The impact of the South African carbon tax policy on the performance of top players on the JSE

Ayanlola, Olumide Samuel (2017-03)

Thesis (MDF)--Stellenbosch University, 2017.


ENGLISH SUMMARY : This study was conceived out of the need to assess the effects the South African carbon tax policy will have on the performance of top ranked companies on the Johannesburg Stock Exchange just prior to the policy’s implementation in January 2017. These firms are not only huge contributors to South Africa’s gross domestic product but collectively produce the largest carbon dioxide emissions after Eskom. The whole idea is to ensure that the objectives of the tax is not compromised and also to bring relevant stakeholders’ awareness to the possible competitiveness issues that can arise from firms' compliance to the new legislation. Performance of companies was assessed from three perspectives: effect on operations, residual income and on the ability of companies to put their asset to profitable use in the quest to survive and grow in the future. Specific carbon related factors that were presumed to be of influence on their performance are carbon tax liability, carbon profile and the carbon intensity of companies. A multiple regression analysis was therefore carried out on secondary data obtained from different reports (the carbon disclosure project, integrated reports and other relevant ones) for the period of 2011 to 2015. Contrary to expectations, this study found that the policy would affect all sectors, although the effect varies across sectors. The effect of the policy was observed to be as pronounced on serviceoriented firms as much as it was for carbon-intensive firms. Another critical observation is that while carbon intensity positively influenced performance of carbon intensive firms, service-oriented firms were negatively impacted. In addition, while the performance of industrials declined significantly as a consequence of their emissions reduction efforts, the performance of resources sector firms was mostly affected by the carbon tax liability. Financial institutions seem to be more exposed to significant amount of performance loss on their net profits than other sectors, despite a sound management of investments in low carbon technologies. Based on this study’s findings, it was suggested that the disproportionate effect of the policy on firms is best tackled when firms revisit their business strategy. Their business models need to incorporate excellent climate-friendly alternatives to reducing climate change related risks. The study is of the opinion that firms should decarbonise their asset portfolios, giving two reasons: Firstly, to avoid holding too much stranded assets in the long run. Secondly, because investors and consumer preferences are shifting towards companies with better carbon strategies, especially now that they are more informed of the profitable nature of such enterprises. It was also recommended that the South African carbon tax policy should still be reviewed and that a guideline that provides for how firms will solve strategic risk management issues relating to the carbon tax policy be included in the King IV corporate governance framework currently under review. It was also concluded in the study that border tax adjustments procedures need to be addressed to tackle possible international competitiveness issues.

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