South Africa: green investing

South Africa has set itself ambitious climate targets. The country made a commitment to achieving long-term climate neutrality by 2050 in its first low-emission strategy issued in 2020. That can only be done by systematically putting the economy on a sustainable footing: more renewable energy from wind and solar power, greater energy efficiency and better mobility strategies. Financing all of that entails high expenditure, the burden of which is shouldered primarily by local authorities. However, these were chronically underfunded even before the COVID-19 pandemic began – and they most certainly are now. Higher spending for health care and social and economic programmes has now become a major cost factor for them. 

To ensure that progress in protecting the environment and tackling climate change can nevertheless be made, South Africa has begun using green bonds. They enable local authorities to harness the capital market to mobilise money and invest in green projects. The advantage of this is that they also stimulate the economy because they attract external financiers and trigger local investment. This generates orders, creates jobs and alleviates poverty. The whole system is a prime example of a society moving towards a green economy. It illustrates a number of financing models that can be used to facilitate a green recovery following the coronavirus crisis. 

Gradually increasing the use of green bonds

The German Government – in this case the Environment Ministry – is working in conjunction with the United Nations Environment Programme (UNEP) to support South Africa in making this transition. They are providing a type of start-up finance for the green bonds. The UN Development Programme (UNDP) is also involved because this is a good opportunity to combine poverty alleviation and environmental protection. GIZ is advising the South African Department of Forestry, Fisheries and the Environment and the city governments of Durban and Pretoria, both of which have shown great interest in issuing green bonds. 

One of the measures that GIZ and its partners are taking to support them in this regard is to develop a manual specifically for local authorities, giving a general explanation of green bonds and also offering guidance on how to place bonds of this kind. Local authority officials will receive training as well. By participating in the project, the two cities of Durban and Pretoria have taken the first important step towards sustainable investment. Only a handful of countries and local authorities in Africa have used this innovative financing option to date. But with the right amount of political will and expertise, more of them could join in – including in Europe.