Climate finance has again taken prominence on the global agenda as leaders seek to reach agreement on the who, how and what of financing climate change mitigation and adaptation.
South Africa needs an estimated R8.9 trillion, or R596 billion in annual investment, over a 15-year time frame (from 2015 to 2030) to meet its nationally determined contribution. Given the scale of the transition required in South Africa, and current financing problems, securing climate finance is an important and urgent policy debate.
In this context, it is concerning that the National Treasury’s draft technical paper on sustainable finance focuses on private finance while excluding the public sector and international public finance. This reduces climate finance to a vehicle for the private sector to mobilise new forms of value creation for profit maximisation, at the expense of sustainable and inclusive development.
Climate finance is defined as international public and private finance consisting of new financial resources targeted towards climate mitigation and adaptation efforts. This includes bilateral aid, export credits, multilateral concessional loans and grants. Private finance can include carbon market finance and foreign direct investment. In South Africa, between 2017 and 2018, public finance towards climate-related sectors totalled R22 billion against the R35.5 billion financed by the private sector.
There are ethical and instrumental grounds for demanding a rapid and substantial increase in climate finance.
Those most responsible for climate change, the developed and industrialised countries, have climate debt obligations. They industrialised at the expense of the environment and must be held responsible for the harmful effects of climate change, and thereby provide finance for mitigation and adaptation. Developed countries should be obliged to transfer funds to developing countries, in order to reduce greenhouse gas emissions and cushion the climate impact, which will be disproportionately felt by the impoverished.
Unfortunately, a recent report by the Organisation for Economic Cooperation and Development shows that developed countries are not yet able to meet their meagre obligation of providing $100 billion to developing countries. The financial risk from climate change because of extreme weather events and climate action failure will escalate significantly and can compromise the development gains made in the last few decades.
A new ‘consensus’
What has become increasingly apparent in South Africa, and abroad, is the push for private sources as the dominant approach to climate finance. As global financial actors have realised that global financial stability depends on addressing the climate emergency, climate finance has been co-opted into what academic Daniela Gabor terms the “Wall Street Consensus”, allowing private finance to exploit the climate crisis for profitable opportunities that benefit financial market actors. This poses particular risks for developing countries that are integrated into a financialised global system on subordinate terms.
Consequently, the Wall Street Consensus aims to diminish the state’s role in a just transition, and to reconstitute it in a manner that serves private finance. Institutional reforms aimed at de-risking private financing through state-backed guarantees; public-private partnerships in infrastructure financing that saddles states with commercial risks; and central banking that reduces liquidity and currency risks for private capital, are all part of the Wall Street Consensus supported by an inequitable global financial architecture. The effects of these financial instruments on developing countries have proven disastrous. The capture and commodification of public goods have created inequalities of access, which hurt women and girls the most, as they are left to carry the burden of care when there is inadequate basic social infrastructure to meet water, energy and healthcare needs.
In addition, states have been left in deepened fiscal crises because of increased liabilities associated with these instruments, precisely undermining much-needed just, green recovery efforts. A report by Oxfam International found that around 20% of reported public climate finance globally was estimated to be grants, compared to 80% reported as loans and other non-grant instruments. This leaves many low- to middle-income countries at risk of further increasing their unsustainable debt burdens.
Value for whom?
The dominance of the private sector in this approach is seen in how the treasury defines “sustainable finance”, relying heavily on the terminology of private finance to the exclusion of the public sector. It notes: “Sustainable finance encompasses financial models, services, products, markets and ethical practices to deliver resilience and long-term value in each of the economic, environmental and social aspects and thereby contributing to the delivery of the sustainable development goals and climate resilience.
“This is achieved when the financial sector evaluates portfolio as well as transaction-level environmental and social risk exposure and opportunities, using science-based methodologies and best-practice norms; links these to products, activities and capital allocations; maximises opportunities to mitigate risk and achieve benefits in each of the social and environmental and economic aspects; and contributes to the delivery of the sustainable development goals.”
It is also notable how “value creation” is prioritised – without delving into value for whom and to what end. The conclusion to the working group on sustainable finance notes: “The [National Business Initiative] and the working group on sustainable finance, coordinated by [the] treasury, concluded that a clear sustainable finance strategy, consistent definitions and understanding of environmental and social risks linked to value creation is needed. This must be supportive of South Africa’s climate change objectives, together with the necessary prioritisation of projects and the creation of a commercially viable and sustainable value proposition and more consistent definition of environmental and social risks and value creation.”
This approach to sustainable finance will continue to skew the commercial allocation of climate finance across sectors, prioritising mitigation projects while sidelining adaptation needs. As a result, the vulnerable and impoverished will continue to remain susceptible to the vagaries of climate change. Currently, this is seen in the enthusiasm for private-sector energy generation, and the lack of attention towards investment in, for example, climate adaptation in agriculture.
This private-sector approach is the outcome of engagements on climate finance dominated by the financial sector, certain government departments, financial regulatory agencies and think tanks sympathetic to private interests. As we come face to face with climate change, we believe that climate finance is too important a topic to leave unattended.
As we approach the Conference of the Parties (COP) 26, the Climate Ambition to Accountability Project calls for the active and substantive participation of labour unions, community groups, progressive non-governmental and research organisations to ensure that climate finance ushers in a just transition underpinned by the necessary structural transformation that protects the wellbeing of vulnerable groups and nature.
Three proposals that ought to be canvassed are putting into action the polluter-pay principle at the country and firm level; ensuring that development finance institutions disburse adequate grants and concessionary loans without setting neoliberal conditionalities; and forging a progressive macroeconomic framework that has climate and socioeconomic justice at its core. Our collective participation in these processes will become important as the next phase of the process is to secure a Taxonomy on Sustainable Finance, which will identify “green” activities and set standards that will steer the financial sector from brown towards green activities.
The Climate Ambition and Accountability Project is a joint project between the World Wildlife Fund South Africa, South African Climate Action Network and the Institute for Economic Justice (IEJ), whose overall objective is to realise the effective participation of South African organisations in climate change governance to ensure enhanced climate policy ambition, implementation and accountability. The project is supported by the European Union.
Basani Baloyi is the senior researcher and Climate Energy and Infrastructure Programme lead at the IEJ, and Sonia Phalatse is a climate and feminist economics researcher at the IEJ.