Financing just and social aspects of the Just Transition at scale

Dipak Patel is the head of Climate Finance and Innovation, Presidential Climate Commission.

Dipak Patel is the head of Climate Finance and Innovation, Presidential Climate Commission.

Published Nov 15, 2023


By Dipak Patel

The Presidential Climate Commission (PCC) views the just transition as a pathway to ensure a quality life for all South Africans. The perspective is grounded in several key objectives.

First, it emphasises the need to increase our ability to adapt to the adverse impacts of climate change. Second, it focuses on fostering climate resilience and last, it aims to reach net-zero greenhouse gas emissions by 2050, a target set in alignment with the best available science.

The Just Transition Framework envisions a resilient economy powered by equitable energy mix, access to resources and sustainable land use and livelihoods, all while upholding social justice, creating decent employment opportunities and eradicating poverty. The vision is informed by an understanding of a just transition whereby social justice is intricately linked to addressing climate, energy and environmental justice, with a view to achieve an equitable, holistic societal transformation.

Despite the urgency of a just transition, the financial ecosystem is not adequately structured to accommodate the needs of the transition.

The just transition to a low-carbon, climate-resilient economy requires substantial financing to support environmental sustainability and social justice.

The launch of South Africa’s Just Energy Transition Investment Plan (Jet-IP) by President Cyril Ramaphosa was an important moment for our country. It was the first time that such a broad and complex societal issue as the Just Energy Transition (a critical component of South Africa’s Just Transition to a faster growing, greener, climate-resilient economy and society) was elaborated in a coherent and financially quantified manner.

The Jet-IP covers a range of complex and intertwined issues in an accessible and comprehensible way, setting out an initial transitional pathway for the three sectors covered – electricity, new energy vehicles and green hydrogen.

The Jet-IP is made up of a combination of financial instruments that include grants, as well as concessional and commercial loans. Although the Jet-IP funding is significant, several barriers in the financial ecosystem undermine the further mobilisation of just transition financing as well as the channelling of the funding that is available to deserving projects and initiatives.

Catalytic just finance landscape is required

One of the PCC’s central tasks over the next few years will be informing the policy priorities and capital allocation decisions guiding the investment and capital. To this end, we have commissioned groundbreaking report and made recommendation on for “just transition” financing.

A significant challenge is the lack of recognition and appreciation of just transition objectives within the broader transition to a low carbon economy. While climate action is a key objective of the just transition, the justice components of the low-carbon transition placed added emphasis on addressing the social, economic and environmental justice questions.

The climate finance landscape therefore does not encompass the objectives of the just transition. This translates into significant barriers, such as a lack of standardised indicators, information and co-ordination gaps, perceived risks, and tailored financial instruments that cater to the needs of just transition projects.

As the PCC, we are also tasked with informing a unified vision for the transition and in mobilising funding, and, as such, well placed to forge a consensus on the need for special and workable just transition financing mechanisms to ensure that marginally returning projects give expression to the justice components of just transition financing.

A node within the boarder fiscal ecosystem

Recognising that the financial ecosystem needs to support the just transition, we have followed numerous examples across the globe, and explored the potential and feasibility of a dedicated just transition financing facility to catalyse broader change across the financial ecosystem and recommends that the design of a facility, termed the Just Transition Financing Mechanism, with the ability to attract large-scale investment and decentralised models for community fund-raising and for agile small-scale projects, inspires local agency.

The facility should address challenges and barriers that undermine financial flows toward the just transition and deploys dedicated just transition financing instruments can help to overcome the challenges.

We envision the facility acting as a “node” within the broader ecosystem, designed to stimulate the flow of capital to the just transition. However, in light of South Africa’s fiscal constraints, the PCC does not conceive this facility as a government fund that disburses funding to recipients, as has been witnessed in international case studies, but rather as a facilitative mechanism.

As a key node in the just transition finance landscape, it will guide project sponsors toward appropriate funding avenues and simultaneously assist potential financiers in understanding the just transition project landscape in South Africa and the unique needs and local realities on the ground.

Dipak Patel is the head of climate finance and innovation, Presidential Climate Commission.