JPMorgan says the global drive to achieve net zero carbon emissions by 2050 is “the biggest opportunity in a generation” for countries seeking to attract investment in new energy technologies, but emerging markets including SA need more time to manage the transition.
Chuka Umunna, the banking giant’s head of environmental, social and governance (ESG) for Europe, the Middle East and Africa (EMEA), says the bank is supportive of a so-called just transition even as financial firms come under increasing pressure to reduce their financing of carbon-intensive projects. SA, like many developing nations, relies heavily on fossil fuels to power its economy; the vast majority of its electricity is generated at coal-fired power stations.
“This is the biggest opportunity in a generation, especially for countries like SA, because the new green economy is going to attract a lot of investment and the jobs it will create are more skilled and better paid — so there’s every possibility that the transition will be able to raise living standards as well,” Umunna told Business Day.
“But you have to be realistic about how fast we can move and what it will take to get to net zero. We do think the world needs to transition but we need to do it in the right way otherwise there will be huge unintended consequences.”
A report released by the Presidential Climate Commission (PCC) this month shows SA will need R300bn in investment from the international community over the next three decades to support a just transition to low carbon emissions. The UK, the US, France, Germany and the EU have already committed $8.5bn in funding to help Eskom transition its coal-fired power generation fleet to a less carbon-intensive system in a deal announced at the COP26 climate conference in November 2021.
Umunna says JPMorgan, the world’s biggest bank by market capitalisation, plans to provide and facilitate $2.5-trillion in financing by the end of 2030 to help further the UN sustainable development goals. Of this, $1-trillion is targeted specifically at the global climate crisis.
The bank will halt lending, capital markets and advisory services to new clients that derive the majority of their revenues from the extraction of coal, and by 2024 the firm will phase out remaining credit exposure to such companies. JPMorgan will also refuse project financing or other forms of asset-specific financing where the proceeds will be used to develop new, or refinance existing coal-fired power plants, unless they use technology to mitigate emissions.
“Although there are cleaner, lower-carbon alternatives to coal we don’t have renewable energy technology of sufficient scale to replace oil and gas so this sector is regarded slightly differently,” said Umunna. “But if you are operating in the coal business it is undoubtedly becoming harder and harder to raise capital.”
Umunna says a big driver in the shift to a carbon-neutral future is the changing demographics of asset ownership in developed markets such as the US, where the ageing baby boomer generation is slowly being replaced by millennials as the largest generational cohort. He says the younger generation is far more “values-centred” about investment, which is driving banks and asset managers to reconsider their capital allocation towards carbon-intensive projects.
“We certainly don’t see the transition to net zero as optional — it is essential if we are to avoid a climate catastrophe,” Umunna said. “But the question is how you do it without unintended consequences. You can’t just jump to the promised land in the course of a few months. It’s going to take years.”
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