The COP30 meeting in Belém, Brazil, this November will be critical to the agenda for responding to weather-related risks, according to South African Reserve Bank deputy governor Fundi Tshazibana.
Speaking at a fireside chat at the University of Stellenbosch on Friday, Tshazibana, who is also CEO of the Bank's Prudential Authority, said the meeting is expected to set the tone for future climate discussions and interventions.
“In the work that we are doing with the body of central banks, I think there is broad recognition that there are climate-related risks that must be dealt with. There might be differences and nuances around the terminology. The biggest test globally will be to see whether, when we have the COP later this year, the posture is going to change.”
Tshazibana was addressing the University of Stellenbosch on green energy financing. Her remarks come amid the decision of US President Donald Trump's administration to pull out of the Paris Agreement on climate change, which includes the reduction of carbon emissions.
She said that there remained a commitment by central banks, through various platforms including South Africa’s presidency of the G20 this year, to secure solutions that will seek to respond to climate change and mitigate its effects.
“The commentary is around climate change. Should we be calling it climate change, or should we talk about weather-related risks? Now, I don’t get too fixated on terminology because if we start to look at terminology, we sort of miss the stuff in between.”
Tshazibana said central banks across various jurisdictions, including the Reserve Bank, had a keen understanding of their mandates and limits and were generally dynamic in using their mandates to help governments achieve broader aims.
“If I talk to my US counterparts — because I am also a supervisor of insurers — the insurers are dealing with the risks they going to deal with. Chairman [of the US Federal Reserve] Jerome Powell has said the US recognises that there are risks from weather-related events.
“But, in his view, that is not a mandate that sits with the central bank. It sits with other agencies, and there are interventions that those other agencies are putting in place to deal with and manage the weather-related risks.”
Tshazibana said South Africa was a water-stressed region that experienced high levels of drought, which had an inflationary impact on food prices — in the order of 10 percentage points and three percentage points on overall inflation.
“When we ask banks how many of their credit risk exposures are to companies that might be exposed to climate-related risks, they say between 35% and 60%. That’s a large number in terms of how the books of a bank might be affected.
“If we look at the floods we experienced in KwaZulu-Natal in 2022, the estimated economic cost was about R54bn. I haven’t even gone to the insurance-related costs. So from a central banking point of view, you can estimate that there are risks, there is a pricing that you can place on them.”
Also on Friday, the department of electricity & energy and the National Treasury announced that progress was being made in the public-private initiative to “rewire the country’s transmission infrastructure, unlock billions in infrastructure investment, and anchor industrial renewal”.
“South Africa’s energy transition and economic recovery agenda hinges on the rapid expansion and modernisation of its transmission infrastructure. The Integrated Resource Plan 2019 and Eskom’s Transmission Development Plan estimate that more than 14,000km of new transmission lines will be required in the next decade to accommodate an additional 53GW of generation capacity,” they said in a statement.
The statement said the current grid expansion pace was wholly inadequate, meaning that South Africa needed a minimum of 1,400km ayear for energy security requirements.
Also addressing the Stellenbosch event, Lilas Demmou, the head of the South Africa desk at the Organisation for Economic Co-operation and Development (OECD), said South Africa had the lowest employment rate compared to OECD countries and big emerging economies, and the country’s share of renewables in supply was lower than average.
“Renewables have a key role to play. By increasing renewables, you will be able to ensure, once and for all, energy security and also progress towards the transition,” Demmou said.
Renewables have a key role to play. By increasing renewables, you will be able to ensure, once and for all, energy security and also progress towards the transition.
She urged South Africa to relax the regulatory framework to promote competition and open participation in the energy market. She added that the country had one of the least competition-friendly frameworks when compared with OECD markets.
“To take care of this challenge, we make two types of recommendations. Some are short-term recommendations, because it takes a bit of time to establish fully in a new regulatory framework, including maximising what we can get from IPP [independent power producers].
“This needs to be done now to increase supply from renewables, and in the medium-term the main objective is to establish and implement a competitive wholesale market, to have the full independence of the transmission company and progression in the competition in retail.”
Katie Hill, partner and associate director for climate at BCG, Nairobi, said that aside from the need to improve macroeconomic conditions in African economies, various solutions existed to unlock financing from investors, development finance institutions, multilateral organisations and philanthropic funders.
“A major step that investors and DFIs [development finance institutions] can take is to increase portfolio value creation to accelerate growth and derisk green companies, which will ultimately bring down the cost of capital.
“Regarding debt, fortunately, a spectrum of financial instruments is available, ranging from traditional to novel, that can effectively derisk and mobilise debt into green sectors in Africa. By using these instruments, the availability and affordability of capital can be enhanced, further supporting the growth of green sectors.”
Warren Chetty, MD and partner at BCG, recommended bolstering policy to enhance the propensity of green energy projects to draw capital.
“Sufficient resourcing and policies must be appropriately developed in these areas so that structured financing instruments can be scaled to increase the availability of capital and reduce costs. Private debt is particularly important for green sectors, which are more infrastructure- and working capital-intensive.”
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