Green Economy Journal Issue 61

NEWS & SNIPPETS
AFRICA’S GREEN ASSETS EXCHANGE
Africa’s first locally developed online marketplace for trading
environmental assets, the Green Asset Exchange, has launched.
The asset exchange connects buyers and sellers through an online
platform which allows a transparent, trusted and efficient way to
get the best economic value from the green economy.
The launch in South Africa comes after three years of collaboration
between the founders of the Green Asset Exchange and various
market participants, brokers, developers, environmental lawyers
and top carbon registries in the world.
“Several years ago, we identified that the development of green
assets is the greatest mechanism to put an economic value on the
environment,” Green Asset Exchange Founder and MD, Nicholas
Rowley, explains. “At the same time, South Africa brought out its
carbon-tax legislation with one of the most forward-thinking policies
on carbon pricing and inclusion of carbon credits in the world. So,
the time and place is here and now.”
The asset exchange works as a tool to help accelerate the green
economy as it continues its rapid growth and maturation. “Green
assets” – such as carbon credits and renewable energy certificates –
already exist and they have economic value because of their positive
impact on the environment. The producers of these assets want to
get the highest price for them, and buyers want to buy them at the
best price they can get – this is where the Green Asset Exchange
comes in.
“South Africa and Africa has a solid base for growth in the green
economy with established developers and consultants already in
the industry and with growing interest from banks and investment
companies,” explains Rowley.
This is backed up by impressive figures: $7.5-billion was invested in
carbon projects last year and 1 500 new projects have been developed
or registered with the five main global registries since 2020.
The Green Asset Exchange is launching with a diverse asset
portfolio and is calling for more producers and buyers of green assets
to register, along with brokers, consultants and project developers.
www.greenassetexchange.com
TAX AND ESG-RELATED EXPENSES
Candice Meyer Cor Kraamwinkel Margaret Vermaak
Cor Kraamwinkel, Candice Meyer and Margaret Vermaak from
Webber Wentzel, consider ESG-related expenditure from a tax
perspective. In South Africa, ESG considerations permeate our
regulatory law, in our environmental, employment, corporate
and B-BBEE legislation.
Kraamwinkel highlights the practical considerations of ESG
taxation, by expanding on three areas:
1. Tax transparency and disclosure
This is a theme that is more advanced in certain of the first
world countries where there is legislative guidance on how
and what you need to disclose in your financials from a tax
perspective. South Africa is not there yet, but we see corporate
groups moving forward and starting to be early adopters. This
results in ESG impacting on how and what is reported from a
tax perspective, throughout the financials.
2. Ethical tax contributions
The discussion around fair share of tax and whether there is a
duty beyond legislation is ongoing, but ESG now also informs it.
3. Tax treatment of ESG expenditure
This area is the most technical, and it includes some of the
following examples of ESG expenditure by a company or group:
costs incurred for receiving environmental sustainability advice,
calculations of carbon tax credits, or the newly introduced
incentives around renewable energy.
GENERAL PRINCIPLES
There is no dedicated section in the Income Tax Act that deals
specifically with ESG. Instead, general principles apply for
business entities: i) expenses must be incurred for purposes of
trade in the production of income and ii) expenditure must not
be of a capital nature. This also means that the tax deductibility of
ESG-related expenditure will require a case-by-case analysis with
case-specific rules that may allow for a deduction or allowance
in a specific context.
Listen to Kraamwinkel, Meyer and Vermaak unpack the tax
deductibility of ESG-related expenses.
TWO WITS ACADEMICS LEAD GLOBAL CLIMATE WORKING GROUP
The Dean of the Wits Faculty of Science, Prof. Nithaya Chetty, has been appointed as the chair of the International Union
for Pure and Applied Physics (IUAP) Working Group on Physics for Climate Action and Sustainable Development, and
visiting professor Igle Gledhill from the School of Mechanical, Industrial and Aeronautical Engineering is secretary.
These appointments, effective for an initial three-year term, were confirmed during the IUPAP General Assembly in
October 2023 in Geneva. Chetty also serves as the vice-president of the Union responsible for membership and the
global development of physics. Both Chetty and Gledhill are previous presidents of the South African Institute of Physics.
“Issues around climate change are set to grow in the coming years. These challenges are intimately connected with
the need for energy security and sustainability of the environment, and if not addressed will impact negatively on
poverty, inequality, mass migration, and the human condition,” says Chetty. “These are global problems that require a
global effort, and a more focused quest for the green economy.”
TAKE-OUTS: PACKAGING WASTE
Liquid board packaging colloquium hosted by Fibre Circle.
“We are facing a crisis in waste management with fast diminishing
landfill airspace, and we all have a role to play in finding sustainable
solutions that not only divert waste from landfill but create the
much-needed jobs for the South African economy,” says Edith
Leeuta, CEO, Fibre Circle.
Key takeouts:
• Diversion from landfill. Agreement needs to be reached on
how targets are going to be reached and the collaboration
required to achieve set targets.
• Public-private sector partnership is critical to preserve the
environment and so that investment is made to educate all South
Africans. Links between the industry and academic institutions
need to be strengthened. Municipalities must ensure that their
integrated waste management plans enable separation at source
to promote the collection of recyclable materials. Municipalities
must provide consistent services to all citizens in the collections
value chain.
• Infrastructure is a key priority. There has been little or no
investment in infrastructure for several years. Without waste
processing infrastructure, high volumes of different kinds of
waste cannot be processed.
• Investment is problematic. Considerable investment is needed
PEOPLE-PLANET-PROFIT BALANCE
By Siphokazi Kayana and Nomfundo Mkatshwa-Jackson, CMS South Africa
It has become necessary for companies to prioritise sustainability
amidst the threat of climate change. Countries have thus sought
to develop regulations in various fields including environmental
footprint, market/product communication and financial reporting
for companies. Partly because of those regulations, companies are
increasingly being held legally accountable from different angles
with respect to their role in climate change – ESG litigation.
ESG litigation focuses on larger companies with a wide-reaching
footprint and its primary goal is to bring about behavioural change in
companies. Companies are often publicly held accountable through
various media campaigns. It is not just environmental organisations
that are acting as consumers; investors, shareholders and local
communities are increasingly vocal about taking action.
Climate litigation has doubled globally since 2015, bringing the
total number of climate lawsuits to some 2 000 – 25% of which were
initiated between 2020 and 2022.
KEY TRENDS
Infringement of climate law. There is no international binding
convention on business and human rights. In Europe, however, a
great deal of ESG legislation is under preparation, including the
Proposal of the European Commission of 23 February 2022 for a
Directive on Corporate Sustainability Due Diligence. The legislative
process is expected to take a while longer, as such, a final directive
is not likely to enter into force until 2025/2026. The obligations to
be embedded in this directive are, however, already largely part
of existing soft law standards ensuing from previous international
conventions.
Conversely, the regulations formulated by intergovernmental
organisations are integrated into domestic laws, thereby heightening
the potential for sanctions and legal disputes. The integration
of such international regulations into national legislation holds
significant importance, particularly for jurisdictions outside of the
EU, as it directly shapes the trends observed in ESG litigation.
NEWS & SNIPPETS
to improve municipal waste management capabilities. Privatesector
investment is essential.
• Transition to a circular economy needs to be inclusive.
Informal waste pickers need to be integrated into the waste
management system as it becomes more circular.
• Separation at source is critical. Given the various challenges
at municipal landfill sites, households must be persuaded to
separate their waste so that paper and packaging waste is not
contaminated by other waste materials.
• Incentivisation is key. The industry needs to produce ways to
incentivise citizens to play their role, particularly in underprivileged
areas. Incentivisation will also make it more likely that waste
pickers will collect more types of
packaging waste.
• Government has a key role
to play. Government needs
to ensure that compliance
and enforcement are
carried out for those
organisations that
choose to ignore regulations.
Municipal by-laws should
promote separation at source.
Misleading market communication and financial information. The
greening trend entails the inevitable risk that companies advertise
financial instruments and products as greener and more sustainable
than they are. Companies must be aware of the risk of providing
misleading market communication and financial information,
known as “greenwashing”.
Misleading product information may constitute a wrongful
act. The CSRD Directive requires large companies to report on
issues such as carbon emissions and social capital, but also about
the impact that a company has on biodiversity and human rights
violations in the supply chain.
Pollution of, and damage to, the direct environment. Companies
may be held accountable by local communities for polluting or causing
damage to, the direct environment. This can be done through a class
action. Such claims will be based on wrongful acts in combination
with environmental legislation.
Shareholders’ actions. Shareholders are increasingly exercising
their rights for ESG purposes to force the board of directors to act,
for example, their right to place items on the agenda, to speak
or to vote on the appointment or dismissal of directors or their
remuneration policy.
Personal liability of directors. An international trend is that,
in addition to holding the company liable to exert pressure, the
board of directors of a company is also held personally liable for
compliance with the company’s ESG obligations. This relates to (i)
personal involvement/negligence in violated standards; and (ii)
improper climate change policy.
The need for action to protect our planet has prompted intergovernmental
organisations and lawmakers to establish clearer
standards determining the extent to which businesses can impact
the environment while pursuing their operations.
We stand at a crucial point in history, necessitating the
implementation of rules that uphold the values of people, planet
and profit in equal measure.
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