How capital markets can play a key role in SA’s energy transition

In a recent television interview on CNBC Africa, the Presidential Climate Commission and the Johannesburg Stock Exchange came together to discuss South Africa's need for a just energy transition to achieve net zero carbon emissions. The urgency of the conversation was underscored by the recent devastating floods in the country, emphasizing the critical need for swift action. Dr. Crispian Olver, the Executive Director at the Presidential Climate Commission, highlighted the main points discussed during the morning session. The focus was on mobilizing the necessary resources to finance the significant changes required to transition the South African economy to a lower-emissions state. The ultimate goal is to achieve net zero emissions by 2050, which will entail a shift from fossil fuels to renewables, grid upgrades, and ensuring a smooth transition for affected workers and communities. The estimated cost for the energy sector alone is around a trillion-rand by 2030 and three to four trillion-rand by 2050 when factoring in other sectors and the just-transition costs. While the financial implications are substantial, Dr. Olver pointed out that South Africa's deep capital markets and robust climate disclosure policies position the country well to tackle this challenge. The JSE, in collaboration with other stakeholders, has been developing a green finance taxonomy to track climate finance flows, which will be instrumental in channeling the necessary funds towards the just energy transition. Shamila Soobramoney, the JSE Chief Sustainability Officer, discussed the vital role of the private sector in financing the transition. She highlighted the success of instruments such as green bonds, social bonds, and sustainability bonds in attracting significant capital, demonstrating investor appetite for sustainable investments. Soobramoney emphasized the importance of innovative financial instruments and the need to align investments with green economy outcomes to drive the transition forward. Dr. Olver addressed the potential role of the national government in issuing debt instruments or sustainability bonds to raise the required funds, both domestically and internationally. He emphasized the sophistication of South Africa's financial sector and the need for collaboration between the public and private sectors to incentivize finance toward sustainable initiatives. While government regulation and funding will play a part, Dr. Olver suggested that embedding green finance initiatives voluntarily could pave the way for a smoother transition. He encouraged the private sector to prioritize environmental, social, and governance (ESG) principles, integrate climate risks into their operations, and support companies following sustainable practices. Overall, the discussions highlighted the critical role that capital markets, in partnership with government and private entities, will play in driving South Africa's energy transition towards a greener and more sustainable future.