Unclear climate funding plans heightens SA’s investor risk

SA risks undermining the credibility of its climate commitments by failing to clarify how they will be financed, even as its peers now draw clear lines between what they can fund domestically and what they need from international partners.

Business Day reported earlier the country will need R3.7-trillion over the next decade (about 4.5% of GDP each year) to finance its shift to a low-carbon and climate-resilient economy. The updated Nationally Determined Contribution (NDC), submitted to the UN, tightens South Africa’s emissions target and estimates R3.47-trillion will be needed for mitigation and R250bn for adaptation between 2026 and 2035.

But unlike peers such as Nigeria and Kenya, which clearly split their climate commitments into unconditional actions funded domestically and conditional actions reliant on international finance, South Africa’s 2025 NDC presents a single, blended target, with no indication of what it can deliver alone and what is dependent on external support.

Why the distinction matters

Unconditional targets reflect what a country can implement using its own fiscal space, policy tools and capacity. Conditional targets set out the additional ambition possible if international partners provide finance, technology and capacity-building — the core obligations developed countries undertook under Article 9 of the Paris Agreement.

For developing countries, the split has become standard. It clarifies what is guaranteed, shows what international finance would unlock, and gives donors a transparent basis on which to allocate concessional funding.

‘Investors need transparency’

Climate finance expert Malango Mughogho, who has two decades of experience in banking and development finance, says South Africa’s decision is “surprising” given other countries’ and the United Nations Framework Convention on Climate Change’s (UNFCCC) use of these terms, noting even the country’s first NDC had an implicit division because its emissions-reduction range signalled that the lower target depended on support.

According to Mughogho, this lack of clarity puts South Africa at a disadvantage.

“Clarity that’s needed not just for transparency but also for certainty and planning. That’s what investors typically ask for from government,” Mughogho said.

Without clarity on what reliance will be on external finance, she said, it becomes harder for them to gauge risk and assess investment opportunities.

The risk SA may be hiding

One possible reason for the government’s reluctance, she suggests, is that revealing how much adaptation and loss-and-damage funding depends on external finance could expose SA’s vulnerability.

Using adaptation financing as an example, she said, “Hypothetically speaking, if we can only provide half of that money ourselves and the rest must come from international climate finance, then it becomes very easy for investors to see that if we don’t get that money, we can’t adapt.”

Failing to adapt could raise sovereign climate-risk scores, which affects borrowing costs and investor behaviour.

Mughogho explains investors are beginning to use tools such as Ascor, a sovereign climate-risk scoring framework, to assess whether a country’s policies are credible and whether its adaptation planning is robust.

“If a country isn’t adapting, investors see higher climate risk, and that raises the cost of capital,” she said. “NDCs are seen as wish lists. If underlying policies aren’t clear and aligned, including in relation to financing needs, investors simply don’t believe it.”

According to Tyler Booth, co-ordinator for the Africa CSO G20 Climate, Energy & Sustainable Finance Network (ACG20), SA’s approach is “certainly a political decision”. The ACG20 is a coalition of African civil society organisations formed to promote financial, climate and energy justice in G20 processes.

Booth argues the refusal to separate conditional and unconditional targets reflects “pushback against developed countries failing to meet their climate finance commitments and existing promises (for example, under the JETP [Just Energy Transition Partnership]), or adequately reduce their own emissions”.

“It is also probably connected to growing concerns of right-wing backtracking in developed countries and growing security concerns which threaten climate and development funding.”

At the same time, he warns, SA still bears responsibility for setting out a credible, realistic pathway to reduce its own emissions, and that requires clarity on what it can fund itself.

Responding to inquiries, the department of forestry, fisheries and the environment said the 2025 NDC “sets an ambitious, economy-wide mitigation target” even without separating it into conditional and unconditional contributions.

“This reflects our commitment to climate action, guided by equity and sustainable development,” it said.

According to the 2025 NDC, “a comprehensive financing strategy will be developed to implement the second NDC, including core indicators and targets for 2035, mechanisms for technology development and transfer, capacity building, and governance structures such as the Climate Change Response Fund. These mechanisms will enable South Africa to track progress, identify funding gaps, and ensure resources are directed to priority actions in both adaptation and mitigation.”