According to Fineberg, mitigation through a formalised law has, until now been lax, as most SA companies are behind the curve in complying with legislated emissions reporting requirements, let alone proactive sustainable reporting measures and practices. He adds that decarbonisation strategies have become increasingly urgent as other jurisdictions, such as the EU, look to impose carbon border mechanisms that account for the embedded carbon content of imports and prevent the relocation of local companies to regions with lax emission regulations.
Late last year, reports warned that SA was on track to miss its binding 2030 emissions target under the Paris Climate Agreement – a legally binding agreement on climate change. Greenpeace has cautioned that mean annual temperatures in SA have increased by twice the global average (0.7°C). Since 1980, there have been 86 weather-related disasters, which have affected more than 22-million people and have cost more than R113bn in losses, it says.
The South African Reserve Bank, meanwhile, forecasts that the EU's recently introduced Carbon Border Adjustment Mechanism (CBAM) on South Africa's export market could reduce total exports of aluminium, chemicals, cement, iron, and steel to the EU by between 4% to 35% by 2030, with other sectors likely to face similar regulations.
“Those exporting to Europe will only remain competitive if they not only start reporting emissions but develop short-term strategies to rapidly decarbonise. It is also clear that based on the new legislation including the National Green House Gas Reporting Regulations, Carbon Tax Act and Pollution Prevention Plan Regulations, it’s advisable for all companies – even smaller companies - to start their sustainability reporting journey starting with understanding their carbon footprint now,” says Fineberg.
Carbon taxes were increased by 16% in the February 2024 Budget, and the higher tax rate on emissions exceeding carbon budgets will come into effect after the Department of Forestry, Fisheries and the Environment gazettes the relevant regulations.
“This is another reason companies need to ensure they get their house in order – those high emitters who do not meet the new carbon budget requirements will be in for much higher taxes,” says Fineberg.
While sustainability reporting is not mandatory in SA, the new Climate Change Act does establish a national greenhouse gas (GHG) emission trajectory, requiring several ministers to develop and implement measures to address climate change through sectoral emission targets, and mandating major emitting companies to comply with mandatory carbon budgets.
“Carbon is only a small piece of the larger sustainability reporting picture. However, closer monitoring so that excess emissions can be mitigated is an important start to what essentially needs to be a much broader effort from the public and private sector,” says Feinberg.
Based on PKF’s approach to assisting businesses in getting their sustainability house in order, Fineberg says the first step is to get a carbon baseline and determine your footprint so you can begin proactively reporting to stakeholders. “Then, you need to develop a decarbonisation or net zero strategy,” he says.
“As not every company can be at net zero by 2050, they will need to focus on their reduction strategy over time and how they offset their current emissions via alternative energy routes or through carbon credits,” he adds.
When this begins to happen, the business's optics immediately look better to the public and to trade partners. Another significant benefit is that these companies can qualify for certain tax breaks.
At the same time, those who comply could also benefit from the extensive capital available from overseas for emerging businesses that take sustainability seriously. This funding is generally cheaper than commercial funding, so smaller and medium-sized businesses need to seriously consider improving their reporting.
Fineberg concludes that companies will increasingly need to rely on expert consultants to guide and support their journeys, notably as this space becomes increasingly complex.
