In a recent editorial for the Washington Examiner, African Energy Chamber Executive Chair NJ Ayuk labelled Environmental Social Governance (ESG) as "Colonialism 2.0”. Mr Ayuk argues that ESG criteria for financial investments are being weaponised to impose green energy on Africa at a moment when the continent needs to make use of its fossil fuels for the development of its economies. He argues that ESG prioritises the environment at the expense of food, energy security and poverty reduction in Africa. But is that really the case?

Vincent

In a recent editorial for the Washington Examiner, African Energy Chamber Executive Chair NJ Ayuk labelled Environmental Social Governance (ESG) as &quot;<a href="https://www.washingtonexaminer.com/opinion/op-eds/esg-in-africa-is-colonialism-2-0">Colonialism 2.0</a>”. Mr Ayuk argues that ESG criteria for financial investments are being weaponised to impose green energy on Africa at a moment when the continent needs to make use of its fossil fuels for the development of its economies. He argues that ESG prioritises the environment at the expense of food, energy security and poverty reduction in Africa. But is that really the case?
<a href="https://www.msci.com/esg-101-what-is-esg">ESG</a> performance is the integration of non-financial factors into strategic investment and business decisions of companies, governments, and bond markets. This framework of taking environmental and social responsibility seriously helps stakeholders understand how companies, governments and other entities are managing and mitigating their risks and capitalising on opportunities in these areas.
There are valid criticisms that proponents of ESG must answer, including the lack of effective baseline data; inconsistent measurement; <a href="https://academic.oup.com/rof/article/26/6/1315/6590670">lack</a> of a systematic approach to ESG across different rating agencies and by different governments; <a href="https://www.forbes.com/advisor/investing/greenwashing-esg/">greenwashing</a> and <a href="https://www.morningstar.co.uk/uk/news/226070/youve-heard-of-greenwashing-now-meet-social-washing.aspx">social-washing</a>; and ESG fund managers paying too much attention to emissions and insufficient attention to social considerations including labour and human rights issues. ESG has also been criticised as being <a href="https://www.ft.com/content/ec02fd5d-e8bd-45bd-b015-a5799ae820cf">a dangerous distraction</a> that takes attention away from making the necessary changes needed to address the climate crisis.
Despite these criticisms, it is a stretch to conflate ESG practice and colonialism. Instead, the integration of ESG criteria into corporate and development policy presents opportunities for African economies.
By incorporating considerations that improve social and political stability and supporting progress towards attaining Sustainable Development Goals (SDGs), companies can reduce the risks they face over the long term. Similar incorporation into government policy presents similar opportunities for African governments, including greater management and mitigation of political and social risks, sustained progress on the attainment of national SDGs, and increased access to capital.
Successful ESG measurement systems on the African continent must be responsive to local contexts and the developmental challenges unique to each of those contexts.
<h2>Climate, energy, hypocrisy and the danger in mixed messaging </h2>
At COP27, delegates from the European Union (EU) <a href="https://www.politico.eu/article/eu-threaten-cop27-walkout-weak-deal-climate-frans-timmermans/#:~:text=%E2%80%9CAll%20ministers%2C%20as%20they%20have,have%20already%20run%20into%20overtime.">threatened to walk out</a> of negations in protest of a weak deal, stating that climate goals could very well die there because developing countries were refusing to cooperate.
A week after COP27 and talk of 1.5 degrees being on life support, France <a href="https://www.rfi.fr/en/france/20221129-france-reboots-coal-fired-power-plant-to-boost-winter-electricity-supplies">reopened coal powerplants</a> in response to the energy crisis they are facing. Germany, perhaps the world’s most significant promoter of decarbonisation, now looks to <a href="https://www.bloomberg.com/news/articles/2022-10-21/germany-bolsters-coal-fired-power-to-meet-winter-power-demand?leadSource=uverify%20wall">exit coal only by 2038</a>. More recently, the United Kingdom, one of the key members of the Just Energy Transition Partnership (JET-P), approved coal mining for the <a href="https://www.reuters.com/world/uk/britain-approves-first-new-coal-mine-decades-2022-12-07/">first time in 30 years</a> in response to its domestic energy supply challenges. This is worth noting because a key part of the JET-Ps is for countries to gradually <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_21_5768">reduce and abandon coal</a> as part of their energy mix.
This inconsistency is damaging to the ambitions of a just energy transition. It lends credence to the view that Western countries are trying to hold down the development of Africa and other developing countries through the “climate agenda”. The global pandemic should have taught us the lesson that inconsistency in directions and implementation creates fertile ground for conspiracy and distrust of authority. Should European and developed countries continue along this path of inconsistency, they risk destroying progress made on climate partnerships and agreements.
Policymakers understand that promoting and ensuring energy security is critical for their political futures and their countries’ economic fortunes. European policymakers and global finance institutions need to acknowledge the importance of energy security when engaging with African countries. Failure to do so creates a sense that the pursuit of green energy is something the rich world is content to impose on poorer countries while they hypocritically continue with fossil fuels, which is mutually destructive in the long run.
<h2>Using ESG to promote a just energy transition in Africa</h2>
Hypocrisy aside, however, the integration of ESG criteria into development policy entails vast opportunities to support the attainment of the SDGs in Africa. The promotion and securing of a just energy transition is one of the areas where this integration can produce significant benefits. The inclusion of sound ESG criteria which prioritise the social wellbeing, security, and stability of African economies, in addition to the promotion of good governance, are crucial for the energy transition&#x27;s success.
ESG presents an opportunity to address one of the key problems that the global energy transition will bring for Africa, particularly as countries move away from coal. This is well demonstrated in South Africa where worries about <a href="https://mg.co.za/environment/2022-11-17-eskom-workers-worry-the-just-transition-will-shed-jobs/">job losses</a> from the just transition are a sticking point. Labour unrest is a significant challenge in South Africa, and the risks presented by it (and increased joblessness) for the long-term stability of the economy must be seriously considered in any negotiations.
An African vision of ESG dedicated to the promotion of a just energy transition must place emphasis on minimising job losses and redundant job growth. Additionally, it must place emphasis on the development of new industries in areas impacted by the transition from coal. Doing so will require that all stakeholders in these agreements, particularly governments, prioritize their people.
Another way that ESG integration into development policy can support African countries is through the mechanism of debt for nature swaps. The Paris Agreement commits the world to a net-zero pathway and several agreements also exist for the <a href="https://www.cbd.int/article/cop15-cbd-press-release-final-19dec2022">preservation of biodiversity and wildlife</a>. <a href="https://www.afdb.org/en/documents/debt-nature-swaps-feasibility-and-policy-significance-africas-natural-resources-sector">Debt for nature swaps</a> bring these two sets of agreements together, providing an opportunity for African countries to leverage the existence of their natural ecosystems and their value as carbon sinks in exchange for <a href="https://www.project-syndicate.org/commentary/realizing-new-growth-opportunities-in-developing-countries-by-dani-rodrik-et-al-2023-01">debt forgiveness</a> and support for the preservation of these ecosystems. Nature-based solutions to decarbonisation will be critical to net-zero efforts. Debt for nature swaps have significant ESG potential, as they are an environmental policy which addresses national governance challenges around debt sustainability and reduce the social issues that austerity typically produces, while potentially creating employment.
<h2>Conclusion</h2>
ESG attainment is an evolving process, requiring greater input and involvement in its development from Africa and the developing world to ensure that the policies developed do not miss the mark and are responsive to the needs and priorities of relevant populations. The increasing global pressure for improved ESG performance can therefore support and promote sustainable development and effectively address accusations such as Mr Ayuk’s.
Dismissing ESG as a ‘colonial imposition’ disqualifies the opportunities it offers for sustainable development. The idea that unabated fossil fuels are the only channel to address African countries’ energy and developmental challenge is too convenient for vested interests and is insufficient to produce broad-based development.
 This article is also published on <a href="https://gga.org/is-esg-is-just-colonialism-2-0/">Good Governance Africa​</a>. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.​

Is ESG Just Colonialism 2.0?

Ultimately, the key to ameliorating the climate change problem lies in exploiting the opportunities involved in clean energy technologies. There is no silver bullet, but countries stuck in fossil fuel dependency need to break the cycle of rent and energy inefficiency.

Ross

News of <a href="https://www.reuters.com/world/asia-pacific/australia-flood-crisis-enters-3rd-week-heavy-rains-lash-east-2022-10-24/">severe flooding</a> in Australia is just one more reminder of the ravages of climate change. The affliction and what to do about it, given that the world is not mitigating or adapting fast enough, will be the subject of heated debate at the Conference of the Parties (COP27) in Cairo in November. 
The scientific evidence <a href="https://www.foreignaffairs.com/articles/africa/2022-02-17/africas-fossil-fuel-trap">strongly suggests</a> that leaving all remaining fossil fuels in the ground is imperative for limiting warming to manageable levels. 
But at the close of Africa Energy Week various African energy ministers vowed to speak against this position. Their <a href="https://www.dailymaverick.co.za/article/2022-10-23-drill-baby-drill-gas-baby-gas-african-energy-ministers-solidify-pro-fossil-fuel-position-ahead-of-cop27/">message</a> was that African countries should not be hindered from monetising their oil and gas reserves. 
A 2021 article <a href="https://www.foreignaffairs.com/articles/africa/2021-08-31/divestment-delusion">published</a> by Nigerian Vice-President Yemi Osinbajo in Foreign Affairs provides a thorough articulation of what is fast emerging as the united African position in 2022. Given the minuscule proportion of greenhouse gas emissions that African countries contribute (less than 4% of the total), divestment from fossil fuels — gaining traction in capital management circles — is cast as hypocritical and destructive.
A similar argument would have been defended at the Financial Times Africa Summit in London by NJ Ayuk, executive chairperson of the African Energy Chamber. His brief was to support the motion that “Africa should ignore the world’s green agenda and make full use of its fossil fuels”.
Wealthy countries, whose production and consumption patterns created the environmental destruction with which we all live, now preach from a posture of comfort and affordability.
The onus, therefore, rests on wealthy countries to ensure a just transition if they are to meet the 2015 Paris Agreement targets in a way that avoids pushing African countries deeper into poverty, especially in the wake of the inflationary effects of the Russian war in Ukraine and debt difficulties with the United States Federal Reserve’s interest rate hikes.
But it is not entirely true that divestment imperatives consistently fail to consider the vital role some fuels play in powering the growth of developing economies, as Osinbajo put it. Nigeria, by way of example, is rich in natural resources but still energy poor. It is correct to argue that the transition to net-zero emissions must not come at the expense of affordable and reliable energy for people, cities, and industry.
Less right, though, is the idea that continued reliance on fossil fuels will help to aid such a transition, even if the preference is predominantly for natural gas rather than oil per se. This position was well articulated by James Mwangi, founder of the Climate Action Platform for Africa, at the Financial Times Africa Summit. Mwangi’s <a href="https://africa.live.ft.com/agenda/session/941590">position</a> was compelling.
Missing from too many just transition analyses is an acknowledgement of why countries like Nigeria and Angola remain energy poor despite being oil wealthy. Both countries <a href="https://www.cambridgescholars.com/news/item/book-in-focus-coups-military-rule-and-autocratic-consolidation-in-angola-and-nigeria">failed</a> to translate their prodigious oil wealth into inclusive and sustained development. 
Clean energy is central to the Nigerian government’s plan to transition to net-zero emissions. The goal to electrify five-million households through the Solar Naija programme by 2023 is admirable.
Osinbajo nonetheless contests that Nigeria’s “citizens cannot be forced to wait for battery prices to fall or new technologies to be created in order to have reliable energy and live modern, dignified lives” and that gas-fired power remains preferable to renewables in the short run.
We address three factors in the debate.
First, solar and wind projects, strategically positioned, need not rely on centralised grid infrastructure. Microgrids should be a major focus for African countries in the years ahead.
Precisely because they do not rely on the establishment of expensive transmission grid infrastructure, these systems are ideal for overcoming energy poverty. Centralised grid networks should largely be abandoned in a world that has to wean itself from fossil fuels. Moreover, trying to distribute electricity over vast distances is subject to significant energy (and rent) leakage, rendering the system inefficient.
While developing countries have concerns over being locked into expensive arrangements entailed in renewable energy projects, <a href="https://www.forbes.com/sites/energyinnovation/2018/12/03/plunging-prices-mean-building-new-renewable-energy-is-cheaper-than-running-existing-coal/?sh=2796249931f3">innovative arrangements</a> can be found that are less costly than being locked into dirty alternatives. 
Second, the pro-gas argument presupposes that gas is cheap and renewables are prohibitively expensive. But all recent research points to the sheer speed of simultaneous improvements in quality and decrease in costs of solar grids and batteries. A June <a href="https://www.2035report.com/electricity/">2020 report</a> by the University of California, Berkeley, noted that the US could derive 90% of its power without greenhouse gas emissions at lower electricity tariffs. 
Gas-fired power stations still take a long time to build, and mega-projects of any kind are subject to unproductive rent-seeking. The idea of natural gas as a bridge towards a green economy sounds plausible in theory, but the practical governance risks are material. By the time a gas-fired power station is built, the costs of renewable energy and battery storage will probably have decreased further.
Third, continued investments into fossil fuels — the exploration, production and burning of them — have two destructive economic effects.
First, it comes at the opportunity cost of allocating resources towards building local industries that can improve and expand renewables. Foregoing the latter risks leaving African countries even further behind their industrialised counterparts.
Second, it locks countries into destructive path-dependence because mega-projects typically exhibit sunk-cost fallacies. South Africa’s two newest coal-fired power stations, for instance, are still not fully operational and have incurred significant cost and time overruns.
African countries have an opportunity to leapfrog traditional industrialisation paths by tapping into global value chains associated with the transition to clean energy.
On the grounds of justice, it is technically true that African countries should not be denied the opportunity to exploit their natural gas reserves. But there are practical moral barriers to such arguments. Past experience, for instance, strongly suggests that fossil fuels are unlikely to suddenly transform energy poverty into wide­-scale electrification.
Justice is ultimately about ensuring that we entrust a better world to our children and grandchildren. The divestment movement provides an opportunity to truncate the negative historical relationship between environmental degradation and income per capita.
African countries have <a href="https://www.taylorfrancis.com/chapters/edit/10.4324/9781003001317-10/mining-low-carbon-economy-anja-berretta-ross-harvey">vast quantities</a> of minerals and metals that the world requires for the global transport and energy revolutions, along with other new technologies. African countries’ focus should be on exploiting those in ways that develop our capabilities to optimally tap into the global value chains associated with new products such as solar panels, electric vehicles, batteries, and wind turbines. 
The idea of justice in the context of an energy transition places a moral imperative on all countries — developed and developing — to be assessed under the same rules. At the core of arguments made by Osinbajo and Ayuk is that the approach of developed countries to the energy transition is hypocritical. For instance, Germany and other European countries returned to the use of fossil fuels after Russia’s invasion of Ukraine having previously led the charge to shift away from fossil fuels.
Additionally, clean energy does not address the problem of historical emissions, which will continue to affect everyone. Therefore, carbon capture and storage, carbon sequestration and a carbon tax must form part of plans for a global just energy transition.
Ultimately, the key to ameliorating the climate change problem lies in exploiting the opportunities involved in clean energy technologies. There is no silver bullet, but countries stuck in fossil fuel dependency need to break the cycle of rent and energy inefficiency.
It will be crucial for countries to come out of COP27 with a collectively agreed-upon taxonomy for the energy transition to bolster the existing rules defined by the 2015 Paris Agreement.
It would be a real shame if the conversation at COP27 was orientated around African countries’ “rights” to use their fossil fuels instead of appropriate mechanisms by which to finance a justly attainable low-carbon transition.
After all, one can be right and still lose; we only have one shared planet.
This article is also published by the <a href="https://mg.co.za/opinion/2022-10-28-cop27-why-it-is-in-africas-best-long-run-interests-to-abandon-fossil-fuels/mg.co.za/opinion/2022-10-28-cop27-why-it-is-in-africas-best-long-run-interests-to-abandon-fossil-fuels/">Mail &amp; Guardian</a>. Illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.

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Vincent Obisie-Orlu

Vincent Obisie-Orlu

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