Shifts in climate finance needed

NOVEMBER 2021

COP26 – PWC “Climate Change socio-economic imperative"

RMB’s Head of Sustainable Finance and ESG, Nigel Beck, recently took part in a PWC panel as part of COP26. This was an important opportunity to discuss the African sustainability imperative. In conversation with him he shared some key insights.  

In your opinion, what are the desired outcomes of COP26?

In short, I’m hoping this will be a tangible opportunity for government, business and civil society to collaborate, followed by clear plans on how countries and corporates will translate binding law and policy into action. I’m also hoping for big shifts in climate finance. COP26 poses an opportunity to achieve the $100bn climate finance missed by 2020. As developing countries, we are looking to the US, UK and Germany to meet their increased commitments. At COP26, the $8.5 bln pledge in funding from U.S., EU and UK to catalyze the South African transition was a welcome development.

What will these countries need to consider in expanding the funding available to address climate change?

COP26 offers an opportunity to clarify the path of climate funding. For example, what mechanisms are planned to access funding? Can it be accessed at scale? Will compensation for climate change loss and damage be available for developing countries? And how can funders account for the ‘just’ element in financing?

Why should businesses take sustainability seriously – does it have a real bearing on corporate strategy?

Sustainability isn’t a passing fad but is already having a real impact on how companies are committing and adapting their strategy to meet social, environmental and ethical considerations. In South Africa, Sasol has made a Net Zero commitment, and Eskom is pivoting its business away from its reliance on coal. At RMB, we have been focusing on the development of our Sustainability Finance business, through product and service innovation, aligned to our client’s business needs at they fully integrate climate change/ESG considerations.

Access to finance is often cited as a stumbling block to newer or greener technologies. Is this a genuine concern or are banks, financiers and development aid agencies etc open to lending and changing the narrative?

The issue with financing green technology is that is often seen as pioneering, meaning that there isn’t necessarily a track record on which to base funding. However, funding appetites are changing. Deals are being considered that haven’t been done before. Financial institutions want to be aligned to what the future sustainable economy might look like, and not miss supporting the next Tesla!

New structural solutions are required. As funders, we need to try manage potential risks and not close the door on them like we might have in the past. Senior debt finance isn’t the only answer. Other options are available to these clients such as Venture Capital, Private Equity and mezzanine finance. Development Finance Institutions (DFIs) and multilateral banks support these, providing cheaper capital or risk enhancement like guarantees to enable private finance.

Green / sustainable bonds can play a huge role in the just transition and yet to date in SA we only have a handful available. Do you expect that to change soon, and if not what needs to happen?

This is an urgent issue that needs to be tackled in SA. At RMB, we are trying to do more and we are seeing increased investor appetite. We need to foster deeper capital markets in various African markets. We also need to develop awareness of what ESG really means. There is still a perception that ESG falls into risk or CSI. From a finance point of view, there is confusion on green bonds and uncertainty over the assets that qualify. From a technical point of view, we need consistency on eligible green criteria, as well as how to allocate proceed and how to report on transactions. It’s important, too, to establish independent verification/SPO for green bonds in a way that is realistic for the South African market.

How does the business of the future look like? Will it be just as profitable as in the past, or will the implementation of ESG come at a cost?

First of all, ESG needs to be correctly costed, with the externalities internalised. Some companies will indeed come at additional cost as part of internalisation. While businesses will still be profitable, the definition of ‘profit’ will change. It would be short-sighted to look purely at the financial return , but rather include the environmental and social impact in a blended return.