SA eyes green bonds for R3.7trn ESG finance plan

South Africa’s Treasury published a framework for sustainable-finance instruments to help raise the R3.7 trillion ($228 billion) needed to mitigate the effect of greenhouse—gas emissions over the next decade.

The plan sets guidelines for the issuance of green, social and sustainability financing instruments, including loans and bonds, to fund new and existing projects with environmental and social benefits, the National Treasury said in a report published on its website. It also outlines criteria on which financing decisions will be made.

Among projects that would be considered are hydrogen manufacturing, hydropower, geothermal electricity and bioenergy, the framework states. Money may also be raised for electricity transmission, distribution networks for renewable and low-carbon gases, and the development of energy-efficient technologies for industries and households.

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“This initiative aims to align the country’s funding strategy with its sustainability objectives, attracting sustainable finance to support South Africa’s decarbonisation commitments in a just and inclusive manner,” the Treasury said in the document.

South Africa has been criticised for its slow pace in seeking funding from investors keen to back sustainable and climate-friendly development even as it plans significant expenditure on infrastructure and needs to adapt from its heavy reliance on coal to comply with global climate-change commitments. The framework comes more than five years after the government first said it would outline plans for green bonds.

Meeting South Africa’s environmental targets under international accords including the Paris Agreement on climate change will cost about R250 billion for implementation and R3.47 trillion for mitigation strategies between 2026 and 2035, the framework states. That’s an average of R372 billion a year.

The country aims to raise about R160 billion a year from international climate-finance institutions by 2030, with the remainder coming from private-sector lenders and spending.

While the framework aims to address South Africa’s key sustainability challenges, achieving the full environmental benefits of green projects under the program may be constrained by the country’s high reliance on coal for electricity generation, S&P Global ratings said in an assessment published together with the plan.

“The framework’s financing of projects linked to healthcare, education, employment, and food security will help tackle social challenges and strengthen South Africa’s development path,” S&P said. Still, the “broad scope, typical for a sovereign issuer, creates uncertainty regarding future environmental, social, and climate risks and benefits of specific projects,” it added.

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