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Financing a SUSTAINABLE ECONOMY Sustainable finance plays a pivotal role in enabling environmentally appropriate social development and creating new economic opportunities in the green economy.
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he South African national greenhouse gas inventory highlights that electricity generation from fossil fuels contributes some 45% of South African emissions. It follows, therefore, that to address climate-related risks in the country it is essential to reduce electricityrelated emissions. The scale and reach of this problem is multifaceted and requires financial resources, structural and socio-economic reforms. Sustainable finance is essential for balanced and inclusive growth, based on the identification and mitigation of risks as well as the search for economic opportunities that are socially, environmentally and economically beneficial. It encompasses both the concepts of green- and socially-focused finance. The Intergovernmental Panel on Climate Change, the OECD and others have estimated that trillions of new dollars will be needed each year, up to 2030, for investments in energy, transport, water and telecommunications infrastructure to sustain growth and mitigate climate effects. An additional USD600bn a year would likely be needed to make these investments compatible with holding the average global warming to 2°C. The Climate Policy Initiative1 has estimated the South African economic transition risks at an aggregated R2tn (of which 60% has already been incurred)2. A further R362bn may result from infrastructure investments currently being contemplated that may not be economically viable in a low-carbon transition. Many of the transition risks identified result from transitions in the global economy and cannot be prevented by any national government but require rapid adaptation by all players public and private. In 2017, the Task Force on Climate-related Financial Disclosures3 published recommendations to increase understanding of the financial risks related to climate change. It recommended to the G20 that for financial disclosure,
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global warming scenarios should be used to model the potential risks to economic systems. Systematic and credible disclosure is needed to enable improved pricing and risk distribution and the identification of economic opportunities associated with climate risk mitigation and adaptation.
TREASURY APPROACH 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 (public and private) over the short, medium and long term. Government has recognised the need for a just transition4 and various government agencies and departments, including Treasury and the National Planning Commission, are working to understand what is needed and stimulate the creation of new jobs. By mobilising private sector funding of new and more sustainable projects, such as through the Renewable Energy Independent Power Producer Programme (REIPPP), Treasury facilitates the shifting of green infrastructure investment off the national balance sheet into the private sector.5
The Climate Policy Initiative has estimated the South African economic transition risks at an aggregated R2tn.
DEVELOPMENT DIALOGUE | A Trade & Industrial Policy Strategies seminaar on the key priorities and challenges for a just transition in Emalaheni and Steve Tshwete – What does mining closure mean for workers, their jobs and livelihoods? [August 2021]
REFERENCES 1 Climate Policy Initiative: https://climatepolicyinitiative.org 2 USD125bn at January 2019 exchange rates 3 Established by the Financial Stability Board at the request of the G20 finance ministers and central banks 4 Just transition accommodates the needs of communities, which may be negatively affected through the loss of jobs or activities because of a move to a lower carbon economy 5 Eskom power purchase agreements are an exception
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