The SA Reserve Bank’s recent working paper on climate change and monetary policy should mark a turning point in how we think about economic resilience. For years climate shocks have been treated as exogenous: environmental concerns best left to environmental ministries. Yet the evidence is now overwhelming: climate volatility is shaping inflation, growth and financial stability itself. In short, the monetary policies cannot remain immune to the realities of droughts, floods and carbon transition shocks.
Southern Africa is already warming at nearly twice the global average. The consequences are not abstract. Droughts have slashed agricultural yields, floods have destroyed infrastructure, and heatwaves have undermined productivity. These shocks are not “black swan” events; they are recurring and intensifying.
The Bank's paper highlights a fundamental dilemma. Climate shocks typically cause cost-push inflation — food prices spike when droughts hit maize yields, or when floods disrupt logistics. At the same time, they sap output and investment, generating lower growth and higher unemployment. This stagflationary profile challenges the Bank’s inflation-targeting framework, which is designed around demand-driven shocks, not nature-driven ones.
Raising interest rates may cool demand, but it does not make the rain fall. Instead, tighter monetary policy in response to climate-driven inflation risks deepening recessions, amplifying job losses and worsening inequality. The Bank’s simulation confirms this: while higher rates may anchor inflation expectations, they come at the cost of weaker growth.
This is not to argue that monetary policy should solve climate change — but neutrality in the face of systemic climate shocks is no longer possible. Ignoring climate dynamics risks misdiagnosing inflation drivers, setting inappropriate policy and undermining credibility.
The private sector perspective
The Bank’s simulations reinforce what we as investors already observe in our portfolios: climate shocks don’t just destabilise macroeconomic indicators, they reshape sectoral risk and return profiles. Agriculture, mining and logistics face direct productivity and supply chain disruptions from droughts and floods, while carbon-intensive industries face rising compliance and carbon tax costs.
This underscores the importance of portfolio stress-testing, scenario analysis and active engagement with issuers on climate resilience. For asset managers, climate risk is now inseparable from fiduciary duty. This is where the financial sector has a pivotal role. Businesses in agriculture, logistics, and infrastructure are increasingly vulnerable to extreme weather events. Smaller enterprises, often lacking adaptation buffers, are most exposed. In our own impact portfolios, climate resilience has become a defining factor in capital allocation.
Through its Sustainable Infrastructure Fund, Sanlam Investments has accelerated investment into renewable energy and water assets precisely because climate volatility makes them not only environmentally necessary but also economically prudent. Assets such as Oya Energy and Alien Fuel Group reduce reliance on fossil fuel volatility while building long-term resilience.
Similarly, the 104+ SMME Solution supports small and black-owned enterprises building climate resilience through decentralised infrastructure and clean energy access. These investments demonstrate that climate adaptation is not a niche — it's central to safeguarding SA’s growth trajectory.
A strategic imperative for SA
SA is not alone in facing these trade-offs. Globally, central banks and policymakers are adapting monetary and financial frameworks to account for climate shocks. The European Central Bank (ECB) has integrated climate risk into its collateral framework and now runs climate stress tests for banks.
The Bank of England’s climate biennial exploratory scenario (CBES) assesses the resilience of UK banks and insurers to extreme climate scenarios. In China, the People’s Bank of China has introduced a carbon-reduction facility to incentivise green lending. These global examples provide useful benchmarks for the Reserve Bank as it begins to incorporate climate risks into its own models and policy frameworks.
If the 20th century defined central banking by inflation targeting, the 21st will define it by climate resilience. The Bank’s paper should therefore spark a national conversation — one that links monetary authorities, fiscal policymakers, business and investors around a common goal: insulating our economy from the turbulence of a warming world.
— The Bank’s paper makes it clear: climate shocks are not just ecological crises but systemic economic disrupters that will increasingly define inflation dynamics, growth patterns, and the credibility of monetary policy.
In this endeavour, investment capital is not a bystander but a catalyst. By directing finance into adaptive infrastructure and sustainable business models, we can help ease the burden on monetary policy while driving inclusive growth. Climate change has moved from the margins of environmental discourse to the centre of economic and financial stability. The Bank’s paper makes it clear: climate shocks are not just ecological crises but systemic economic disrupters that will increasingly define inflation dynamics, growth patterns, and the credibility of monetary policy. For SA, where livelihoods remain tightly bound to climate-sensitive sectors, ignoring these risks is no longer an option.
Climate risk considerations can be embedded into investment processes, guided by global standards such as the Task Force on Climate-related Financial Disclosures. Across our private markets platform we assess both physical and transition risks at the due diligence and investment committee stages, recognising that long-term exposure to climate shocks is most acute in these assets. Our impact frameworks prioritise investments in sectors that directly advance mitigation and adaptation — renewable energy, water and waste infrastructure, and low-carbon technologies.
Path forward demands co-ordination
The path forward demands co-ordination. Monetary authorities must integrate climate scenarios into their frameworks; fiscal policymakers must invest in adaptive infrastructure; and investors must direct capital towards sustainable solutions. This is not about protecting balance sheets alone, but about safeguarding food security, jobs, and national prosperity.
In the end, SA’s success will hinge on whether we treat climate shocks as externalities to endure, or as structural realities to prepare for. By applying robust frameworks, aligning with international standards and channelling finance into adaptive, low-carbon assets, we can ease the burden on monetary policy, protect investor value and contribute to a more resilient and inclusive economy.
Sanlam Investments is a signatory to the UN Principles for Responsible Investment Climate Action 100+, and the first SA financial institution to endorse the Task Force on Climate-related Financial Disclosures. We actively engage with portfolio companies to advance their climate resilience, from emissions reduction to improved disclosures and just transition alignment. By doing so we not only help clients mitigate financial risk but also position their portfolios for long-term resilience and regulatory alignment.
• The authors are ESG and impact analysts at Sanlam Investments.
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