Development finance institution the International Finance Corporation (IFC) is joining forces with local body the Banking Association South Africa (BASA) to help increase climate finance in the country and pave the way for a transition to a low-carbon economy.
BASA is a member of the Sustainable Banking Finance Network, a platform for financial sector regulators, governments and industry associations from emerging markets committed to advancing sustainable finance.
Under the terms of the agreement between the IFC and BASA, IFC will provide advisory support to strengthen the climate risk assessment, mitigation and adaptation practices of South Africa’s banks and help them reduce their exposure to climate change-related risks.
The partnership will also promote investment in green, climate-friendly assets, in line with the country’s National Development Plan and its commitments to the Paris Agreement.
The agreement is part of the IFC and its parent the World Bank’s Scaling Up Climate Finance through the Financial Sector programme, launched in 2021 in partnership with Germany's Federal Ministry of Economic Affairs and Climate Action.
Through the programme, the IFC aims to facilitate at least $500-million in climate investments by South African banks, and at least $300-million in climate-themed bonds issued by South African corporates, by 2027.
Welcoming the innovative partnership, BASA MD Bongiwe Kunene says: "South Africa's banks remain at the forefront of developments to tackle climate change, transition polluting industries inclusively, support climate-smart agriculture and secure investments in more resilient economic infrastructure.”
South Africa is heavily dependent on coal for its power generation and contributes about 1% of global greenhouse-gas emissions. It has set a target to reduce carbon emissions by 42% below business as usual by 2025.
The country needs an estimated R1.5-trillion ($84-billion) over the next five years to transition from coal to renewable energy, reduce carbon emissions, adopt new green technologies and support affected communities.
“Climate change presents significant risks and opportunities for the financial sector,” says IFC South African country manager Adamou Labara.
“IFC’s partnership with BASA aims to help South Africa’s banks effectively respond and adapt to these challenges and opportunities, while supporting the country in promoting a just transition to an inclusive and climate-resilient economy.”
The partnership is expected to further strengthen sustainable finance in South Africa.