Just energy transition funding for SMMEs and Cooperatives
I spend the morning with the Parliamentary Monitoring Group (PMG)`s Small Business Development Committee to unpack the impact of climate change on small, medium and micro enterprises (SMMEs) in South Africa.
.
Investing in climate-resilient development
IF South Africa could transition from existing coal value chains located in and beyond the Mpumalanga Highveld, towards low carbon consumption and production patterns, it would demonstrably shift by 2050 toward low emission and climate resilient development pathways consistent with the Paris Agreement and the Sustainable Development Goals (SDGs). It would also achieve a Just Energy Transition, because the catalytic investment would deliver change across four climate impact areas.
A policy response was required for South Africa's Just Energy Transition, which would encourage catalytic climate finance to:
- Allow South Africa to pursue an ambitious climate scenario, particularly the phasing out of coal, in line with the global 1.5 - 2.0 degree target.
- Create and preserve quality jobs for South Africans.
- Build the adaptive capacity of coal-affected communities.
- Achieve net zero emissions across investors’ asset portfolios by 2050 or sooner.
- Include active SMME participation in climate adaptation and mitigation strategies.
Ms Hattingh said climate change was the greatest challenge of our times, creating conflict and threatening food security, water security, ecosystems, health, infrastructure, national economies and the livelihoods and wellbeing of people and communities. It resulted in increasing demands and stresses on the governance structures and institutions needed to address impacts, particularly in Africa
Barriers to local green enterprises
Financial barriers to financing local green enterprises (LGEs) included inappropriate collateral requirements, lack of credit guarantees, prohibitive interest rates, and cumbersome application procedures. There was also an information and capacity gap, with financial institutions lacking information on SMMEs regarding their financial health, environment, social factors and governance. On the other hand, SMMEs lacked knowledge about financial opportunities, credit guarantee schemes and support programmes. They also lacked business, finance and environmental skills. Regulatory mismatches included the lack of supportive regulations, such as the legal status of green SMMEs; the presence of burdensome regulations (registration, licences, tax); and the negative effects of existing regulations (subsidies for large firms).
Ms Hattingh said there were internal and external barriers to financing Local Green Enterprises. The internal barriers were:
- Demands for green and social goods
- Support required to become green
- Programmes for financial literacy
- Collateral requirements
- Access to financial services
The external barriers were:
- Financial ecosystem challenges
- Banking regulations
- The regulatory landscape
- The stakeholder landscapes
- The impact of COVID-19
Ms Hattingh said the solution involved bridging the trust gap between SMMEs and financial institutions. There was a need to ensure SMMEs could pledge movable assets as collateral; improve and green public credit guarantee schemes; bridge the information and capacity gaps; credit information sharing mechanisms must be more granular and greener; the information chain on the environment, social factors and governance had to be robust but simplified; and the establishment of an SMME agency as a one-stop-shop, with liaison offices.
Bridging the financing ecosystem gap would require unleashing the potential of development finance institutions(DFIs), and improving consumer protection.
Climate change opportunities
A wide range of both mitigation and adaptation actions was available at all levels, ranging from continental to local. These were needed to combat the urgent adverse effects of climate change, further support climate-resilient, inclusive and equitable socioeconomic development, and increase resilience to future impacts. A unique opportunity existed to introduce cleaner, greener, fairer and more sustainable initiatives, and to apply ambitious, whole value chain approaches.