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Carbon finance and the future
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2. Towards a greener future
It is widely accepted that, unabated, climate change
will result in increased damage to infrastructure and
physical assets, disruption to business operations and
THE DEBATE ON agricultural output, and ultimately lead to loss of life.
CLIMATE CHANGE, The Stern Review on the Economics of Climate Change
supports this view and estimates that without direct
WHAT IT IS OR WHY intervention the annual cost will be at least 5%, and
IT’S HAPPENING, may be more than 20% of world GDP each year.
IS OVER. THE Consequently, world society faces considerable
challenges to align its practices to impact positively
QUESTION NOW on the planet’s changing climate. Businesses have the
IS HOW BUSINESS opportunity to turn this adversity to their advantage by
developing strategies and new products to empower
SHOULD OPERATE IN themselves to cope with the changing external physical
A CARBON- and social environments.
CONSTRAINED Through adverse public opinion firms not acting in the
FUTURE. best interests of consumers, or that fail to ensure their
organisational impact on the environment is minimised,
could face severe reputational and adaptation risks. Such
risks will damage brand value and may lead to loss of
customers, market share, and could give rise to litigation.
Carbon Finance provides a means to mitigate these risks,
encapsulating a strategy designed to support the evolution
and implementation of environmentally oriented business
practice, thereby promoting long-term sustainability.
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3. Carbon’s future in revenue streams through expected future cashflows.
This mechanism was established through the
South Africa Kyoto Protocol with the aim of making previously
unprofitable or marginal projects possible in
In his 2008 budget speech Trevor Manual acknowledged
developing countries using the Clean Development
that environmental protection and biodiversity
Mechanism (CDM).
conservation are required to support sustainable
development. Government, in establishing a climate
change strategy, calls for a coordinated approach
Nedbank carbon asset
to support initiatives dealing with environmental
management
concerns, air pollution and climate change.
To position Nedbank and its clients appropriately for
a carbon-constrained future, Nedbank Capital has a
The following incentives and taxes will be investigated:
dedicated Carbon Finance Team to view carbon dioxide
> Introducing emission charges and taxes in 2009.
(CO2) and other emissions holistically. This team is
> Tax incentives aimed at encouraging the uptake
part of the African Treasuries, Carbon & Financial
and/or development of cleaner production
Products unit and, through a multidisciplinary
technologies.
approach, has created a niche centre of excellence
> Incentives, created through vehicle taxes, for the
that interfaces with other business units. Ultimately,
introduction of vehicles with reduced emissions
the objective is to leverage specialist skills to enhance
and increased fuel efficiency.
our client service offering.
An electricity levy to support energy efficiency will be
Our value proposition is to look at emissions end to
effective from the third quarter of 2008. A 2c/kWh tax
end using a five-pronged approach. All these activities
on electricity generated from non-renewable sources
draw on crossfunctional expertise in finance that
will support Eskom’s energy efficiency drive and
underpins the projects.
aid environmental protection, given that coal-based
electricity generation accounts for a significant share
The value proposition comprises:
of carbon dioxide (CO2).
> Sustainability – devising carbon strategy and policy.
This levy could translate into an additional 10% > Carbon Advisory and Footprinting services.
increase in costs (ie R10 000 a month on an electricity > Identification and development of CDM projects.
bill of R100 000 a month, depending on the unit > Identification and development of Energy Efficiency
price charged). projects.
> Carbon Trading – trading of CERs and VERs and
Reducing one’s organisational carbon footprint not providing client brokerage services to monetise
only positions the business well in terms of future carbon benefits or to obtaining carbon neutrality.
regulation, but can also generate valuable income.
Certified Emission Reductions (CERs aka carbon The value proposition is illustrated in the diagram on
credits) can be traded and represent additional the next page.
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4. NEDBANK CAPITAL’S CARBON ASSET MANAGEMENT OFFERING
SUSTAINABILITY – CARBON ADVISORY CLEAN ENERGY CARBON
CARBON STRATEGY AND FOOTPRINTING DEVELOPMENT EFFICIENCY NEUTRALITY
AND POLICY SERVICES MECHANISM
FEATURES
f Constitute business case f Approach carbon f Identify CDM f Undertake initial f Calculate total carbon
for climate change and footprint manage- opportunities energy audit footprint
sustainability ment holistically and determine covering electrical f Identify, finance
f Provide sustainability, f Source necessary emissions baseline consumption and implement energy
carbon strategy and industry expertise f Source necessary f Converse with efficiency programmes
benchmarking with relevant industry expertise managers and f Identify, finance
f Provide policy and databases f Model the various technicians; the and implement other
management system f Engage client and scenarios and aim is to assist emissions reduction
advice define scope and advise clients on the and develop EE projects
f Analyse impacts, risks boundary of study use of their CERs initiatives in con- f Procure CERs
and opportunities f Construct carbon f Project manage junction with staff for the remainder of
– direct and indirect footprint – collect CDM projects f Identify CDM their carbon footprint
impacts across supply energy and f Manage carbon opportunities and f Buy and sell
chain emissions data credit exposure conduct feasibility CERs through a
f Provide climate change f Analyse data in accordance study (not all trading desk
and sustainability and establish with the client’s energy efficiency
reporting framework emissions profile mandate projects have CDM
f Identify carbon f Assist with the application)
risks and emission negotiation and f Arrange funding
reduction drafting of emissions for the imple-
opportunities reduction purchase mentation of
f Present carbon agreements (ERPA) energy efficiency
footprint report f Identify and recommendations
and energy usage implement VER
opportunities
BENEFITS
f Position for future f Participate f Earn additional f Form the basis of an f Facilitate carbon
carbon legislation meaningfully in revenue through integrated sustain- neutrality through
and governance Carbon Disclosure annuity streams ability strategy offsetting
f Become an environ- Project f Make use of f Reduce energy bills
with attractive IRRs
mental leader in climate f Assist with Kyoto funding
f Reduce energy
change mitigation fulfilling JSE SRI mechanism
consumption
f Able to adapt to Index criteria f Make previously
f Mitigate levy on
changing consumer f Use the carbon marginal or
non-renewable
attitude and demands footprint in all unprofitable
energy generation
sustainability projects possible
f Assist in Eskom’s
reporting
demand-side
management
programme
CARBON FINANCE
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5. Carbon credits and
the bottomline
Calculations revealed that revenue from carbon credits
earned in energy efficiency projects are significant.
Below is a table that illustrates the potential benefits
of a 10/15/20% saving in energy consumption on a
monthly energy bill of R100 000 in terms of electricity
cost savings and carbon credits earned, before
anticipated increases in Eskom rates.
The capital payback period is generally four to five
years, based on various reports received from
energy-saving companies (ESCOs).
Possible
AssumedŁ Possible Possible tons of Annual 2c/kWh Total
Monthly rate per kWh % saving monthly annual CO2 saved carbon levy annual
bill kWh consumed kWh saving saving annually saving saving saving
R 100,000 R 0.21 476,190 10% R 10,000 R 120,000 570 R 68,400 R 11,430 R 199,830
47,619
R 100,000 R 0.21 476,190 15% R 15,000 R 180,000 855 R 102,600 R 17,143 R 299,743
71,428
R 100,000 R 0.21 476,190 20% R 20,000 R 240,000 1140 R 136,800 R 22,860 R 399,660
95,238
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6. PROJECT CYCLE
The project cycle below illustrates the steps to follow in producing
CERs for an energy efficiency (EE) project.
Once CERs have been Selected building for
generated, they can be traded EE initiative Consumes power
as commodities, hence in kWh To implement EE initiatives
implementation costs of the cost of funding or setup
CDM project can be recovered. costs will be incurred.
Generated revenue can then be
used to fund other similar
energy efficiency initiatives. EE initiatives to
CERs are tradable save energy:
1CER=e10-e20 Lighting
Solar energy
Lifts
Registration fee: Escalators
From e5,000 – e75,000 Lift clubs
Validation and verification costs:
Between 5 - 7% of CERs issued
Cost of funding EE
initiative 1tCO2 = 1Mwh
Conduct a feasibility study
Energy saving is based on the
that can cost up to e15,000.
fact that one ton of carbon
Projects with a positive
dioxide emitted is equivalent
return on investment will be
to one megawatt per hour of
considered for the next phase
electricity consumed.
of registration. Initiate a CDM project
to generate CERs. Realised benefits after
implementation:
1CER = 1tCO2e (Reduced power consumption)
(Social responsibility)
Reduced electricity cost
Avoidance of 2c/kWh levy
Reduced coal burned
Reduced carbon emissions
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7. ‘Putting an appropriate
price on carbon –
explicitly through tax
or trading, or implicitly
through regulation –
means that people are
faced with the full social
cost of their actions.’
Stern Review Report
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8. BUSINESS AND CDM PROJECT ALIGNMENT
CARBON PROJECT CYCLE
• PDD • CDM project • Carbon asset
Carbon Monitoring and Reporting
• Baseline validation and management
• Baseline registration project
methodology implementation
• Carbon • Modelling • ERPA • Monitoring • Monitoring • International • Carbon income
abatement • Advisory services negotiation and • Reporting transaction
• PIN • Financing registration • Verification log
PROJECT REALISED
CONCEPT PROJECT
OBJECTIVES
Traditional Project Complete
Opportunity Business Takeoff Commission Finalise and Sales revenue
assessment modelling, agreements testing and sign supply from business
advisory, handover contracts PRODUCTION concept
financing
OPERATING CYCLE
Project Provisional Project
design and contract implementation
development negotiation
LIST OF ABBREVIATIONS
CDM – Clean Development Mechanism
PROJECT PHASE ERPA – Emission Reduction Purchase Agreement
PDD – Project Design Document
PIN – Project Idea Note
TRADITIONAL PROJECT CYCLE
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9. Nedbank’s climate
change governance
Strong governance structures need to be in place
to address climate change and to take early action
regarding the risks and opportunities associated
Types of CDM projects with it. More than this, it requires a holistic and
forward-looking management approach.
Although the diagram illustrates how carbon
credits can be obtained through energy efficiency, To date Nedbank:
it is important to note that carbon credits can be > Has board oversight – responsibility for climate-
earned through many other emission reduction related policies and initiatives has been assigned.
initiatives. Projects relating to biomass co- > Implemented management and staff
generation, methane reduction/capture from performance requirements – incorporate social
landfill sites or animal waste, fuel switches from and environmental responsibility.
fossil to cleaner-burning fuel, wind- and hydro- > Practices internal greenhouse gas
power generation, emission reduction in the management – Nedbank’s carbon footprint is
transport sector and renewable energy generation calculated annually and is publicly disclosed
are all examples of eligible CDM projects. through the Carbon Disclosure Project
and Sustainability Report using the Global
Project cycle Reporting Initiative guidelines.
> Applies risk management and external
The CDM project cycle is aligned with the normal financing – adopted Equator Principles
end-to-end business project cycle as can be to ensure projects financed are socially
seen from the illustration on the facing page, responsible and environmentally sound.
demonstrating a need for the coordination of specific > Seizes climate change opportunities
actions or events within the flow of these projects so – extensive EE drive to reduce energy
that the potential CER benefits are not lost to the consumption in offices and buildings
project owner. throughout the group.
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10. Nedbank’s sustainability and climate
change credentials
Equator Principles for Managing Social and Environmental Issues
Project Financing
Only African bank signatory
Most Comprehensive Climate Change Disclosure Practices 2007
Placed joint sixth out of the JSE top 40 companies
JSE SRI Index Outstanding Performer
First in ‘low impact’ category
United Nations Environmental Programme Finance Initiative
First of only two South African signatories
2005 and 2006 Banker Awards
Best ‘Emerging Market Bank for Corporate Social Responsibility’
Dow Jones Sustainability Index Membership
One of only three strictly South African companies
World Wildlife Fund Conservation Partnership
Only African company
Ernst & Young Excellence in Sustainability Reporting
Best-placed South African bank
Mail & Guardian Greening the Future
Winner ‘Most Innovative Environmental Strategies’
FT Sustainable Banking Awards: Emerging Markets
Sustainable Bank of the Year
2008 Regional Winner – Middle East/Africa
2007 Regional Winner – Middle East/Africa
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12. purpleberry 0410/5580
Contact details
Clients should engage Nedbank through their existing relationship manager, corporate,
or investment banker, as appropriate, to explore Carbon Finance and other environmental
opportunities. For project related queries email carbon@nedbank.co.za. Alternatively,
contact our Carbon Finance Team directly as follows:
KEVIN WHITFIELD ZIV BEN-AMI
Head: African Treasuries, Carbon & Transactor: Carbon
Financial Products unit Tel: +27 (0)11 294 3021
Tel: +27 (0)11 294 2268 Cell: +27 (0)72 611 5721
Cell: +27 (0)82 901 5846 Email: zivb@nedbankcapital.co.za
Email: kevinwh@nedbankcapital.co.za
CAROL CORNELIUS
PAUL GRIFFIN PA & Administrator
Senior Administrator Tel: +27 (0)11 295 7155
Tel: +27 (0)11 295 7232 Cell: +27 (0)73 120 2227
Cell: +27 (0)83 634 4335 Email: carolcor@nedbankcapital.co.za
Email: paulg@nedbankcapital.co.za
NELIS ENGELBRECHT
Senior Structurer
Tel: +27 (0)21 416 6496
Cell: +27 (0)82 882 4593
Email: nelise@nedbankcapital.co.za
Business unit contacts
PETER LANE BRAD MAXWELL
Nedbank Capital: Group Treasurer Executive Head: Investment Banking
Tel: +27 (0)11 294 3459 Tel +27 (0)11 295 8422
Email: peterl@nedbankcapital.co.za Cell +27 (0)11 295 8422
Email bmaxwell@nedbankcapital.co.za
GRAEME AURET
Nedbank Corporate: Divisional Director
Tel: +27 (0)11 295 8506
Email: graemea@nedbank.co.za
Nedbank Ltd Reg No 1951/000009/06. We subscribe to the Code of Banking Practice of The Banking Association South Africa and, for unresolved
disputes, support resolution through the Ombudsman for Banking Services. We are an authorised financial services provider. We are an authorised
financial services provider. We are a registered credit provider in terms ot the National Credit Act (NCR Reg No NCRCP16).
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