A study benchmarking the price of steel transmission grid pylon towers and what South African manufacturers can do to compete with Chinese and Turkish imports showed that "a bit of" stable demand was needed to enable local manufacturers to compete effectively.

The 'Price Benchmarking on Steel Towers in South Africa' study by manufacturing support organisation the Localisation Support Fund (LSF) was one of three studies done to map out the components of the Eskom and National Transmission Company build programmes and how to get industry to participate, said LSF head of strategy Irshaad Kathrada.

This study and others are available on the LSF's website.

"The studies map out where we can compete in the renewable-energy, solar, wind and battery value chains and what South Africa can do. Lots of work has gone into the Renewable Energy Master Plan, from which work was done to determine how to develop industry," he said during the 'Bridging Compliance: CBAM, ESG and the South African Metals Sector' conference at Emperor's Palace, in Gauteng.

In discussing the implications of the EU Carbon Border Adjustment Mechanism (CBAM), he emphasised that CBAM was a watershed moment in the development of climate policy because, for the first time, policy was focused on a nexus of climate and trade policy, which would have a far-reaching impact on trade dynamics and will impact on trade partners.

"The scheme will raise costs and administrative burdens, but it will not end with the EU or the UK and is slowly becoming a [developed economies] Group of Seven proposal, and other countries may implement similar mechanisms.

"This raises immense challenges for emissions-intensive trade. However, while CBAM is a key transition risk, it is not the only one. Government and companies are making net-zero commitments, and this will impact on South African companies, as will shifts in consumer preferences."

CBAM crystallised the transition risks faster than what industry may have preferred, but the economy would face transition risks, he added.

"What can industry do to mitigate against these risks? It can change production processes and [South African companies are] not far off from where Europe is. Although there is some room to improve, on direct emissions there is not much further local industries can go," highlighted Kathrada.

Most companies in South Africa face greater challenges in terms of reducing indirect greenhouse-gas emissions. So far, industry is aiming to address this through power purchase agreements.

However, this opportunity is generally only available to larger companies and not smaller companies, which have to consider some of the dynamics in Eskom and municipalities to determine whether they can move forward with decarbonisation.

Companies face multiple dimensions of risk, including direct-exporter risks and ecosystem risks.

"CBAM will reduce export volumes owing to the tax duty. However, even if not paying the duty directly, the requirement for companies to report on emissions is starting to lock out South African exporters from potential contracts before a single euro has been paid on duties," he emphasised.

Further, alternative export markets present challenges, and there is a limit on the alternative markets that companies can seek.

Further, carbon leakage prevention mechanisms, such as the CBAM, did increase the incentives to create deeper local value chains in South Africa and the region. However, without significant investment and technology transformation, this would not happen, Kathrada said.

"There are exciting opportunities and, as the LSF, we are looking to partner with companies that want to leverage transition risks. There are, however, limitations and this requires lots of funding."

Criticism ventilated in the World Trade Organisation highlighted that CBAMs limit developing countries from participating in global value chains.

In particular, economies still catching up, such as those in Africa, that are beginning on their journey of industrialisation are now impeded from doing so and CBAMs restricts their ability to achieve the UN Sustainable Development Goals (SDGs), said Kathrada.

However, there were niche opportunities that increased the incentives for green investments and local innovation, which the LSF was seeing in South Africa, he added.

"The implementation of CBAM can also lead to diversification of export portfolios, especially into African markets, and lead to more beneficiation and value addition of products. This can drive African countries closer to stronger regional integration," he said.

In addition to technology transfers, Africa will need $2.3-trillion to achieve their Nationally Determined Contribution by 2030. While there have been many commitments, there has not been much flow of funds to African countries.

"For sub-Saharan African countries, this equates to nearly 11% of their GDP a year up to 2050 to reach net zero. This is 1.5 times the proportional spend required in the developed world," he highlighted.

ESG AND SUSTAINABILITY
The driving force behind the increased focus on environmental, social and governance (ESG) practices, and the associated sustainability, is because the world is experiencing multiple crises, said industrial organisation Danish Industry (DI) ESG & Sustainability senior adviser Dr Vibeke Huge Rehfeld.

The Covid-19 pandemic and the subsequent recession impacted communities around the world, but the world is also facing larger crises that are impacting on communities and nature.

Climate change was negatively impacting people and biodiversity collapse as a result of human action would have a significant negative impact on nature, people's livelihoods and their ability to sustain their ways of living, she said.

"More need to commit and act, but they need tools and standards. The world must also incentivise more companies to move to sustainable and ethical production and be transparent about their value chains."

Earlier this year, DI conducted a study to assess the impact of EU sustainability regulations in emerging markets. The study focused on 12 emerging economies, including South Africa.

One of the key findings is that companies are not yet ready to meet ESG objectives, although more are being asked for their ESG data. More than half of companies have identified a lack of capabilities, knowledge and skills to be able to benefit from ESG requirements.

"There was greater awareness of EU legislation in South Africa, with CBAM being the most well known. The emissions-heavy industries in South Africa are particularly affected by the provisions. Almost 50% of respondents identified ESG requirements as a potential trade barrier, even though the big EU push has yet to come," she added.

"It is clear that about 90% of companies have higher sustainability as a priority for the coming three years and new business opportunities are the most important drivers of sustainability. This is also the case in South Africa," said Rehfeld.

"We have a burning platform of climate crises confronting the world and this demands actions from all actors to save the planet and people. The private sector is a key actor that can help to solve multiple global crises.

"The private sector is also critical to achieving SDGs, including by creating employment, skills, spurring innovation and the development of essential infrastructure, as well as influencing the affordability of goods and services," she explained.

Companies based in the EU must comply with sustainability and ESG requirements or risk going out of business, as they risk paying heavy duties.

New markets are also a challenge as ESG legislation is a global trend not isolated to the EU.

"In recent years, there has been a global shift and call to action in terms of SDGs and ESG legislation to provide a more formalised structure and data to drive sustainability efforts. These are significant in terms of their scope and scale.

"It is important to be ahead and ride the wave [of sustainability regulations] because the wave is coming," Rehfeld warned.

ESG was influential in shaping corporate strategies because companies were realising that ESG considerations could impact on their long-term viability and competitiveness, she said.