Introduction

Environmental, Social and Governance (ESG) issues are high on the agenda for the majority of developers, investors and occupiers, including in Africa. Coupled with this, the African continent is quickly transforming. According to the African Development Bank, since 2005, 20 countries in Africa are now among the top 50 most-improved world economies in business regulatory efficiency. By 2050, the African population is projected to reach 2.4 billion, and by 2030, urban populations will increase by an additional 350 million people.1 This rate of change poses both challenges and opportunities. One view (although not universally held) is that development should be linked with a move towards renewable resources due to the impact of climate change to which Africa is, generally, at greater risk.

There is no doubt that this will be a significant challenge at the same time as the continent grapples with other pressing issues, including food, health and economic insecurity, which is now exacerbated by the aftereffects of the Covid-19 pandemic, the impact of the war in Ukraine and the recent cost-of-living crisis. In this context, this article looks at the current progress, the future and the challenges for ESG and energy projects on the African continent.

What is happening now: an overview

Since the Paris Agreement was introduced in December 2015, only four countries, have yet to ratify the Paris Agreement within the United Nations Framework Convention on Climate Change, two of these are African countries, Eritrea and Libya.2The Paris Agreement's aim is to reduce greenhouse gas emissions, and provide financing to developing countries to mitigate climate change.3 To achieve this, it provides a pathway for developed nations to assist developing nations in their climate mitigation and adaptation efforts while creating a framework for the transparent monitoring and reporting of countries' climate goals. It seems likely that the growing momentum of African renewable energy has been driven, at least in part, by the Paris Agreement amid concerns about the impact of climate change. For example:

  • Uganda introduced the GET FiT (Global Energy Transfer Feed-in Tariff) Uganda initiative in 2016 with the aim of increasing the installed capacity of renewable energy to Uganda's national grid via the establishment of feed-in tariffs. To date, Uganda has commissioned 17 small power plants; the final two are still under construction having faced delays due to COVID-19 and other issues. Three of the projects are small hydropower plants with a total installed capacity of 36 MWs.4 However, while it is accepted that GET FiT is targeted at smaller projects, Uganda's investment in renewable energy has so far been limited. According to a June 2020 report by International Growth Centre, a UK research centre, solar power accounts for 4% of Uganda's energy production, just 1% of the country's 2040 goals.5
  • The Zambian government adopted its own GET FiT Zambia in October 2017 with the aim of procuring 200 MWs of renewable energy projects over three years. As of 2022, the country had 3,456 megawatts (4,635,000 hp) of installed hydropower capacity against a peak national demand of 2,300 megawatts (3,100,000 hp), resulting in a surplus of 1000 MW which is exported to the Central and Southern African region.6
  • In South Africa, independent power producers have commenced just under 100 renewable energy projects in 2021. A report by the South African National Energy Regulator indicates that these projects will have an achieved capacity of 3271.25 MWs once they are operational.7
  • In Rwanda, the Green Building Minimum Compliance System, which aims to provide a rationale for "Green Building" by increasing the efficiency of resource use while reducing building impacts on human health and the environment during the building life cycle, contains mandatory requirements for the construction of certain commercial buildings public administrative and institutional buildings, health facilities and educational buildings.8
  • In Ethiopia, the main source of electricity is from hydropower. According to the Deloitte Africa Construction Trends Report 2021, two of the largest projects in East Africa were for Ethiopian hydropower plants with a combined value of over $4bn.9 The Grand Ethiopian Renaissance Dam, which completed its third filling in August 2022, will be able to generate up to approximately 6,000 MWs.10
  • The Batoka Gorge hydroelectric power project is a US$5.2 billion hydroelectric project on the Zambezi River, that borders Zambia and Zimbabwe. It is expected to generate 2,400 GWs of electricity, to be shared equally by both countries.11 In Zimbabwe, the Kariba South power station (hydropower) expansion on the Zambezi River will add approximately 900 MWs to Zimbabwe's national grid.12
  • In November 2021, at World Leaders Summit of COP26 at Glasgow, Scotland President Uhuru Kenyatta told the international community that Kenya is determined and on course to achieving full transition to clean energy by the year 2030 (known as Kenya Vision 2030). President Kenyatta noted that renewable energy currently accounts for 73% of Kenya's installed power generation capacity, while 90% of electricity in use is from green sources including geothermal, wind, solar and hydro-electric installations. While it is true that access to electricity has expanded substantially in Kenya and now reaches over three quarters of the population, and renewable sources of energy have grown, most of Kenya's energy comes from bioenergy (65%) and oil products (17%), wind and solar (15%) and, to a lesser extent, coal and hydropower (2%). President Kenyatta also signed the Finance Act 2021 into law which provides for VAT exemptions on renewable energy items, including but not limited to solar and wind power equipment as well as clean cooking solutions.13
  • In June 2018, Gigawatt Global Cooperatief signed a deal with the 15-nation Economic Community of West African States to build US$1 billion worth of renewable energy projects, including installing 800 MWs of solar and wind farms in Burkina Faso, Senegal, Mali, Nigeria and the Gambia.14
  • There has also been an increase in the number of mini-grids, particularly in Sierra Leone, Tanzania, Kenya and Nigeria, usually supported by solar power, as a way of electrifying rural areas which would otherwise be off-grid.

It is apparent that there is a significant amount of activity across Africa in relation to renewable energy. However, the progress in respect of social and governance considerations in the construction and energy sector is less widespread and often linked to individual non-governmental examples / projects. For example:

  • In Kenya, BuildX Studio specialises in designing, engineering and building net zero carbon buildings.15
  • In South Africa, mining company Royal Bafokeng Platinum provides affordable housing to its employees.16

At a corporate level, some governments are bringing in policies which require ESG disclosures, but these policies do not appear to be widespread. For example:

  • The Nigerian Code of Corporate Governance 2018 (NCCG) and Nigerian Stock Exchange Sustainability Disclosure Guidelines 2019 require companies to disclose and report on ESG issues that are relevant and material to their businesses, as well as how they are managed.17
  • The Nigerian Companies Act 2020 also introduced a provision which imposes an additional duty on directors to ensure that they act in the best interest of the company with due regard to the impact of the company's operations on the environment in the community where it carries on its business.18

Looking to the future

South Africa's action plans

On 25 July 2022, South Africa's President Cyril Ramaphosa announced a new action plan (as part of the wider Operation Vulindlela) aimed at ensuring energy security in South Africa by making improvements to Eskom, the country's state-owned public utility. The plan introduces measures including:

  • Improving the performance of the existing generation plants and accelerating the procurement of new capacity by removing regulatory hurdles.
  • Attracting private sector investment in generation of energy and improving Eskom's future financial sustainability.
  • The development of a feed-in tariff for small-scale embedded generators.19

Green Building Councils

There are Green Building Councils (GBCs) across Africa - currently in Ghana, Kenya, Mauritius, Namibia, Rwanda, South Africa, Tanzania and Zambia.20 The GBCs are playing an important role in supporting government to incorporate green building standards into national regulatory frameworks, promoting the use of locally sourced and green building materials and components, and increasing awareness and education of Net Zero. In particular, Mauritius' GBC has worked closely with the government to include sustainability as a key component of the revised Building Control Act 2012, which resulted in the development of new regulations and codes for energy efficiency and conservation in buildings. Kenya's GBC is working with two counties - Nairobi and Kisii - to draft green building guidelines under the UN Building Efficiency Accelerator programme and is working with the national government to mainstream green building principles.

Agenda 2063: The Africa We Want

Agenda 2063 is Africa's blueprint and master plan for transforming Africa into the global powerhouse of the future. It is the continent's strategic framework that aims to deliver on its goal for inclusive and sustainable development. Notably, the first aspiration is "A Prosperous Africa, based on Inclusive Growth and Sustainable Development", which references "Sustainable and inclusive economic growth" and encompasses the goal of achieving "environmentally sustainable and climate resilient economies and communities" by focussing on:

  • Sustainable natural resource management and biodiversity conservation.
  • Sustainable consumption and production patterns.
  • Water security.
  • Climate resilience and natural disasters preparedness and prevention.
  • Renewable energy.21

Funding and green / sustainability linked bonds

As reported in African Decisions,22 the World Bank has estimated that US$43 billion per year of investment is required for infrastructure in the African power sector, while the African Development Bank estimates a need for US$230 to US$310 billion until 2025, with an additional US$190 to US$215 billion required for 2026 to 2030. The African Development Bank has recently approved further funding in the Metier Sustainable Capital International Fund II, which channels funds to renewable-energy and resource-efficient infrastructure projects across sub-Saharan Africa. The Green Climate Fund, created to support the efforts of developing countries in responding to the challenge of climate change, is also active in Africa. As of 20 July 2022, it had invested US$3.8 billion to 81 approved projects in Africa, 65 of which are under implementation.

African governments have been making a number of changes to regulations and political frameworks in order to attract financing for projects, such as:

  • The Angolan government introduced reforms in 2017 to improve the business environment in order to make Angola more attractive for funding from the IMF and other investment institutions.23
  • Senegal has pursued an ambitious development program, the Plan Senegal Emergent, to improve infrastructure, achieve economic reforms, increase investment from private national and foreign investors in strategic sectors, and strengthen private sector competitiveness.24 Senegal introduced a new electricity code, including a new policy for rural electrification, and new regulations and tax incentives for renewable energy.
  • Gabon has introduced legislative reforms such as a new hydrocarbon code and developing current codes to promote clean and renewable energy in its water and electricity sectors. In 2021, it also introduced legislation aimed at curbing emissions and promoting carbon credit trading.25Gabon - United States Department of State

In South Africa, Nigeria and Kenya green bonds are playing a growing role. In particular, the South African market has seen a significant increase in the issuance of green bonds in the last two years. Recently, there have been issuances by institutions at various levels, ranging from development finance institutions to municipals, banks and corporates.26 For example, Nedbank launched an innovative United Nations Sustainable Development Goals-linked bond in 2020, which represented South Africa's first "green" tier-two capital instrument. The proceeds of this bond go towards funding high-potential solar and wind renewable energy projects.27

New regulations in Europe and their potential impact in Africa

New regulations will also make ESG issues more pressing for companies and investors in Europe, who have supply chains and investments on the African continent. In 2017, France introduced the Duty of Vigilance Act, and last year, the German parliament passed the Supply Chain Act, which will come into effect in January 2023 and apply to companies with more than 3,000 employees. This legislation requires companies to undertake due diligence in respect of human rights and environmental issues across their subsidiaries and throughout their supply chain.

In a similar vein, in February 2022, the European Commission published a proposal for a directive on corporate sustainability due diligence to tackle human rights and environmental impacts across global value chains. The proposed directive would require companies to carry out specific human rights and environmental due diligence in their operations and supply chains.

The impact this type of legislation can have is illustrated by two of the three final bidders for Unilever's tea division pulling out due to difficult questions over human rights and fair pay at its tea plantations in east Africa. The tea division, which includes the PG Tips and Lipton brands, was later sold to CVC Capital Partners for ?4.5bn.28

Future challenges

In spite of the above, regional economies in Africa are often heavily reliant on fossil fuels. For example, although the current South African integrated resource plan of 2019 contemplates an energy mix comprising coal, nuclear power, renewable energy and natural gas, South Africa's energy supply currently relies heavily on coal, and Eskom supplies power to surrounding countries, including Eswatini, Lesotho, Zimbabwe and Botswana.

Comment

There is no "one size fits all" approach to ESG issues; however, what is clear is the continent of Africa continues to move (albeit perhaps slowly) towards adopting sustainable and renewable energy practices.

The progress in respect of social and governance aspects in the energy sector and the wider construction industry is much more limited and, at the moment, is largely reliant on non-governmental actors.

The political resolve to continue to pursue these policies and make new ones to promote ESG, in particular on much larger scale projects, however, will be tested post the Covid 19 pandemic and against the backdrop of the war in Ukraine and the cost-of-living crisis.

Footnotes

International Quarterly is produced quartely by Fenwick Elliott LLP, the leading specialist construction law firm in the UK, working with clients in the building, engineering and energy sectors throughout the world.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.