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THE ROLE OF DFI’S IN DEPLOYING FINANCING TO JUST TRANSITION PROJECTS
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SA-EU JUST TRANSITION FINANCING ROADMAP:
TECHNICAL PEER-TO-PEER COUNTERPART KNOWLEDGE SHARING
WEBINAR 1
THE ROLE OF DFI’S (DEVELOPMENT FINANCE INSTITUTIONS) IN DEPLOYING FINANCING TO JUST TRANSITION PROJECTS
30 SEPTEMBER 2021
Introduction
The EU and Germany BMU has supported TIPS in undertaking research which will contribute to a first iteration of a South African Just Transition Finance Roadmap. The research aims to move the “financing a just transition” discourse forward by proposing a framework that considers a spectrum of just transition ambitions and project-funding characteristics. Using place-based, action research, a project sample of 26 self-identified projects in Mpumalanga’s coal dependent regions are analysed based on their procedural, distributive and restorative impacts; their ticket size; and their funding requirements.
About Webinar 1
Despite their developmental mandate, South African DFI’s operate on a for-profit basis because the government does not have the financial resources to underwrite their losses. The line between the country’s commercial banks and DFI’s is sometimes blurred with DFI’s financing projects which the private sector would be happy to fund. In addition the country’s DFI’s no longer “make projects” but compete for viable projects in the market based on their term sheet. DFI’s in South Africa typically do not offer grant funding, and have little scope for technical assistance and concessional funding. They do, however, use patient capital and quasi equity although these are also capped at relatively low levels. More challenging is the reality that, like commercial and investment banks, South African DFI’s exhibit limited appetite for: early stage investing; investing in SME scale projects; or investing in new and novel technologies and business models.
As these characteristics are notable in a high percentage of just transition projects and programmes identified in the EU funded TIPS research to date – the match between just transition programming demands and what local DFI’s can supply is not well aligned. This suggests that there is a strong role for the international community which is committed to supporting South Africa’s just transition to net zero to channel appropriate funding to local DFI so as to leverage local DFI’s deployment of funds to just transition programming. Specific challenges facing South African DFI’s include:
The need to provide technical assistance at scale to just transition project originators and developers.
The need to play a role in providing early stage ( pre commercial) finance given the lack of a domestic venture capital and angel investor sector.
The need to play a role in the provision of finance to small scale projects which are likely to dominate just transition community wide programming.
The need to increase the use of blended finance.
The need to improve technology risk assessment and pricing and to focus on a broader array of programming than the current emphasis on renewable energy.
The need to step up in the role of funding coordinator.
The TIPS research suggests that many just transition projects are actually a suite of interrelated projects. These interrelated projects have different levels of risk and require different types of funding available from different stakeholders (a concessional requirement, a commercial requirement, a grant requirement and an impact investing requirement). Overall DFI’s will be the most well positioned player in the finance eco system to facilitate and coordinate such funding given their developmental mandate.
The need to attract Rand based offshore investment and fund mobilisation to allow local DFI’s to deliver a service offering which is more in line with the real economy of South Africa in general and in particular the needs of just transition programming.
This webinar explored the activities and approaches adopted by European DFI’s which may be useful for South African DFI practitioners as they navigate the new terrain of just transition programming, as well as facilitating discussion of the role European DFI’s can play in ensuring that South Africa’s transition to net zero is just.
Speakers
Welcome by Facilitator, Saul Levin, Executive Director, TIPS
Joanne Bate, Climate Finance Commissioner on the Presidential Climate Commission, COO IDC
Louise Gardner, Working Group and Africa Director for Sustainable Banking Network, IFC
Chantal Naidoo, CEO, Rabia Transitions
Mattia Baldini, DEA and Nadege Hopman, EIB
Link for Post Event Report
TECHNICAL PEER-TO-PEER COUNTERPART KNOWLEDGE SHARING
WEBINAR 1
THE ROLE OF DFI’S (DEVELOPMENT FINANCE INSTITUTIONS) IN DEPLOYING FINANCING TO JUST TRANSITION PROJECTS
30 SEPTEMBER 2021
Introduction
The EU and Germany BMU has supported TIPS in undertaking research which will contribute to a first iteration of a South African Just Transition Finance Roadmap. The research aims to move the “financing a just transition” discourse forward by proposing a framework that considers a spectrum of just transition ambitions and project-funding characteristics. Using place-based, action research, a project sample of 26 self-identified projects in Mpumalanga’s coal dependent regions are analysed based on their procedural, distributive and restorative impacts; their ticket size; and their funding requirements.
About Webinar 1
Despite their developmental mandate, South African DFI’s operate on a for-profit basis because the government does not have the financial resources to underwrite their losses. The line between the country’s commercial banks and DFI’s is sometimes blurred with DFI’s financing projects which the private sector would be happy to fund. In addition the country’s DFI’s no longer “make projects” but compete for viable projects in the market based on their term sheet. DFI’s in South Africa typically do not offer grant funding, and have little scope for technical assistance and concessional funding. They do, however, use patient capital and quasi equity although these are also capped at relatively low levels. More challenging is the reality that, like commercial and investment banks, South African DFI’s exhibit limited appetite for: early stage investing; investing in SME scale projects; or investing in new and novel technologies and business models.
As these characteristics are notable in a high percentage of just transition projects and programmes identified in the EU funded TIPS research to date – the match between just transition programming demands and what local DFI’s can supply is not well aligned. This suggests that there is a strong role for the international community which is committed to supporting South Africa’s just transition to net zero to channel appropriate funding to local DFI so as to leverage local DFI’s deployment of funds to just transition programming. Specific challenges facing South African DFI’s include:
The need to provide technical assistance at scale to just transition project originators and developers.
The need to play a role in providing early stage ( pre commercial) finance given the lack of a domestic venture capital and angel investor sector.
The need to play a role in the provision of finance to small scale projects which are likely to dominate just transition community wide programming.
The need to increase the use of blended finance.
The need to improve technology risk assessment and pricing and to focus on a broader array of programming than the current emphasis on renewable energy.
The need to step up in the role of funding coordinator.
The TIPS research suggests that many just transition projects are actually a suite of interrelated projects. These interrelated projects have different levels of risk and require different types of funding available from different stakeholders (a concessional requirement, a commercial requirement, a grant requirement and an impact investing requirement). Overall DFI’s will be the most well positioned player in the finance eco system to facilitate and coordinate such funding given their developmental mandate.
The need to attract Rand based offshore investment and fund mobilisation to allow local DFI’s to deliver a service offering which is more in line with the real economy of South Africa in general and in particular the needs of just transition programming.
This webinar explored the activities and approaches adopted by European DFI’s which may be useful for South African DFI practitioners as they navigate the new terrain of just transition programming, as well as facilitating discussion of the role European DFI’s can play in ensuring that South Africa’s transition to net zero is just.
Speakers
Welcome by Facilitator, Saul Levin, Executive Director, TIPS
Joanne Bate, Climate Finance Commissioner on the Presidential Climate Commission, COO IDC
Louise Gardner, Working Group and Africa Director for Sustainable Banking Network, IFC
Chantal Naidoo, CEO, Rabia Transitions
Mattia Baldini, DEA and Nadege Hopman, EIB
Link for Post Event Report
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