On the sidelines of COP25, the Development Bank of Southern Africa (DBSA)’s head of climate finance, Olympus Manthata, participated in an Organisation for Economic Co-operation and Development (OECD) panel discussion on the role of national development finance institutions (DFIs) in scaling up sustainable financial instruments.
Over the past few years, the DBSA has been progressively greening its portfolio and this year the bank set up a Climate Finance Facility, a first in Africa that seeks to crowd in the private sector in climate projects.
The DBSA convened a high-level panel discussion, which unpacked the challenges and opportunities facing sub-Saharan Africa with regards to climate finance solutions. The bank’s climate finance solutions include managing facilities, funds and programmes that promote a green economy, drive sustainability and development impact and support a just transition to a low-carbon economy.
“DBSA is uniquely positioned to play the role of integrator between the public and private sectors and support and finance climate change initiatives,” said Manthata.
He shared DBSA’s climate finance initiatives at a side event organised by the Climate Policy Initiative and United Nations Environment Programme (Unep), which discussed climate alignment in the financial sector.
“We see our role as being one of supporting government’s commitment to contribute to a wide range of goals of transitioning to a greener economy. And we do this by supporting government and the region in meeting its Nationally Determined Contributions as well as in aiming to achieve excellence in climate change reporting and the development of appropriate frameworks,” said Manthata.
“The DBSA has been on a climate change journey for some time. We have developed a climate finance framework, which provides us with a vehicle to progressively transition to a greener portfolio over a reasonable period of time by providing a cohesive, measurable and accountable response to climate change.
“Our climate finance initiatives include managing a number of facilities and programmes that promote a greener economy, drive sustainability and support a just transition to a low-carbon economy,” he added.
The DBSA played a significant role in the country’s renewable energy programme (REIPPP). “We have also recently set up a Climate Finance Facility (CFF) with funding from the Green Climate Fund (GCF). This is a structured finance platform that will have initial committed debt funding of R2-billion. It aims to support projects that mitigate or adapt to climate change.
“Nationally Determined Contributions (NDCs) embody efforts by each country to reduce national emissions and adapt to the impacts of climate change; they are at the heart of the Paris Agreement and the achievement of these long-term climate change goals. We see our role as being one of supporting government’s commitment to contribute to a wide range of goals of transitioning to a greener economy. And we do this through the development of funding solutions that support government and the region in meeting their NDCs,” said Manthata.
The DBSA plays a significant role in dealing with the challenges of climate change by advancing sustainable and environmentally friendly infrastructure solutions. Its climate finance initiatives involve managing facilities, funds and programmes that promote a greener economy, drive sustainability and development impact and support a just transition to a low carbon economy and adapts to climate change.
It does so through the following:
• Green Fund: the Green Fund’s current portfolio is:
– Eight capacity development projects
– 16 R&D projects
– 31 investment projects
• Green Climate Fund: DBSA’s accreditation to the Green Climate Fund gives access to funds for low-carbon and climate resilient development. Its current portfolio is:
– Four projects
– Six are being prepared for consideration
• Global Environment Facility: Its current portfolio is:
– Four projects approved
– Three are in the final stages of approval
• International Development Finance Club: DBSA is an active member of this Club, which is a network of 23 leading national, regional and international development banks that share a similar vision of promoting low-carbon and climate resilient futures.
• Global Innovation Lab for Climate Change: DBSA is a member of this organisation, which supports the identification and piloting of climate change financing instruments and products to catalyse private sector money into climate change mitigation projects in developing countries.
The bank’s CFF is a lending facility intended to increase climate-related investment in southern Africa by addressing market constraints and playing a catalytic role with a blended finance approach. The CFF will use its capital to fill market gaps and crowd in private investment, targeting projects that have potential, but cannot currently attract market rate capital at scale without “credit enhancement”. It will focus on infrastructure projects that mitigate or adapt to climate change.
The CFF is a structured finance platform that will have initial committed debt funding of R2-billion. It will catalyse private sector funding by co-funding alongside developmental and private sector financial institutions to try and achieve a 1:5 leverage. It is a rand denominated facility targeted and available to co-fund private sector projects in South Africa, eSwatini, Lesotho and Namibia. It does so by offering credit enhancement products in the form of first loss or subordinated funding and tenor extension (up to 15 years) by taking a blended finance approach with highly concessional funding that is being provided by the Green Climate Fund. The CFF can offer long-term competitively priced funding.
As to how the DBSA sees developing and developed countries co-operating to cut total emissions, Manthata said: “Financial institutions have started thinking about how their investments could be consistent with the goals of the Paris Agreement. Public financial institutions should align their own finance flows and also work with their government clients and shareholders to support them to increase ambition over time. For private financial institutions, climate alignment is bringing financial decision-making in line with a glide path to a low-carbon, climate resilient economy through portfolio management decisions and client engagement. Together, these new approaches represent an opportunity for the transition toward a low-carbon, climate-resilient economy that traditional climate finance has struggled to achieve.”
Manthata said that there have been some promising developments at COP25 so far. “For the DBSA, we are encouraged by the engagements and meetings we have had at COP25, as well as the prospect of even greater collaboration within the broader DFI community to work together towards supporting and financing climate change projects. The DBSA is a member of the International Development Finance Club and we have had meaningful engagements with member institutions as well as other institutions such as the Climate Policy Initiative, OECD and institutions operating in South Africa, SADC region and beyond during our time here at COP25.”
There is much that corporate leaders in South Africa can do to keep the momentum going for more ambitious climate action. “For a start I believe that corporates need to understand their own ‘transition risk’ and how to appropriately respond to it. ‘Transition risk’ is widely regarded as the risk that the value of assets and income are less than expected because of climate policy and market transformations.”
Corporates need to have strategies in place to address the following:
• A global low-carbon transition could reduce the demand and price for assets including carbon-intensive fossil fuels such as coal and oil.
• Infrastructure that supports higher carbon activities including rail, power plants or ports built around fossil fuel industries may have to be replaced or retired early.
• Companies, investors and workers could be hurt by lower prices and reduced demand for certain products.