A just transition challenges the traditional way the financial service sector does business, both in terms of what they finance and how they finance projects. This constitutes a new and disruptive agenda item for investors and policymakers.

There are signs from the government and private sector that the extent of SA’s reliance on fossil fuels — either through energy production or in mining — needs to move in a different direction. Turning these aspirational goals into reality poses numerous challenges that will require new commitments to dialogue and engagement across all stakeholder groups. For example, such engagements are crucial to the success or failure of a just transition, and whether those most affected by the changes that will take place, especially in our energy mix and energy intensity, are included or left behind.

Historically, in a transition process the most vulnerable groups have limited ability to adjust or move to new industries or locations if their livelihoods fail. In addition, in most transitions these vulnerable groups are not at the forefront of policy considerations. As such, unemployed, unskilled workers, women, youth, small businesses and low-income communities bear the brunt of the negative effects of a transition and reap limited rewards.

The financial sector, and how it views and chooses to support the aspirations for a more inclusive industrialisation path, needs to be a key component of this just transition. Globally there are shifts taking place on what, who and how the financial sector engages with the transition.

SA is the 15th-largest global greenhouse gas emitter. In 2015 the country committed to taking steps to limit global warming increases to below 2°C. To achieve this, SA agreed to decrease emissions to a 34%-42% deviation below the “business as usual” emissions growth trajectory.

Though there is global consensus that the need to transition to a low-carbon economy is an economywide phenomenon and includes all sectors, in most countries the initial focus has settled on transitioning the energy sector. This is particularly true in SA, where 79.5% of the country’s emissions arise from the generation of electricity using coal-fired power plants. At the forefront of the discussion is the 20-year plan to decommission coal-fired power plants, predominantly in Mpumalanga. This will affect up to 125,000 workers employed in the coal value chain, and have an indirect impact on the economies and communities in coal-based towns.

In the global north, the concept of a just transition encompasses the desire to ensure that in a low-carbon transition no-one is left behind, and economic shifts occur in a manner that is inclusive and results in outcomes where no-one is worse off than before the transition.

In the global south, and SA in particular, a just transition is considerably more complex. With a deep legacy of colonialism and apartheid, a just transition needs to include transitional justice and restorative justice as well. This sets the domestic bar even higher than international standards, with expectations that a just transition will not only ensure no-one is left behind and no-one is worse off than before the transition, but that people are actually better off after the transition.

Engagement with affected parties (coal miners, electricity workers, coal communities) early in the planning and transitioning process is key, as well as identifying commercially viable job-creating economic diversification opportunities in mono-economy coal towns, and allocating resources to support not just adaptation and mitigation efforts but also transitioning costs inherent in these efforts.

The financial services sector is thus faced with two simultaneous demands. On the one hand, the sector needs to immediately focus on how to direct funding and allocate resources to low-carbon projects that may not pass the standard tests of commerciality due to policy uncertainty, cutting-edge untested technologies and income streams, as well as related factors that favour historical carbon-intensive technologies. Simultaneously, the sector needs to come to grips with understanding and evaluating environmental, social and governance (ESG) risk exposure and opportunities. This will require new databases, new methodologies, new best-practice norms, new reporting standards, new products, new financing mechanisms and, above all, meaningful intentions and deliberate choices to embrace the challenges of just transition climate change financing.

To date, substantial technical work on climate finance has been completed on behalf of the government and organised business. This work is ongoing and is being supported by dynamic stakeholder dialogues. Moving forward, it is necessary to begin mainstreaming the ideas and challenges of financing a just transition. In effect, a road map is required to understand the contribution and role of financing a just transition.

• Levin is director and Lowitt research associate at Trade & Industrial Policy Strategies (Tips).

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