The National Treasury is set to start formal talks with institutional investors in a bid to unlock at least R2 trillion in sustainable finance, towards building a more climate resilient and lower carbon economy.
Treasury on Friday published an updated version of its draft technical paper titled, "Financing a Sustainable Economy", which aims to mobilize investment in sustainable development.
It said that addressing climate-related risks and transitioning towards low carbon economy will require significant new resources, blending state and private capital, and access to financial markets through additional instruments.
The paper serves as a foundational step towards encouraging more long-term investment in sustainable economic assets by the banking industry, retirement funds, insurance, asset management and capital markets.
Treasury said the Prudential Authority and the Financial Service Conduct Authority will engage with banks on a set of minimum requirements for sustainable finance, including long-term climate and biodiversity-related strategies.
For pension funds, Treasury said regulators should issue guidance or instruments on sustainable finance, including amending requirements for annual financial statements to ensure the disclosure, monitoring and reporting of responsible finance investments.
Treasury’s focus on sustainable finance encourages financial institutions to also be cognisant of how their investment decisions impact the environment.
It noted that addressing environmental and social development issues, such as access to and protection of water resources, wetlands and biodiversity, and increasing access to sanitation and infrastructure, will also require additional resources.
As a result, Treasury will make climate change planning a part of the budget process and fiscal risks monitoring, working towards climate classification and tagging in the budget to enable tracking of climate-related expenditure.
“Sustainable finance therefore will play a pivotal role in enabling environmentally appropriate social development and create new economic opportunities in the green economy,” it said.
“Addressing both climate change and South Africa’s development agenda will require the reallocation of capital, the mobilisation of new financial resources and the strategic realignment of existing resources over the short, medium and long term.
“By mobilising private sector funding of new and more sustainable projects, Treasury facilitates the shifting of green infrastructure investment off the national balance sheet into the private sector,” the report said.
At least 15 stakeholder organisations, including the Banking Association of SA (Basa), have made submissions to the working group, Climate Risk Forum/Steering Committee.
Basa general manager Pierre Venter said there was a disjuncture between the Climate Risk Forum and the paper, as the Forum wanted a phased approach to sustainable finance.
“Some of the concerns highlighted in the Paper have been addressed by the Forum, for example the Financing Working Group has decided to examine the entire universe of sustainable finance products and that the Taxonomy Working Group focus on the opportunities rather than merely risk,” he said.
“In this regard the Banking Association suggests the Paper highlights the areas that are being developed by the Forum.”
This comes as countries submit their revised decarbonisation targets ahead of COP26, with South Africa’s updated target closer to being compatible with the goals of the Paris Agreement.
The latest Climate Transparency International report shows that South Africa’s energy sector still has the highest carbon-intensity of any G20 nations due to its heavy reliance on coal, despite an increased contribution from renewables.