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Business implications of COP26

Rodney Ndamba
analyst

AS the COP26 conference in Glasgow, Scotland, ends, this article reflects on potential implications for economies and businesses in developing countries.

It is evident that the deliberations during COP26 focused on business climate actions because the IPCC Report 2021 showed that business accounted for 21% of greenhouse gases (GHG) emissions.

As such, COP26 had to focus on reducing GHG emissions contributing to global warming.  The conference built upon the Paris Agreement which agreed on Nationally Determined Contributions (NDCs).

COP26 targeted achieving four objectives: mitigation, adaptation, finance and collaboration. Of these, the major development was financing mitigation and adaptation by least developing countries greatly impacted by climate change.

However, the decision to phase out coal has significant implications for businesses in developing economies. For example, countries like Zimbabwe with huge coal deposits could face challenges in transitioning from coal, which contributes 13% of its electricity generation (Zimbabwe Power Company, 2021). This article shares potential implications and opportunities for Zimbabwe from outcomes of COP26.

Financial markets reconfiguration

Climate finance will reconfigure banking systems in Zimbabwe. According to Standard Chartered Bank (2021), “climate change is the greatest challenge facing the world today”.

In this regard, it is proactive actions through its Transition Framework for Green and Sustainable Products has been instrumental.

Many international banks made the decision that they will no longer finance any new coal projects, a position cemented at COP26. The commitments made to finance climate action will require financial markets and the banking sector to reconfigure strategies, systems, policies and governance.

While many banks in Zimbabwe remain stuck in traditional banking, COP26 will force them to rethink their direction and leadership philosophy. Credit rating has moved to include climate issues (Fitch, 2021).

In Zimbabwe, the Infrastructure Development Bank of Zimbabwe (IDBZ) is the one accredited to handle climate finance. As such, accelerating the transition will be required for the rest of the banks.

Capital markets like the Zimbabwe Stock Exchange (ZSE) will have to offer climate-related investment products. While many central banks have moved to implement various instruments like the Equator Principles, United Nations Environment Programme Finance Initiative (UNEPFI) Principles and Principles on Responsible Banking (PRB), the Reserve Bank of Zimbabwe (RBZ) needs to urgently promulgate mandatory regulations for the banking sector to drive climate actions.

The country risks missing the opportunity of tapping into the US$413 million of the COP26 pledged funds to support least developed countries (COP26, 2021).

However, the banking sector, its leadership and clients need to brace for climate-related global financial system reforms influenced by COP26 outcomes.

Interestingly, earlier this year, some 160 banks, asset managers, and asset owners formed a new mega-alliance of financial institutions that have committed to aligning their operations and portfolios with net-zero pathways (Bowcott, 2021).

Green products and services

While there was consensus on phasing out of coal for energy generation, there are implications for transitioning to clean energy. Energy mix has an impact on the final products manufactured.

Some companies have started avoiding products manufactured with high thermal energy. In July 2021, Porsche advised its suppliers to go green by using clean energy in all products supplied to the company so that it can meet its carbon neutral targets by 2030 (CIPS, 2021).

As such, this calls for businesses to reinvent their products and services to be climate responsive. Similarly, Unilever, has been working with its suppliers to reduce GHG footprint to achieve a net-zero across its value chain by 2039 (Unilever, 2021).

These developments have far-reaching implications for companies in Zimbabwe to start ensuring that they dilute their energy mix with clean energy sources like solar.

Further, they must innovate products and services responsive to climate change. However, this comes with costs, if companies have to replace some machines with new technology or invest in solar energy.

While these developments may appear negative, COP26 provides opportunities for innovations and product development for some companies in Zimbabwe which could be supported through climate finance.

Climate impact investments

Global investors made their call to invest in climate-related products around the world. During COP26, global investment companies like BlackRock announced a US$673million climate investment fund.

In a similar drive, the United Nations Principles on Responsible Investing (PRI) called for companies to achieve a net-zero by 2040. During COP26, global investors indicated that they will no longer invest in high carbon emitting companies globally.

In this regard, some companies in Zimbabwe could be affected. Further, the recent positions taken by international banks and China to stop financing thermal power stations could significantly hurt some economies.

The development during COP26 showed some investors targeting green projects which are responsive to climate change. For example, CDC Group will invest US$5 billion (£3bn) in climate action in emerging markets targeting Africa and South Asian markets (Pioneers Post, 2021).

As such, renewable power, infrastructure and agriculture will be targeted. However, finding local partners and suppliers meeting the climate standards in their practice could prove a challenge in some countries.

As such, this calls for companies in Zimbabwe to start preparing if they will be accommodated in climate-related projects funded through climate finance.

International trade

Following COP26, climate will soon filter into trade agreements and could fast become a trade barrier for developing countries.

While developed countries may have contributed to the build-up of funds pledged during COP26, it is highly likely that they would want to see climate action being included in trade agreements.

These could include reducing high GHG associated products, committing to net-zero emission and green freight of products to markets. Further, limit products and services with high thermal content in their energy mix.

However, export companies in Zimbabwe may need to invest in clean energy. Interestingly, companies like Surrey, Schweppes, Blanket Mine and Zimplats to name a few, made investments toward clean energy to dilute their energy mix as export companies.

Fiscal reforms

While there may have been funds pledged to least-developed countries during COP26, it is important that developing countries start looking at their fiscal systems for domestic resource mobilisation to support domestic climate actions.

Like COP25 in Paris, funds were pledged but never came to some countries. Instead of waiting, climate fiscal support could be included in the National Budget.

Climate change will hurt African economies more if they have to wait for donor funding.

An analysis of environmental or climate-related taxes in 2018 showed that the Zimbabwe Revenue Authority collected less than 1% while South Africa, Botswana and Rwanda collected an average of 6% on environmental taxes.

As such, this empowers their environmental regulators with adequate resources to mitigate climate-related offences. Consequently, our Environmental Management Agency (EMA) and Local Authorities have been struggling with policing the destruction of wetlands and urban forests due to limited resources.

Sustainable business practices

Business can play a pivotal role in climate action (Bowcott, 2021). As such, the UN appointed two high-powered champions to engage companies and non-state actors on climate action (Bowcott, 2021).

COP26 will require companies to reflect on their board composition in a climate sensitive corporate world. Companies in Zimbabwe will need to consider members with an environmental or climate-related background or skills to inform climate actions.

Climate leadership in business is becoming a defining factor. While climate reporting within many companies in Zimbabwe is still to find its way, COP26 now pushes for it.

The business sector has a critical role in climate action in Zimbabwe. While there are instruments for driving climate actions through sustainability reporting, COP26 may require companies to show their commitment through climate reporting.

The recent establishment of the International Sustainability Standards Board (ISSB) by the International Financial Reporting Standards (IFRS) Foundation during COP26 called for accountants to include climate reporting along with financial reporting.

Similar requirements are contained in SI134 of 2019 Securities and Exchange (Zimbabwe Stock Exchange Listing Requirements) Rules and the Public Entities Corporate Governance Act (10:31).

In conclusion, COP26 will be a defining factor for the economic configuration of Zimbabwe. It is important to note that there are no vaccines for climate change (Mckinsey, 2021).

As such, business climate action will be crucial for the sustainable economic recovery of the country in addition to the prevailing Covid-19 Impacts.

Ndamba is the chief executive/founder of the Institute for Sustainability Africa, an independent think-tank and research institute “advancing sustainability initiatives for Africa”. This weekly column, New Perspectives, is published in the Zimbabwe Independent and co-ordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society and past president of the Institute of Chartered Secretaries & Administrators in Zimbabwe. — kadenge.zes@gmail.com or mobile: +263 772 382 852.

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