South African investors start to add up the numbers

Carbontracker.org 20 November 2012.

Carbon Tracker’s new analysisUnburnable carbon: Budgeting carbon in South Africa[i]finds that the current coal reserves earmarked for the South African market, which are equivalent to 19.2 GtCO2e, exceed the South African Government’s ‘required by science’[ii] carbon budget of 16.4 GtCO2e for all sectors from 2010 to 2050. This is the first time investors can understand their exposure to this systemic risk.

James Leaton, Research Director at Carbon Tracker, said “South Africa is starting to think about how to make its market compatible with a carbon budget. We need other resource intensive markets in London, New York, Australia and Canada to follow suit.”

The Government Employees Pension Fund (GEPF) is the largest investor in South Africa, and therefore has a clear interest in developing a sustainable economy.[iii] This analysis provides investors with a clear message that they need to develop alternative low carbon investment opportunities to replace carbon intensive activities.

John Oliphant, Head of the GEPF, commented “We look forward to engaging the investment industry and other key stakeholders on the recommendations of this research in order to appropriately address systemic carbon and water risks facing our country and continent.”

These calculations show that South Africa already has an excess of coal to stay within the domestic carbon budget required by science. This challenges whether there is long-term value in developing further resources which are incompatible with this low carbon future. Analysts need to start factoring in carbon constraints in their valuation of companies which rely on a carbon intensive value chain.

 

The research follows the recent IEA World Energy Outlook[iv], which confirmed that two-thirds of fossil fuel reserves could not be burnt if the world is to have a 50% chance of achieving targets to limit global warming to 2°C. South Africa exports around 30% of its coal, with an increasing share destined for Asian markets. However, this exposure to contracting western markets and saturated Asian markets presents an uncertain future for coal exports.

James Leaton observed “This analysis raises a real question mark over where capital should be deployed – it is time investors challenged companies pouring investment into developing more coal resources.”

Malango Mughogho, from WWF-SA, is working with investors on thinking about how to deliver a low carbon future. She commented “We need to significantly reduce our reliance on coal for electricity generation, and move towards a renewable energy future where our water resources are protected, supported by the billions of rand controlled by institutional investors in South Africa.”

Ends

For further information contact

James Leaton; Research Director, Carbon Tracker

E:  jleaton@carbontracker.org; Tel: +44 (0) 7841570657

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