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Zeph Nhleko: DBSA plays a vital role in green financing and fighting climate change

Bank’s just transition framework will detail support for infrastructure development and investment

It is often said that if one is not part of the solution, one is most likely to be part of the problem. In the global drive for a just transition and sustainability, everyone must certainly pick a side. Not only is the UN’s goal to limit the increase in the global average temperature to about 1.5°C bold, it is probably the most difficult activity global citizens are trying to do together. And it requires much money.

The International Development Finance Club (IDFC), a leading group of 26 national and regional development finance institutions worldwide — of which the Development Bank of Southern Africa (DBSA) is a member — reported in its annual Green Finance Mapping Report for 2020 that development finance institutions (DFIs) or public development banks have provided $867bn in green finance in the five years from 2015 to 2019. About 25% of all new IDFC commitments in 2019 were green financial commitments.

The DBSA is now detailing its integrated just transition investment framework to support infrastructure development and investment within decarbonisation, climate change and adaptation as well as societal considerations parameters. Green financing and investment are critical components of DFIs’ participation in the fight against global warming. Green financing in this context refers to sourcing funding from structures designed to fund green ventures and capital investments into environmental protection, energy conservation and clean energy towards low-carbon, resource-efficient economies as well as mitigation of and adaptation to climate change.

The UN recently called on public development banks to reduce fossil fuel infrastructure funding. This is a very important call, but the process must be undertaken gradually, otherwise sudden investment stops, particularly aimed at servicing existing projects, might have unintended consequences, especially on societies dependent on these investments. Therefore, the principles of net zero emissions, which argue for a balance between greenhouse gas produced and that removed from the atmosphere, make much sense.

Accredited agency

There is increasing enthusiasm in the sustainable debt market for activity and behaviour-based instruments this year, as $378bn had already been raised in the first quarter of 2021, which is 50% of the $757bn raised in the whole of 2020.

The DBSA’s role in green funding and investment activities dates back to 2010, as evidenced by its pivotal role in setting up the Independent Power Producer Office. The bank is an accredited agency of global green funds such as the Global Environment Facility and the Green Climate Fund. Over the past few years, the DBSA has succeeded in raising almost $1bn to finance green ventures. More than $157m was raised in the partnership with the Green Climate Fund, about $54m from the partnership with the Global Environment Facility, more than R1bn from the Green Fund and more than $600m from DFIs and the capital markets. It is not even close to being enough.

Of the total energy exposure, including non-generation investments such as networks and metering, the renewable energy exposure of the DBSA in Africa is about 42%. The DBSA therefore plays an important role in the climate and green finance environment. The fifth bid window of the renewable energy independent power producer procurement programme launched in April will result in the bank’s portfolio increasing even further. Current green financing initiatives include:

  • Renewable energy investment.
  • The climate finance facility that plays a catalytic role with a blended finance approach to increase climate-related investments in Southern Africa.
  • The embedded generation investment programme that is used as a first loss/guarantee facility and as credit support to non-sovereign guarantee-backed power producers and renewable projects.
  • The municipal solid waste management programme that is implementing organic waste treatment solutions in municipalities in SA.
  • The public-private sector energy efficiency programme that has focused on the creation of detailed feasibilities to evaluate the optimal financial and institutional model for the public and private sectors for energy efficiency in SA.
  • Equity funding for the small projects independent power producer programme.
  • Increased access to urban services and improved quality of life in municipalities.
  • Unlocking biodiversity benefits through development finance in critical catchments.

Given the limitations in public funding, domestic policy positions remain critical in ensuring that investors have clarity regarding stated objectives. The energy, climate change and emissions positions pronounced by the Presidential Economic Advisory Council, envisaged from the presidential climate change co-ordinating commission and outlined in the revised nationally determined contribution document, are good examples of the required clarity.

The lack of economic policy coherence remains a huge concern for the country. Though we traditionally refer to macroeconomic policy as fiscal and monetary, there is a clear case to ensure that an integrated and synchronised approach should be adopted if sector polices (social, financial, trade and investment, industrial, transport, infrastructure, environment, and so on) are also part of the planning. It requires reconfiguring the current governance model in terms of streamlining functions and separating policymaking from policy implementation.

• Nhleko is DBSA chief economist.

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