The South African Climate Finance Landscape 2023
South Africa is deeply committed to sustainable development and the principles of the United Nations 2030 Agenda. This is evident in South Africa’s National Development Plan 2030 which aims to eliminate poverty and reduce inequality by 2030 (South African National Planning Commission, 2012). These principles encompass Sustainable Development Goal 8 (SDG 8) on inclusive and sustainable economic growth, employment, and decent work for all. The country is committed to the Paris Agreement objective of limiting global temperature rise to 1.5°C, through its Nationally Determined Contribution (NDC). In addition, the adoption of the National Climate Change Adaptation Strategy in 2020 brought climate change adaptation planning to the fore in South Africa.
Over the past two decades, South Africa has integrated sustainability, climate mitigation and climate-resilience into its overall policy and development framework, including various national and sectoral policies, strategies and plans. The country aims to transition to a low carbon economy, in recognition that this makes for a more sustainable, resilient and globally competitive economy, thereby supporting broader development goals. Despite these policy commitments and increases in climate finance in recent years, financial flows still fall far short of estimated needs.
Tracked annual climate finance reached R131 billion p.a. on average in 2019 – 2021, an all-time high, but still far from the average annual estimated needs of R334 – R535 billion p.a.
To achieve its goals and to avoid the worst impacts of climate change, South Africa requires baseline climate finance data and analysis to guide national climate policy, foster public-private partnerships, engage in targeted capacity building, and promote resilient economic growth. This report aims to provide a comprehensive breakdown of project-level climate finance, by mapping its sources and intermediaries, financial instruments, and target sectors. These insights can provide both public and private stakeholders with information to refine and align their sectoral strategies, expertise and policies in relation to climate finance.
KEY INSIGHTS
Climate finance in South Africa needs to increase by at least three to fivefold from the current annual average of R131 billion. Estimates suggest that South Africa requires on average R334 billion per year to meet its net zero goal by 2050, and R535 billion per year to meet its NDC target by 2030.
Domestic sources accounted for 91% of tracked climate finance, while international sources accounted for 9%. Further details on the sources, financial instruments and uses, of this finance are summarized below.
PRIVATE SECTOR CLIMATE FINANCE
Private actors accounted for 86% (R113 billion p.a.) of annual investments tracked. Commercial sources made up 92% (R103 billion p.a.) of private flows, with the remaining 8% (R9 billion p.a.) under the “other” category, comprising corporates, philanthropists/ donors, NGOs, and households. Almost all of the private finance (98%) was sourced from domestic actors.
Debt financing comprised 82% (R93 billion p.a.) of private flows, while equity finance constituted 18% (R20 billion p.a.). Clean energy secured the largest portion of private sector investment, accounting for 64% (R72 billion p.a.).
PUBLIC SECTOR CLIMATE FINANCE
Public actors contributed an annual average of R18 billion (14%) of tracked climate finance, with the key providers being DFIs 55% (R10 billion p.a.) and the South African government R6 billion p.a. (33%). International governments provided R2 billion p.a. of public flows. The clean
energy sector and agriculture, forestry, fisheries and land use received a collective 79% of annual public finance, or 53% (R10 billion p.a.) and 26% (R5 billion p.a.) respectively. Public finance was split between domestic and international actors, comprising 41% and 59% respectively.
FINANCIAL MECHANISMS AND INSTRUMENTS FOR CLIMATE FINANCE
The majority of climate finance flows are facilitated through market-rate debt instruments, with an average cost of capital of between 10% and 12%. Debt financing accounted for 75% of climate finance annually (R98 billion p.a.). Of the total debt, 59% went to the clean energy sector, accounting for an annual average of R58 billion p.a.
Tracked equity financing averaged 18% (R23 billion p.a.), of which 92% went to clean energy. The remaining climate finance was delivered via government budget expenditure (5%), concessional debt (2%), and grants (1%).
USES AND SECTOR FOR CLIMATE FINANCE
Mitigation finance represented 81% (R105 billion p.a.) of total finance tracked, with adaptation finance making up just 12% (R16 billion p.a.). Dual benefits financing accounted for 7% (R10 billion p.a.). Across Africa as a continent, adaptation efforts receive 39% of total annual average climate finance (CPI, 2022).
Continued loadshedding in South Africa, falling technology costs and increasing grid electricity prices have resulted in clean energy remaining the dominant destination sector for investment, receiving more than 63% of the total tracked climate finance flows.
