South Africa unlocks green finance potential with new taxonomy report

South Africa has taken a pivotal step towards enhancing its environmental finance strategies with the recent release of a comprehensive technical report aimed at assessing the international interoperability and usability of the country’s Green Finance Taxonomy (SA GFT). 

This collaborative effort between the Climate Policy Initiative and GreenCape aims to enhance the South African Green Finance Taxonomy (SA GFT) by addressing its usability challenges and improving global alignment as the world turns to sustainable finance amid escalating climate concerns.

In the first edition of the in 2022, SA GFT served as a framework defining the constitution of "green" investments, providing clarity and certainty for investors.

Interoperability between sustainable finance taxonomies is essential to facilitate seamless cross-border flows ofclimate finance, helping countries mobilise the resources needed to achieve the net-zero targets outlined in their Nationally Determined Contributions (NDCs).

Currently, South Africa requires a minimum three to fivefold increase in climate finance, from an annual average of R131 billion, to meet its NDCs.

Commissioned by the National Treasury, the report revealed that the SA GFT, a framework designed to guide investments in environmentally sustainable projects, currently aligned well with international standards.

The report encompasses broad environmental objectives and key economic sectors, especially in climate change mitigation—a crucial component in reinforcing its compatibility with global taxonomies and the provisions of the Paris Agreement.

As climate finance flows increase, facilitating smooth cross-border investments emerges as a critical factor in reaching both national and global net-zero targets.

However, the SA GFT is not without its challenges, particularly surrounding the Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS) pillars.

These complexities highlight the need for improved governance mechanisms, clearer guidelines, and effective processes to facilitate better usability and adoption.

In the foreword of the report, Treasury director-general, Dr Duncan Pieterse, said the financial resources required to facilitate this transition were substantial, adding that achieving this ambitious goal required diverse investors' collective effort, attracting new investments and strategically aligning existing financial flows to support this transition. 

Pieterse said by aligning with international best practices, the taxonomy enhanced transparency in financial markets, reduced greenwashing, and, ultimately, facilitated capital flows towards sustainable projects.

He said this alignment was essential for building investor confidence and unlocking significant funding opportunities in sectors critical to the green economy.

"Moreover, the success of our green finance initiatives hinges on international collaboration. The complexities of climate finance require a concerted effort among nations to share knowledge, resources, and best practices. South Africa's participation in global partnerships will enhance its capacity to attract sustainable investment and effectively drive our energy transition," Pieterse said.

"This technical paper shows that the SA GFT has a strong international alignment, particularly in its broad coverage of environmental objectives, sectors, and activities, along with its prioritisation of climate change mitigation. While this supports interoperability with global taxonomies and the Paris Agreement, challenges remain in the usability and adoption of the SA GFT.

"To drive meaningful impact, therefore, the taxonomy must meet local needs, align internationally, and be implemented and utilised by various stakeholders, from government entities to private investors. In conclusion, I invite all stakeholders to embrace this step towards a sustainable future. By working together, we can effectively leverage the taxonomy and green finance to transform and drive sustainable economic and social transformation.

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