Africa has the potential to leapfrog the world by investing in future-proof technology, but the thinking needs to be bigger, writes Chris Loker
May 2013 was the 339th consecutive month of above average global temperatures and we have already breached the 400 parts per million (ppm) carbon limit that we were warned about. This must shift the focus in capital markets from short term gains toward long term consequences and give rise to the mother of all asset bubbles for carbon-producing industries. As President Obama said recently, this is no time for a meeting of the Flat Earth Society.
The Carbon Tracker Initiative estimates that between 50-80% of known coal, oil and fossil fuels should be left unused to prevent temperature rises over 2C, which the International Panel on Climate Change suggests is prudent. The impact on business valuations is enormous, even before another United Nations Environment Programme (UNEP) sponsored report’s assertion that none of the top 20 industrial regions and sectors would be profitable if environmental costs were accounted for. The report puts the unpriced natural capital cost at $7.3tn (£4.7m) a year, 10% of global GDP, a cost not presently accounted for and the biggest culprit is coal power production.
These challenges represent a massive opportunity if the flow of money can be altered.
Traditionally, investment houses allocate capital based on returns and do not account for the positive and negative externalities created by the businesses employing this capital. In the last few decades many financial institutions have tended to focus mainly on the demands of shareholders, to the detriment of other stakeholders, such as local communities, employees and the environment. Often projects with negative social and/or environmental impacts have received capital, while projects offering measurable benefits to society have been denied that boost.
Chasing yield in the short term has often been detrimental to shareholders in the long run. Though the local banking industry dodged the sub-prime bullet, it is no stranger to asset bubbles, funding microlending, dotcom, contracts for difference, unsecured lending, property and other sectors with negative consequences.
This, at the same time that social enterprises targeting sustainability outcomes as well as profit, are battling to raise capital due to perceived higher risk. But sustainability has evolved from a social movement into a market opportunity through the growth of new market options that are healthier, cleaner and more efficient. This is broader than environmentalism, encompassing social justice and economic prosperity.
South Africa (correctly) trumpets the R50bn (£3.2bn) invested in the first round of the Independent Power Producer’s programme aimed at delivering 20% of electricity from alternative sources by 2030, but this needs to be compared with the R300bn (£19.2bn) spent on coal fired power plants. This, at a time when both the US government and the World Bank are significantly cutting financing for coal.
We need to ask what is the true cost of carbon-producing power (including externalities) and what happens when the carbon tax is introduced in 2015? Especially as the cost of alternative energy plummets. Compare this to California where all new power generation will come from renewables this year, Germany where 50% of power was delivered by renewables at a point last year and Saudi Arabia’s £70bn solar power plan, and perhaps we are thinking too small.
Jason Drew, one of rising breed of local ecopreneurs, talks often of Africa’s potential to leapfrog the developed world by investing in future-proof technology rather than trying to catch up. In the same way that the continent skipped landline telephony and went straight to mobile (there are 700m mobile phones in Africa), we have an opportunity to take a leadership position with farsightedness, and at the same time, “repair the future”. After all, the solar energy hitting earth in a year is 20,000 times more than the whole of humanity consumes annually, and South Africa is the third-best solar location in the world with one of the highest and most stable solar radiations.
Investors are rushing to Africa, lured by new markets and consumers, resources, growth and infrastructure opportunities – at this inflection point we can choose our future by investing wisely today. Will it be in coal, mining, arms, oil, nuclear, chemicals, casinos, consumptive manufacturing or in organic farming, renewables, entrepreneurs, energy efficiency, water and affordable housing?
Money is finite and on the cusp of a post-carbon revolution that could be as big as the fossil-fuel-fuelled industrial revolution, with an underdeveloped infrastructure, there would be significant advantage to investing in job-intensive, clean technology that enhances food and water security as well as advancing health benefits. By de-centralising infrastructure development, governments can also empower local communities and create more resilience, modelling networks on nature.
Sustainability is a mega-trend that can deliver long term competitiveness through better management of risk and incorporating the broadest notion of stakeholders. It’s not a fad because the climate crisis is real, the energy crisis is permanent and new technology is changing the game. Investors are starting to care, consumer purchasing behaviour is changing and there is an appreciation that inequality, poverty and unemployment need to be addressed. Media coverage is increasing, politicians are reacting, and it’s personal.
If 1% of conventional global assets were to move to companies already addressing challenges in water management, ecological conservation, pollution, waste, poverty, transport alternatives, health, entrepreneurial development and innovation, that would represent 10 times total annual foreign aid. In the UK, (population: 62 million) there are over 600 alternative financial providers which move savers’ monies transparently to enterprises focussed on positive outcomes as well as profitability. On the entire African continent (population: 1 billion) there are a handful. But this is changing and so it should; sustainable finance makes sense for individuals, communities, the country, continent and the planet. It also makes financial sense – even the money-men are starting to see that, and why shouldn’t money be a force for good?
“Everyone can rise above their circumstances and achieve success if they are dedicated to and passionate about what they do.” Nelson Mandela
Chris is financial services strategy consultant at Moksha and founder of a sustainable finance company Water Financial
