Financial institutions have the power to fight climate change
By Sasha Cook, Standard Bank Head of Sustainable Finance
Financial institutions, as lenders and asset managers, have a significant role to play in the transition to a greener economy.
Committing to achieving net zero within their operations is valuable, but where they have the most significant impact is in the assets or businesses they choose to finance or invest in. Financing businesses with strategies to achieve net zero emissions targets can have a real and lasting impact in the fight against climate change.
Standard Bank’s new climate policy, which targets the higher emitting sectors, includes inter alia the bank’s position that it will not finance new coal-fired power plants and has also introduced exposure caps or reduction targets in higher emitting sectors such as oil and gas and thermal coal.
While focusing on reduction targets is important, financial institutions should also commit to mobilising sustainable finance. Standard Bank has committed to mobilising more than R250-billion in sustainable finance by 2026, including financing R50-billion for renewable energy power plants and underwriting a further R15-billion by the end of 2024.
Although some local banks have made public commitments to sustainable and green finance, more needs to be done in this space.
Transition finance is a category of finance that is critically important to greening the economy but remains an underdeveloped segment of the sustainable finance market in Africa. Transition finance can help facilitate a move away from high carbon emitting methods of production to more climate-friendly methods, whether it be within a sector such as aviation where players seek a pathway to achieving lower carbon emissions or a transition away from an industry such as coal mining with its carbon-heavy activities towards more future-proof climate-friendly activities such as renewable energy.
Financial institutions play a critical role in mobilising capital not only towards those in the green sectors but also towards those in higher emitting sectors in support of a clear transition strategy so as to facilitate transitioning the economy on a greener path.
We also see significant opportunities in the decentralised energy or off-grid space. Many prominent industrial players and mining houses are working with third parties to build their own renewable energy power plants to ensure a secure and consistent energy supply. One recent transaction where we facilitated the financing of the project is with titanium producer Tronox, who partnered with South African independent power producer SOLA Group to construct a 200MW solar power plant to ensure a reliable energy supply and will also see them reduce their carbon emissions by 13%.
Funding the just energy transition
The just energy transition is about an evolution towards a cleaner, greener energy future while mitigating any potential negative social impacts and increasing sustainable jobs. A National Business Initiative report released in December 2022 puts the cost of financing the just energy transition at more than R5,9-trillion by 2050, with more than R1-trillion required by 2030. These are staggering amounts and will require all financial stakeholders, including the government, financial institutions, private investors, development finance institutions, concessional funders and donors, to get involved. Interestingly, 40% of the necessary initiatives are not seen as commercially bankable. Therefore, a greater focus on blended finance is needed if the just energy transition is to succeed.