Chronicle Editor
Prosper Ndlovu, Feature
AMID the growing awareness of the potential climate change-induced risks on economies, the private sector is increasingly feeling the pressure to take a bold stand through revising priorities and shifting focus to more environmental, social and governance (ESG) sustainability initiatives.
The expectation goes beyond adjusting physical operational aspects but working with governments in providing the critical green climate finance, and investing in recommended technologies and infrastructure such as solar and wind energy resources.
Like its regional peers, Zimbabwe is already experiencing the negative impact of climate change such as extreme droughts, heavy and unpreceded rains, and extremely hot temperatures among other challenges.
The Government has responded proactively by crafting a range of climate change mitigation strategies but these could only be made possible with sufficient funding, says Environment, Climate, Tourism and Hospitality Industry Minister, Mangaliso Ndlovu, who accompanied President Mnangagwa to last week’s UN Climate Change COP26 indaba in Glasgow, Scotland.
At the conference, global leaders made pledges to push the cut on carbon emissions, as well as facilitate the shift to cleaner energy and industrial solutions to reduce the greenhouse effect.
As the domain for one of the largest pools of investment resources in the country and globally, the pension and insurance sector is also expected to take a bold stand on the climate issue.
This is seen as critical for the sector in view of the imperative to secure a financial future and that of its shareholders through business modelling that speaks to the broader climate-smart global outlook.
“While the first world countries have to provide funding to third world countries to agitate for a change towards green climate financing, the biggest players that should come in are pension and insurance firms,” Bulawayo businessman, Mr Morris Mpala, said.
Locally, the sector, led by the Pensions and Insurance Commission (IPEC), has kickstarted a process to introduce a weather index-based insurance model as it ponders joining the fight against the adverse effects of climate change.
“We are on the verge of agreeing terms with a development partner to assist in the weather-based insurance development. This is a result of adverse effects of climate change, which the country is currently faced with,” IPEC director of insurance, Mrs Sibongile Siwela, told journalists during a recent session of the ongoing media mentorship programme being run in partnership with the National Social Security Authority (NSSA).
“We are yet to come up with a client related risk. For example, if we are faced with droughts, we lose both crops and cattle. We are looking at mitigation measures to reduce and mitigation measures on how to try and prevent and compensate for the loss.”
Financial economist Mr Collet Ndlovu concurs that the climate change dilemma demands a collective solution but suggests the insurance and pension sector has its own limitations when it comes to green financing focus.
“Climate change has reached crisis levels and it has to be treated like Covid-19. Therefore, the same financial force that was used to fight Covid should be used against climate change,” he said.
“However, leaving such an issue to pension funds and insurance alone is tantamount to folly given their limited capacities and capabilities.
“Diverting pension funds to climate change might imperil the beneficiaries of such funds unless there is a clear policy from the Government side of the equation.”
Mr Ndlovu’s view points to the need for legislative fine-tuning in order to create a favourable environment for pensions and insurance sector to safely drive into the green financing crusade.
The Centre for International Environmental Law (CIEL) expands this narrative by noting that climate change presents an urgent financial threat to “our pensions” as it does to wider community ecosystems across the globe.
“With their trillions of dollars of assets under management, institutional investors like pension funds will be key players in the shift away from fossil fuel dependence and toward investment in renewable energy and a low-carbon economy,” it says.
“However, monitoring and responding to climate-related financial risks is not just a financial or moral imperative for pension fund trustees, but also a legal one.”
For Old Mutual Group’s responsible investment head, Mr Jon Duncan, the pensions and insurance sector, as part of the larger investor community, should be part of the climate adaptation transitionary approaches as these have a huge bearing on investment patterns.
“For domestic investors looking to manage their climate exposure, it makes sense to use different approaches across asset classes and geographies,” he wrote in an article published by Citywire, South Africa’s online professional investor outlet in September 2021.
“Aside from targeted products, at a minimum, investors should demand that their asset managers are proactively engaging with climate change risk.”
Outside the collective expectation, individual businesses and finance houses in Zimbabwe and across the region are already taking steps to adapt to climate change and align their operations accordingly. For example, the Econet Group has become a champion in driving solar energy development in Zimbabwe and more entities are growing interest towards the same.
In South Africa, Nedbank and FirstRand Bank have both indicated desire to start withdraw financing for coal-fired power plants as the neighbouring country is ranked 12th-largest contributor to greenhouse gas emissions in the world.
However, the green finance gap is clearly evident on a broader scale across the developing global south as indicated in the 2020 Adaptation Gap Report issued by the United Nations Environment Programme (UNEP). Despite advanced strategies for climate change mitigation and sustainability, the report says financing gaps still remain wider, especially in developing economies.
Low-income states like Zimbabwe, it stated, still struggle to bring adaptation projects to a desired stage where they bring real protection against climate impacts such as droughts, floods and sea-level rise.
“Public and private finance for adaptation must be stepped up urgently, along with faster implementation,” reads part of the report.
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