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NEWS: 15 opportunities for private climate investment in South Africa

Blaise Dobson of SouthSouthNorth describes how aligning national priorities, the private sector’s interests and multilateral climate finance frameworks can make investments in climate action a reality. A new study, commissioned by the Southern Africa Climate Finance Partnership, uses this approach to identify 15 opportunities ready for climate investment in South Africa’s transitioning economy.

Businesses critical for enhancing climate ambition

South Africa is Africa’s largest emitter and has made a commitment to reducing greenhouse gases. The country’s development priorities – eliminating poverty, eradicating inequality and creating decent employment – are critical considerations in transitioning away from its reliance on fossil fuels and adapting to life in a warmer world.

South Africa is now grappling with the core question of how economies can transition towards a low carbon future while becoming more resilient to the impacts of climate change on society. A new independent study from the Southern Africa Climate Finance Partnership (SACFP) confirms that private sector investment is an essential component of South Africa’s plan to address climate change, whilst having the ability to simultaneously promote national development priorities.

Indeed, as in other countries, South African  businesses have a critical role to play in driving an ever-increasing cycle of climate ambition. Lisa Kingo, Andrew Steern and Nigel Topping have observed: “every action businesses take to address climate change can add confidence for governments and spur them to enact stronger policies to help businesses achieve their climate goals faster. In turn, new ambitious targets and legislation to slash emissions gives companies greater clarity and confidence to invest in a zero-carbon future.”

Enhancing private sector investment in South Africa is high on the agenda for South Africa’s new President, Cyril Ramaphosa. Ramaphosa used the 2019 WEF Annual Meeting to spur on foreign direct investment into South Africa as a means to economic growth. The government has long been committed to putting a price on carbon via a carbon tax that is set to come into operation in 2019. Moveover, the carbon tax also comes at a time where South Africa’s legislature is looking at codifying the Government’s response to climate change in the form of a draft Climate Change Bill.

A map of investment-ready opportunities

The SACFP study, therefore, comes at the start of a critical year of climate action in South Africa. It provides the South African Government with a map of potential innovative, high-impact opportunities relevant to South Africa’s climate priorities contained in its Nationally Determined Contribution. The investment areas had to align with the country’s NDC and were selected based first, on where private sector investment is most accessible; and second, on whether multilateral climate finance would be an essential catalyst for leveraging additional finance.

“The study is important because it builds on the existing body of knowledge related to mobilising private sector finance for climate change action, and attempts to bridge the information gap that exists between public and private sector actors. Moreover it provides broad recommendations to mobilise private sector finance at scale through leveraging the concessionality of the GCF’s financial instruments within South Africa,” said Allie Ebrahim, the author of the study.

Detailed examples are given under 15 priority investment areas that represent “low-hanging fruit” for investors, policy makers and entrepreneurs alike. These include projects within the energy, waste, water, agriculture, food systems and food security sectors, alongside investment areas in the built environment and human settlements.

For example, small scale embedded generation (renewable energy power generation in homes, commercial or industrial sites) is identified as a specific investment opportunity because:

  1. There are proven and emerging technologies;
  2. Business models for decentralised electricity are evolving;
  3. Enabling regulations are emerging;
  4. Municipal systems and processes are evolving rapidly;
  5. There are possibilities to access GCF support to develop innovative financing mechanisms and address high capital costs especially those which are not backed by government guarantees; and,
  6. It is identified in the country’s NDC.

Innovative mechanisms for catalysing private sector funding

The 123-page full report provides options for scaling private sector finance within South Africa. For example, this includes finalising ongoing efforts to establish a Climate Finance Lab in South Africa similar to those hosted in other emerging economies to incubate innovative and high impact projects.

The study also provides examples of innovative financing mechanisms (like Outcomes Funds) that can use South Africa’s sophisticated financial services industry to channel targeted investments to small and growing businesses delivering climate outcomes, such as green job creation, clean energy generation, improved water and waste management. These are over and above the examples highlighted where private sector green bonds have been issued by South African businesses looking to enhance the resilience of their offerings and operations.

Practically, the audiences who will find the full study of particular value include:

  • Local and international investors considering their green economy portfolios’ alignment with South Africa’s public policy;
  • Entrepreneurs assessing green economy opportunities within South Africa;
  • Public sector officials interfacing with the private sector actors who are seeking to contribute towards South Africa’s growing green economy; and
  • International audiences interested in the technology choices and investment decisions being made in economies transitioning under a carbon constraint.

 

A key message from the study is that the public sector needs to signal which projects would be “welcomed” because they are already included as priorities in existing public policy. Thereafter, public-private partnership legislation and frameworks (if in place) are able to allow the private sector to engage in detailed discussions especially when these are envisioned at scale.

Studies of this nature can point key decision-makers (e.g. Nationally Designated Authorities to the GCF, Designated Authorities to the Adaptation Fund, etc.) to where there is similarity between national priorities, multilateral climate finance frameworks and the private sector’s interests to make specific investments in climate action become a reality.

 

Full report

Executive summary

 

Image: 

President Ramaphosa opening the Atlantis Special Economic Zone, 6 December 2018.

The Atlantis SEZ offers economic incentives for green economy businesses to set up operations, manufacturing and processing facilities in South Africa’s Western Cape.

Photo credit: National Government, South Africa

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