The magnitude and type of financing that will be needed to pay for climate change and mitigation will require of financial institutions to adopt a new approach to risk.
This is according to Brigitte Burnett, head of sustainability at Nedbank, who is attending the COP27 UN climate change conference in Egypt this week.
She told Business Day that one of the successes for SA has been the “wide acceptance and recognition” of the country’s Just Energy Transition Investment Plan (JET-IP), which was launched at the conference last week.
“SA’s JET-IP has been well received but there is still a lot of work for our negotiators in terms of really securing the funds that are needed to make the plan a reality,” she said.
The JET-IP, developed by the Presidential Climate Task Team under the leadership of Daniel Mminele, focuses on three priority sectors — electricity, electric vehicles, and green hydrogen. An estimated R1.5-trillion will be needed to implement the plan over the next five years.
The JET-IP proposes to use $8.5bn in financing from Germany, France, the US, UK and EU, under the Just Energy Transition Partnership announced at COP26 in Scotland in 2021, as a “stepping stone towards the country’s broader just energy transition plans”.
Commenting on negotiations for financing to support the JET-IP, Burnett said there has been a strong message from SA that any funding the country does receive “should not belabour the debt situation that SA is in, and that it should be concessional funding that is catalytic in nature”.
“The plan is for investment and finance, but there is still a need for a funding framework that SA can put forward that will provide more detail around how we action that.”
In addition, she said, the JET-IP should be supported through an accountability mechanism that can be attached to the plan. “This may help release more concessional funding than what has been coming through at the moment,” Burnett said.
There is a “huge amount of appetite” among local banks to play their role in financing climate transition in SA, she said. “We are looking at what kind of blended finance opportunities there are to bring together different financiers at different levels, whether it be concessionary funding or development bank funding, or government-supported funding together with the private sector.”
She supports the three priority areas put forward in the JET-IP and given that the energy sector is the largest carbon emitter in SA it is “definitely the first [sector] that needs to be addressed”.
But SA should also “think beyond the low-carbon pathway” and include issues such as diversity and ecosystem management considerations so that the country’s overall climate change response will “encompass what that means from a larger natural capital perspective”.
“Many of the businesses [attending COP27] are thinking about immediate mitigation elements that they can look at, which is why issues such as biodiversity, agriculture and how we can fund sustainable food production to achieve greater food security have been more topical at this [conference],” Burnett said.
There has been a clear call at COP27 from developing countries and some developed nations for a transformation of the global financial system, including reform of multilateral development banks to make them fit for purpose to support just transitions.
Ministers from SA, China, Brazil and India attending COP27 released a joint statement saying that this reform should “address risk aversion in investing in developing countries”.
Burnett confirmed that this has been a priority agenda item. “The main discussion is around how do we revisit and change our view on risk, and how do we advocate for policy and regulatory changes that will incentivise the right behaviour to support financing institutions to take on this type of risk.”
It has been interesting and unusual, she said, to have conversations with the local banks on how they could work collaboratively to change the finance sector to make possible a different view of risk.
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