With rising carbon dioxide (CO₂) emissions a major global concern, businesses are increasingly expected to play their part in using energy efficiently and reducing their emissions. In this article, ESG Officer, Irshaad Wadvalla talks about regulations and carbon taxes that are due to come into effect in South Africa and unpacks the measures that puts Equites’ tenants ahead of the curve.

In 2022, global CO₂ emissions reached 37.5 billion metric tonnes. And, although there was a momentary decline during the COVID-19 pandemic, global emissions reached the highest-ever levels last year.

REGULATIONS THAT WILL CURB SA’s CO₂ EMISSIONS OR COST COMPANIES

South Africa’s annual greenhouse gas emissions have increased faster than the world average. Based on the voluntary commitment made at COP15 in 2017, the country is expected to cut emissions by 42% by 2025 below the business-as-usual trajectory, in order to limit global warming to below two degrees Celsius, compared to pre-industrial levels.

At COP27, South Africa presented the Just Energy Investment Plan that put forward its strategy to move away from a coal powered economy and increase the energy mix of renewables to unlock over $11.8 billion of funding in the form of grants, loans, commercial investments and concessional climate funds from the USA, UK, EU, Denmark, France, Germany, Netherlands and Spain.  

South Africa is ranked among the world’s 15 largest emitters of greenhouse gases, largely due to the country’s reliance on coal energy. Increasing regulation and carbon taxes will also result in businesses needing to play a role in contributing to these reductions, and those who don’t, will be expected to pay significantly for their emissions.

Here are three ways that businesses are starting to “feel” the impact:

1. Increased carbon taxes will be applied from December 2025. While businesses have had more time to prepare for this increase, with a three-year delay, we’re edging closer to 2025 when companies will begin getting taxed at steeper prices based on the polluters-pay principle.
   The initial carbon tax implemented in 2019 was set at R120 per tonne and increased by inflation +2% until 2022. It will then continue to increase until it reaches $20 per tonne in 2026, while larger increases are anticipated from 2026 with the expectation that a price of $30 will be introduced in 2030.
2. SA exporters are now expected to pay higher fees. The EU parliament and its member states have agreed to a Carbon Border Adjustment Mechanism — a framework that levies a carbon tax on an expanding list of almost 29 product categories including plastics, fertilisers, aluminium, iron and steel, which are imported into the EU. SA exports of these commodities are significantly impacted by this carbon border tax and other nations may introduce similar legislation, based on this EU directive.
3. Regulators in many markets are expanding their reporting requirements to include Scope 3 emissions. Recently released standards by The European Financial Reporting Advisory Group and the US Securities and Exchange Commission outline stringent disclosure requirements on CO₂ emissions.
   Locally, listed companies will also have to comply with the JSE sustainability disclosure standards, which means that companies will have to disclose and report on their CO₂ emissions. Multinationals especially, should be preparing towards meeting their own global emission reduction targets, which are increasingly being linked to executive remuneration.

Globally, energy consumption has increased significantly in recent years and is projected to continue this trajectory. By 2050, renewable energy consumption is expected to follow this trend and will be five times higher than recorded in 2000, as the graph below depicts.

Although the anticipated increase in renewable energy usage is a positive step, we still need to consider the extent that other energy sources are projected to remain in use for the foreseeable future.

One of the most effective ways that businesses can take control of their energy consumption and clamp down on their CO₂ emissions is by implementing behavioural and technological changes that can result in lower energy usage. Occupying an energy efficient building will meaningfully contribute to achieving this objective.

SUSTAINABLE BUILDINGS GROWING IN DEMAND

In a previous article, we discussed the fact that occupiers are increasingly seeking out sustainable buildings with the dual purpose of reducing their costs and minimising their environmental impact.

With sustainability being a central component of the Equites business and an ESG framework aligned to the UN Sustainability Development Goals, we are equipped to respond to this demand.

Equites has achieved several milestones in our sustainability journey. By proactively identifying where we can make a meaningful contribution to our stakeholders, and through the implementation of technology, we are able to deliver sustainable value creation.

Our sizeable roof space facilitates the installation of enterprise-scale solar and battery backup solutions, which generate sufficient renewable energy to have a positive impact on our tenants’ energy costs, usage and carbon emissions.

Moreover, Equites is a participant in the City of Cape Town's energy wheeling pilot project. This is an exciting initiative that allows independent power producers to supply energy to other end users using the city’s transmission network. Any surplus energy produced is purchased by the City of Cape Town, and we are excited at the prospect of contributing to energy security in South Africa by supplying tenants within our portfolio and other potential offtakers with renewable energy, thereby reducing their dependency on the local grid.

This additional capacity has the potential to shore up the municipal electricity network, thus freeing up constrained supply. We see this as a constructive step in meaningfully contributing to the load shedding crisis, while addressing both social and environmental outcomes — an innovative energy solution that curbs energy performance disruptions.

OUR ENERGY SAVING EFFORTS IN NUMBERS

Here’s a look at what we’re doing within our portfolio to reduce CO₂ emissions.

DEVELOPING SUSTAINABILITY AT A FOUNDATIONAL LEVEL

Each new Equites building is developed according to the EDGE Green Building certification standard, which ensures that the efficient use of materials, energy and water is considered in the design and operational impact of the development, from inception. And, in October 2023, Equites was presented with the IFC EDGE Champions award for 2023.

Our targets for energy efficiency are aligned to the EDGE metric, where a minimum efficiency of 20% is required. We have exceeded this by an average of 34%, with some developments achieving efficiency levels of 78%. The Equites baseline building specification includes low energy LED lighting and Solar PV to achieve an energy efficiency of 40%, which is aligned with the EDGE Advanced Certification. This generates a direct economic and environmental benefit for our tenants and has resulted in 90% of the EDGE certified buildings receiving the EDGE Advanced Rating.

In light of ongoing load shedding, these buildings provide the occupier with benefits that include lower monthly energy bills and reduced diesel usage for the backup generator if required, compared to a less efficient facility. At Equites, we will continue to seek out innovative solutions that bring tangible benefits to our tenants as we remain committed to delivering a product that is resource efficient, has sustainable features and is fit for purpose.

Read more about our commitment to sustainable buildings and reducing environmental impacts here.