SA’s path to net zero: Carbon budgets, climate action and financial leadership

Carbon budgets have become pivotal in the global fight against climate change, offering a scientifically grounded road map for reducing greenhouse gas (GHG) emissions.

With its unique challenges and opportunities, SA has embraced carbon budgets as part of its broader climate strategy. 

A carbon budget defines a cap on the total CO₂ emissions allowed, helping to keep global temperature increases within manageable limits. By setting clear limits, it provides industries and policymakers with the clarity needed to plan sustainable investments, manage operations and adapt to changing market expectations.

The Presidential Climate Commission report highlights how carbon budgets are central to the country’s path to achieving net-zero emissions by 2050, aligning with the targets set out in SA’s Nationally Determined Contribution (NDC).

The NDC aims to reduce emissions to between 350- and 420-million metric tonnes of CO₂-equivalent by 2030, a significant step forward in supporting the global goal of limiting temperature rise to below 1.5°C.

This framework is reinforced by the newly enacted Climate Change Act, which introduces legally binding mechanisms such as carbon budgets and Sectoral Emission Targets to ensure these goals are met. 

SA’s sector-focused carbon budget approach 

Recognising that different industries contribute to emissions in varied ways, the government has tailored carbon budgets for high-emission sectors such as energy, mining, transport and steel. This strategy promotes a fair distribution of responsibility for emissions reductions across the economy.

The energy sector is a primary focus given its reliance on coal to generate about 80% of the country’s electricity. Under the carbon budget framework, major players like Eskom are encouraged to transition towards cleaner energy sources including wind, solar and hydropower.

This shift, which will require significant investment, is vital for achieving a more sustainable energy mix and reducing the overall carbon footprint. 

Similarly, a carbon budget framework will encourage the mining industry to adopt cleaner technologies, enabling compliance with local regulations and maintaining competitiveness in global markets.

SA’s dependence on coal-generated power makes it vulnerable to international climate policies like the EU’s carbon border adjustment mechanism (CBAM), which imposes a carbon price on imports based on their embedded emissions.

This will make exports like steel and aluminium, and in the longer term our agricultural exports, more expensive, underscoring the need for compliance with carbon budgets to reduce embedded emissions and mitigate trade risks.

SA’s readiness to respond and manage the CBAM requirements from our largest export partner is a cause for concern; more must be done to safeguard this vital market and help businesses prepare effectively.

The transport sector, particularly public transport and logistics, will also need to transform in line with a carbon budget, and transition to electric vehicles.

The role of banks in supporting sectoral carbon targets 

Financial institutions play a critical role in helping SA achieve its climate goals by supporting businesses in transitioning to low-carbon operations.

As companies face the challenge of meeting sector-specific carbon budgets, banks are in a position to offer tailored funding to enable investments in renewable energy and energy efficiency.

Of course, the role of banks goes beyond finance. Equally important is the advisory role they can, and must, play in helping their business clients understand and adapt to the implications of new regulations. 

Effectively engaging with clients on their carbon reduction journeys is crucial. By maintaining close relationships with businesses in climate-sensitive sectors, banks can better understand their clients’ needs and provide targeted support. This includes offering strategic advice on reducing emissions and navigating the financial aspects of compliance with carbon budgets.

Such engagement not only helps companies meet regulatory requirements but also enables them to take advantage of new opportunities in the green economy — positioning both the banks and their clients for long-term success in a changing market.

Nedbank has taken a proactive approach to supporting its clients on their carbon budget journeys. In the 2023 financial year, it actively engaged with clients in sectors such as power generation, mining, and agriculture. Through the bank’s Environmental, Social and Governance (ESG) advisory services, it offers guidance on decarbonisation strategies and helps clients access sustainable finance solutions, including funding for renewable energy projects. This approach supports clients in aligning with SA’s carbon budget framework and strengthens their ability to compete in a global market increasingly focused on sustainability. 

SA’s carbon budget framework and Climate Change Act strike a balance between cutting emissions and ensuring economic inclusion and stability. The successful implementation of these measures, alongside strategic and committed engagement from financial institutions, will help SA fulfil its climate, social and economic commitments while remaining competitive in a rapidly decarbonising global market.

This article was sponsored by Nedbank.