Marc Naidoo a sustainable finance partner at international law firm, McGuireWoods


A child sitting with a candle in the dark learning about how hydrocarbons are destroying the atmosphere and why fossil fuels need to be phased out nigh on immediately. Perhaps that resonates with this child, or perhaps these concepts exist in the abstract, or even a combination of the two. Over 640 million Africans have no access to energy, which correlates to an electricity access rate of a mere 40%. The question this child may ask is: so where are all these hydrocarbons coming from, and who is benefitting from them?

The interplay between developed nations and developing nations is a terse one, especially in the context of sustainability. Whilst through effluxion of time the West has been through various industrial and energy booms, developing markets have not been afforded that period of sustained growth. Whether in the form of heavy handed concessional agreements with Western countries, or the challenges facing post-colonial democratic infancy, developing economies have had an almost inverted growth trajectory. Focussing on Africa, the view that its population will double by 2050, creates challenges but also opportunity. With a growing population, the need for infrastructure become paramount, and as we are all aware that is coupled with energy.

Historically developing markets were not given the chance to grow industrially / organically. However growing populations provide these economies with an opportunity to prosper in the long term. Infrastructure leads to a better quality of life, but most importantly paves the way for arguably the most important tenet of sustainability: financial inclusion. The source of all of this is energy, energy which some may argue can be in any shape or form. Developed markets are quick to assume that energy is a divine right, however the context remains different for those who are quite literally living in the dark.

The danger of the current ESG agenda is that anger and vitriol is somewhat misplaced when identifying who is responsible for hydrocarbon contribution in the global economy. Terms like “Big Banks” and “Oil Majors” are cast as if these institutions are pantomime villains trying their utmost to destroy the planet. But as with all things, there is a balance that needs to be struck in balancing the needs of the environment, with those of the people that live therein. ESG is not an acronym for: environment. Social and governance issues are just as important in assessing where we move forward as members of Earth. Even the first six United Nations Sustainable Development Goals focus exclusively on social issues that need to be addressed. The problems facing the planet go beyond climate change. Whilst it is an enormous issue, it should not detract from the fact that we want to have a planet that survives and looks after all life therein, but that is hollow if we systematically make things worse for people that live on Earth right now.

Private sector capital has always played a role in infrastructure and energy within developing economies. This is not me saying that they have done this out of the goodness of their heart, but whatever the profit margin, cash still flows through the system with the additionality of job creation and a better standard of life. If you removed this source of funding, what would happen to the developing economies who require funding for energy creation or infrastructure development? The counter position is: renewables. No, that is part of a solution but not the entire solution. Technologies are still expensive, transmission lines onto national grids (usually with one para-statal energy provider) are projects in themselves and whether these technologies can handle base load energy production for exponentially growing economies remains to be seen. Private capital should not have to operate in the shadows and conclude secret deals to provide people with basic human rights for fear of reprisal from activists and mainstream media alike. If anything, of anyone financing hydrocarbons, big banks are the most adept to do so as they have the requisite internal protocols to manage borrowers building efficient projects as well as adhere to ALL ESG standards. You cannot just cut an entire population group out because there is pressure to do so, there are other solutions which will be explored later in this article.

The same pressure faces large energy corporates directly, as well as oil companies. Forgetting the human element facing millions of workers with regard to redundancies as a result of mass, almost immediate, closures of plants and refineries. Consider the implications of what is to become of the assets in respect of which these companies are being forced to divest from. Would you rather have a large publicly accountable corporate controlling an extraction asset, or a privately owned company less susceptible to public scrutiny. By nature large energy and oil companies are required to mitigate their impact on the environment and the communities in the immediate vicinities of their operations. Removing this buffer, is tantamount to removing accountability in the sector and throwing communities in developing economies to the wolves.

So is this the article you read that denounces large banks and major oil corporates taking action against climate change? No, and far from it. There are ways in which the interests of these companies and the needs facing developing economies can be aligned, while at the same time not glossing over the issues with carbon credits and the like. Sustainability within the corporate landscape is at a point where market participants can work together to find solutions that are creative and work for both corporates and developing economies. Other metrics can be introduced to offset hydrocarbons, whilst still ensuring developing economies have the room to grow. The Central African Forest Initiative is an example of this, with Gabon pledging to protect its forests in return for financing from the Norwegian government. Countries can be asked to develop carbon absorption assets such as sea grass or forests to mitigate the damage done to the climate. These are all tools that can be easily worked into financings, especially by larger financiers. All that is required is a little creativity and a commitment to a long term view on sustainability.

Changes need to be made, but not at the sacrifice of others. We are all in this together, but most importantly each country is on their own journey, both economically and with regard to sustainability. The answer to solving the issues facing our planet is not cutting off those people that need our help the most. Perhaps we should also educate those of us who are demanding radical change, that sometimes it is not possible as there is always some form of collateral damage. Change must be managed and must happen organically. Perhaps the E, in ESG, should stand for empathy.



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