SA Climate Finance Landscape Report: We need diversified sources to finance Just Transition

Christelle Beyers is the manager, Climate Finance Sector and Capital Markets at the Presidential Climate Commission. Photo: Supplied

Christelle Beyers is the manager, Climate Finance Sector and Capital Markets at the Presidential Climate Commission. Photo: Supplied

Published Dec 13, 2023


by Christelle Beyers

South Africa will need R535 billion per year for the next seven years to meet its nationally determined contributions to reduce it emissions between 22%-33% by 2030.

Given the quantum of R131 billion as baseline climate finance flows measured from 2019-2021, this means we must increase our climate finance investments up to five-fold to reach our goals of a low-carbon and climate resilient economy.

These figures are supported by the Presidential Climate Commission (PCC) Report on South Africa’s Climate Finance Landscape which was released on November 29 and commissioned with the Climate Policy Initiative (CPI) and GreenCape. Through a rigorous reviews global best practice in climate finance mapping frameworks to reach its finding and alignment with other climate finance tracking systems, including the National Treasury’s work on a Green Taxonomy and the Department of Forestry, Fisheries and Environment’s reporting on financial flows that support South Africa’s international climate commitments. The Report is an eye opener and a clear call for action

It was timely that the report was released on the eve of the 28th Conference of the Parties (COP 28) in the United Arab Emirates (UAE), where rich nations continued their traditional finance pledges to help developing countries deal with climate change effects, but remained short of saying how they will accelerate these with their lagging erstwhile pronouncements

Critical Findings on the funding sources

The report highlights that domestic source of climate finance accounted for 91% and Grant financing tracked in 2019-2021 averaged R445 million per year, account for less than 2% of climate finance tracked. This is a decrease from the grants tracked in the 2021 landscape which was 5% or R3.5bn of the tracked finance then.

Public finance commitments by bilateral, multilateral, and national development finance institutions (DFIs) combined collectively presented the largest portion of public finance at R10bn per annum (55%) and the total blended finance tracked was R190m, which is less than 1% of total investments tracked (0.05%). This is 0.04% of the tracked blended finance in the 2021 landscape.

Private actors were and remain the predominant source of climate finance in South Africa at 86% (R113bn pa) with the public sector accounting for 14% (R18 billion pa, with commercial banks representing 61% of all private finance (R69bn pa), followed by institutional investors with 29% (R33bn pa).

On the one hand, public climate finance similarly showed clean energy (53%) as the dominant sector with agriculture, fisheries, forestry, and land use (26%) following behind, and debt emerged as the predominant financial instrument for climate finance at an average of R97bn pa (75%) with an average debt rate of 10 – 12%.

The priority spend has remained mitigation.

Climate mitigation emerges as the primary end-use sector representing 81% of all tracked climate financing and has over the three-year period, climate mitigation accrued a total of R317bn, with an annual average investment of R106bn.

Clean energy secured the largest proportion of private climate finance flows with 65% (R72bn p.); followed by energy efficiency and demand side management (DSM) which received 19% (R21bn pa), it experienced continued expansion over the last two years (15% y/y in 2020 and 9% in 2021) with agricultural producers investing increasingly in sustainable agricultural production methods.

Adaptation, which is not insignificantly invested in, accounted for 12% of tracked investments reaching a total of R48bn over the three years, with an annual average investment of R16bn.

Dual benefits accounted for 7% of tracked investments amounting to R27bn over the three years, averaging an annual investment of R9bn.

Climate finance for agriculture, forestry and other land use, referenced in the previous report as agriculture, forestry and other land use (AFOLU), continued to expand over the last two years, going from R673 million in 2017/18 to R16.7bn in 2019-21. Significantly, sector received private sector investments of R11.9 bn in 2019-21.

A marked increase in private-sector investments in water was also tracked (wastewater and drought) R1.9bnup R4.8bn. There was a reduction in the tracked climate finance into the low-carbon transport R2.2bn down R87m.

The landscape showed both an overall decrease in the amount of concessional debt available, but also a reduction in the blending ratio for the available concessional debt.

Broadly, the report conclusively demonstrates that instruments are not balanced as most climate finance flows are facilitated through market-rate debt instruments, and less than 12% of the tracked annual climate finance flows are into adaptation projects. Differences include that grant financing tracked in 2019-2021 accounted for less than 1% of climate finance tracked 5%, down 1%.

While South Africa has demonstrated capacity and innovative means to receive its rightful share of global finance pledges and continue with the business of the day to finance its just transition journey, the road ahead remains steep and requires redoubled efforts.

Christelle Beyers is the manager, Climate Finance Sector and Capital Markets at the Presidential Climate Commission.