net zero, which is the subject of today's conversation I think they're all objective.

    They're all quite rational about just the sheer difficulty of doing that when you're dealing with very complex global supply chains and complex customer bases. S

    So but they're trying, it seems an impossible task but so far, they've started out, I think, on the right road.

    We also look at other aspects of their environmental footprint.

    As I said earlier, freshwater use, how they deal with tailings, how they optimize energy use and provide for closure and rehab, for example.

    And we do that through our own analysis, and measuring how they align their reporting standards, especially as related to TCFD requirements.

    But also in the mining sector specifically, there are a couple of really credible organizations that do this, the International Council on Metals and Mining, and of course, UN Global Compact CEO Water Mandate.

    And if I roll that all together in a summary, I'm very happy to tell you that over the last decade, we've been watching this for the last 12 years- over that time, the mining sector generally is doing much better job on environment. And it will get better still.

    And as I say we engage them on this, there's still a lot that can be done. Some companies are more ahead of the curve than others.

    But it's something we pay very, very careful attention to in our evaluation of companies as investment opportunities.

  • 23:03 - No universal scientific measure for net zero makes greenwashing an issue

    AG: Michael, may I throw a spanner into this works? That's really, really important the kind of things that Campbell has been talking about, but now it's going to sound like I'm contradicting the position I've adopted before.

    The problem with net zero is that we don't understand either at an international, a national or a company level, what net zero means from a scientific perspective and without a science-based target it's meaningless.

    So for companies to say, oh, we have established a net zero target, the greatest and most accurate criticism of those kinds of statements is that, it's simply greenwashing.

    Until we have a clear understanding in South Africa, for example, of what net zero means in terms of a national emissions profile.

    And then that national emissions profile distributed if you like a range across the range of private sector emitters, then we can claim to be going towards net zero, but we don't know where we are on that continuum.

    MA: In other words, what is that budget against which we can measure the various industries and their emissions. And how we either offset or reduce our emissions.

    Just as a last thought, I mean, if you're a CEO, surely strategically, you've got to be thinking what does my market look like in a net zero world?

    What does my business model look like to take opportunities in a net zero world.  Doesn't this really also mean a fundamental rethink of the way we're doing business?

    And I know, the NBI recently released a paper saying there's a huge cost to this.

    I think just under 4 trillion Rand, or between 3 and 4 trillion Rand over the period to 2050.

    With that cost also comes a great opportunity, Campbell...

    CP: Well, I mean, you talk about the 4 trillion Rand and a number I saw this morning was Sasol wants to build a green hydrogen facility...

    MA: BoegoebaaI...

    CP: Yes Boegoebaai, exactly. That was on the news wires this morning. And they're talking about a total cost there of a trillion Rand. I mean so it has to be partnered.

    So I think in order for this to work, there has to be public-private sector partnerships.

    There's no doubt. But coming back to the challenge of net zero for everyone, I mean, we believe that this is the most important global megatrend of our lives.

    I think it will drive politics and financial markets in ways that we just aren't used to.

    I think we're all finding our way a little bit. It will require a complete systems-level approach all hands on deck, no one has the answers.

    It's definitely not going to be cheap. It's not going to be straightforward and there'll be multiple changes in direction, but you know people are trying and certainly, we look for the best companies that are trying to do it in the best way possible.

    MA: Campbell Parry, Global Resources Analyst at Investec Wealth, who is joined by Andrew Gilder Director of Climate Legal and our content consultants here on the series.

    Fascinating conversation about the race to net zero, and it's clear going green will be a bit of a pipe dream unless we see developed countries certainly come to the party to help developing countries with the issue of finance as well.

    We're going to be addressing that in future conversations. You've been watching Climate Conversations on Business Watch with me, Michael Avery as we build up to COP26.

    We're discussing whether we're able to turn the tide on climate change and it's brought to you by Investec.

     

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