TERENCE SIBIYA: A just transition is an imperative for Africa

A just transition to a greener economy is vital to ensure inclusive growth in Africa while preserving the continent for future generations. Historically, Africa has been a low carbon emitter and has barely contributed to climate change. Yet the continent continues to be the most vulnerable to its impact.

According to a Mo Ibrahim Foundation Report, “The Road to COP27”, Africa accounted for only 3.3% of global emissions between 1960 and 2020, while Asia, Europe and North America were each emitting over eight times more during the same time. However, the impacts of climate change and adverse weather conditions are material for the African continent.

In Africa, temperatures have risen faster than in any other continent and Africa is also most affected by droughts and second-most by floods, among other adverse weather conditions. These effects of climate change are worsened by the continent’s development challenges, and sadly are most severely felt by its marginalised and vulnerable inhabitants. As such, we need to mitigate against these impacts proactively by addressing climate change in ways that are sensitive to local socioeconomic context and climate vulnerability.

Africa needs a just transition, which refers to greening the economy in a way that is as fair and inclusive as possible to everyone concerned, creating decent work opportunities, and leaving no-one behind.

A framework for SA’s just transition

For SA to achieve net-zero exposure by 2050, the energy sector will need to decarbonise fully while many other crucial sectors, such as transport and heating, will need to inter alia adopt new practices to achieve a greener economy.

This is why Nedbank released an energy policy to see that the bank makes an orderly exit from fossil fuels over time while scaling up renewable-energy financing. Nedbank is committed to achieving net-zero exposure to all activities related to fossil fuels by 2045.

This transition isn’t happening abruptly. To manage the risks of this transition effectively it must ideally happen gradually so that new jobs are created in the green economy as traditional jobs in the carbon economy fall away. 

Subsequently, our policy steers an orderly exit from activities linked to the extraction of fossil fuels, at a rate that aligns with the Paris Agreement and is also realistic, given current electricity supply. 

SA is taking the lead in making a just transition after President Cyril Ramaphosa greenlit the Just Transition Framework, which under the Presidential Climate Commission will set out policy measures and undertakings by different social partners to help minimise the social and economic impacts of the long-term move away from coal. This framework underpins an agreement between SA, the UK, US, Germany, France and the EU to unlock $8.5bn in investment for SA.

Importantly, the partnership includes concessional climate finance to accelerate SA’s transition from coal to renewables and to support workers and communities currently reliant on the coal value chain.

Unlocking partnerships

Addressing the just transition will require commitment from all affected bodies to ensure the green economy is an inclusive and sustainable one. It is a clarion call for partnership between the private and public sectors to build an economy that is regenerative, reciprocal and representative.

Private sector participation, particularly from financial institutions, is crucial through the provision of innovating financing solutions for projects and investments that support our efforts to achieve a green economy.

To maximise their contributions to sustainable development and achieve the outcomes required, the private sector must commit to the deliberate allocation of capital in steadily increasing amounts that match the scale and time sensitivity of the societal and environmental challenges threatening to erode long-term economic and sociopolitical stability.

Innovative financing models have a key role to play because the climate transition will come at a cost as players in emerging economies will need to invest in greener technologies and infrastructure to curb and slow emissions. This cost therefore creates a market barrier and slows players from implementing initiatives that would support the transition.

Drawing on innovative finance such as blended finance, which pulls from alternative sources of liquidity to provide a more competitive source of funding, can assist in lowering the costs of the transition and therefore incentivise more players to transition their businesses quicker.

Finance mechanisms such as green bonds and green loans, in which Nedbank has become a market leader, also serve as a useful way to spur capital towards impactful objectives aligned with the transition. These mechanisms include a report-back instrument attached to it on the ultimate use of proceeds and impact to evidence this spend.

These finance mechanisms serve to stimulate greener spend in the economy and players can use this liquidity source as a means to obtain funding. Sustainability-linked loans and bonds are another example of innovative financing mechanisms that have recently developed. This market has grown exponentially with take-up from clients globally as they latch on to financing that inherently incentivises them to progress on their environmental, social and governance (ESG) commitments, including net-zero exposure.

Lenders and investors as capital allocators can also play a key role in catalysing the transition purely through the funding choices that they make. Nedbank, for example, has increased its appetite for green renewable-energy projects to R50bn and is also supporting embedded generation in the construction and industrial space through a new R2bn commitment. At the same time, through our energy policy we have set a glide path, which aims to reduce our exposure to fossil fuels down to zero by 2050. 

A common goal

The SA government’s Renewable Energy Independent Power Producer Procurement Programme is a prime example of a public-private partnership that has been successful in mobilising finance to greener projects. Under this programme government provides a guarantee to private sector lenders that are lending into a project; this assists the bankability of the project and has a positive spillover for job creation and economic growth.

But much more can be done in the public-private sector space to enable the development of key infrastructure and the retrofitting of existing infrastructure to bring down carbon emissions. There is also the opportunity to apply global best-practice sustainability criteria to public infrastructure project design, to enable green design and build climate resilience to changes in weather patterns. This also needs to be looked at through a social lens.

A critical aspect of getting buy-in into the just transition is empowering people to adapt effectively and fully understand the potential short-term benefits of the transition to a greener future. Nedbank has already started putting this approach into practice through a number of projects across SA. These include, but are not limited to, how we work with organisations such as the World Wildlife Foundation, Brimstone and Wiphold, on projects aimed at preserving and improving our natural assets while maximising employment and socioeconomic development.

A just transition has the potential to connect all stakeholders who believe in a fair and just economic system, create employment opportunities, improve the living standards of the poor and identify sustainable alternatives to environmentally damaging practices. The Just Transition Framework can also help to develop the skills of the community and enhance the economic ecosystem to allow people to gain employment or start their own enterprises to achieve socioeconomic empowerment.

With climate change and the socioeconomic challenges that Africa faces being so interlinked, it was encouraging to see that COP27 again took place on the African continent, in Egypt. My hope is that through the engagements and commitments made at the conference we can identify opportunities to catalyse investment and innovation to address Africa’s challenges and give rise to sustainable solutions. 

• Dr Sibiya is group managing executive of Nedbank Africa Regions.