Latest news with #R17-billion
Daily Maverick
3 days ago
- Business
- Daily Maverick
How Sarb and SA's banks are wiring the country's green finance grid
How do you price the risk of a dying planet? The South African Reserve Bank and the country's financial institutions are mapping out a new financial grid for an economy hit by climate extremes. At what point does climate risk become financial risk? And how does a central bank protect the economy when the shocks are fiscal as well as physical? During a recent talk at Stellenbosch University, South African Reserve Bank (Sarb) deputy governor Fundi Tshazibana clarified the central bank's role. 'We are not the drivers of climate policy in the country, we are not the drivers of environmental policy in the country,' she said. 'Where we are focused as central banks is to say there are risks that are associated with climate change, there are risks that are related to extreme weather events, there are risks related to deterioration in nature.' Sarb doesn't set carbon targets, but it does police the intersections between financial stability and ecological collapse. The mercury is rising. South Africa's inflation could spike by 15 percentage points if climate shocks continue, said Tshazibana. Droughts are intensifying and floods are more frequent. In 2022, Sanlam estimated its risk exposure to the floods in KwaZulu-Natal at around R4-billion. And that was just one insurer. The KZN government estimated economic losses in the province amounting, overall, to about R17-billion. Tshazibana noted that when the Sarb asked banks how much of their credit risk exposure lay with companies vulnerable to climate-related events, the answers ranged from 30% to 60%. Inside Sarb's climate risk arsenal In response to the financial risks climate change poses, Sarb has beefed up its toolkit: Bi-monthly inflation reviews now take climate shocks, such as food price spikes due to droughts, into account. Advanced modelling using dynamic and general equilibrium frameworks with granular data, aims to capture the multidimensional impact of climate change. Climate stress-testing: Banks completed Sarb's first round of scenario tests in 2024, and insurers are next. Guidance to financial institutions: Tshazibana urged financial institutions to 'go talk to your clients and start collecting that information so that you yourself can understand the risk exposure'. Greening Sarb's operations: Sarb has developed a strategy to reduce its carbon footprint by 30% by 2026 and reach net zero by 2035. Treasury's call to mobilise sustainable capital Deputy Minister of Finance, David Masondo, told the SA Financial Competitiveness Lekgotla that economic growth stagnated at around 0.6% in 2024, with infrastructure limiting transformation. Masondo affirmed the department's commitment to 'mobilise capital for investment and enhance the competitiveness of South Africa's financial markets'. The Treasury is working with global financial networks and development institutions to mobilise blended finance for adaptation, ensuring capital flows into climate-resilient infrastructure, Masondo said. How does this affect you? Food prices could increase. Climate shocks like floods and droughts disrupt farming, which means your grocery bill could spike. Jobs are on the line. As banks adjust their lending strategies to favour low-carbon sectors, carbon-heavy industries may miss out on financing. Your bank is watching your carbon footprint. Financial institutions are beginning to factor climate risk into loan and credit decisions. Pensions and savings are exposed. If insurers buckle or banks miscalculate the risks of the effects of climate change, your savings could be expected to carry the cost. Banks get down to green business Banks such as Standard Bank are on the frontlines of implementing green financing strategies – trying to turn sustainability into a return on investment. The bank recently launched a Sustainable Finance Product Framework, mapping out how green, social, and transition-labelled debt instruments will be structured and tracked. 'Green categories like climate adaptation or resilience funding or funding for nature-based projects may require greater use of innovative blended finance structures… regulatory incentives that enable green funding are required,' said Boitumelo Sethlatswe, Standard Bank's head of sustainability. Sethlatswe said that South African banks were investing in analytical tools and building internal models using client and open-source data to assess climate risks, but noted that inconsistent data and long-term modelling were a problem for Africa. The system is catching up While Sarb stress-tests the system, Absa says the entire financial sector is making strides. 'South Africa's financial institutions, including Absa, are taking significant steps to improve the way we identify, assess and manage climate-related financial risks,' a spokesperson said. Absa points to growing alignment with global frameworks such as the Task Force on Climate-Related Financial Disclosures (TCFD) and said that internal risk governance was catching up. But in a country with sky-high unemployment rates, the climate conversation should take social realities into consideration. 'The South African Reserve Bank and other monetary authorities play a critical role in facilitating a just transition,' Absa said. 'In a high-unemployment country, it is essential to strike a balance between climate goals and inclusive growth. Absa believes that regulators are increasingly asking the right questions. 'The supervisory focus on climate exposure and transition risk is helping to elevate climate risk management within financial institutions,' the bank said. Nedbank prepares for more demanding disclosures Nedbank, which published its first TCFD report in 2021, says the sector is already preparing for more stringent mandatory disclosures. 'We submitted stress tests last year to the Sarb in line with the rest of the banking sector,' said Priya Naidoo, Nedbank's executive for strategy. 'We maintain a focus on ensuring that we are ready for the enhanced disclosures.' The bank has also introduced a Climate Risk Materiality Framework, aligning its lending decisions with guidance from Sarb, the Basel Committee, and international bodies such as the Intergovernmental Panel on Climate Change and the Network for Greening the Financial System. A strong focus for Nedbank is on integrating climate risks into all major risk types, including credit, market, operational, and funding risk. 'Credit risk management is in place to incorporate and monitor progress toward the bank's strategic climate-related objectives of reducing exposure to all fossil fuels by 2045,' said Naidoo. This includes tracking exposure across sectors and implementing transition 'glidepaths' to gradually reduce carbon-intensive assets, she said. Nedbank also flags that the success of climate-aligned finance depends on cross-functional collaboration across business, finance, risk and sustainability teams. Climate resilience is now a core strategic pillar as consumer and investor expectations evolve. DM
Daily Maverick
19-05-2025
- Politics
- Daily Maverick
Bela Act makes Grade R compulsory, but where is the money?
If Treasury can quietly decide which democratically enacted laws deserve funding resources, we no longer live under a constitutional democracy, but under rule by executive discretion. South Africa's budget season has been dominated by political party grandstanding, masquerading as genuine engagement with the Budget. Amid these theatrics, one glaring issue has inexplicably fallen by the wayside: the complete absence of funding for compulsory Grade R implementation, despite Parliament rightfully passing a law in 2024 that makes it mandatory. Meanwhile, an estimated 200,000 six-year-olds are waiting outside the classroom because National Treasury has decided which laws warrant implementation and which can be quietly smothered through budgetary neglect. The Basic Education Laws Amendment (Bela) Act makes Grade R compulsory and part of the definition of basic education, a constitutionally protected and immediately realisable right. The Department of Basic Education's costing estimated that inclusion of universal Grade R in the basic education sector would require R17-billion – R5.26-billion for educators and R12-billion for infrastructure. For context, this additional money that is needed amounts to only 0.7% of the previously proposed 2025 national Budget. To be clear, this costing is known to Parliament and Treasury, neither of which has contested these figures. Yet, three consecutive Budget proposals have allocated nothing to Grade R implementation – the 2024 Medium Term Expenditure Framework outlining spending plans for the next three years; the Budget that never was, and the 2025 Budget that was never passed. When Equal Education Law Centre (EELC) and other civil society organisations directly questioned Treasury on this matter, officials first dodged the issue before suggesting provinces should 'use what they currently have' – expecting them to somehow absorb a R17-billion obligation within budgets already cut to the bone, despite provinces deriving 97% of their income from national government. The EELC's walk-in law clinic has heard from clients around the country of their inability to obtain placement for their learners in Grade R. The Western Cape Education Department (WCED) reported 4,365 unplaced Grade R learners earlier this year, acknowledging insufficient capacity to fulfil its obligations. In response, the provincial education department said that it was redirecting children from no-fee public schools to fee-paying independent institutions, shifting the state's responsibility to families who inevitably cannot afford it. Meanwhile, parents have sought our advice, fearing potential criminal sanctions for failing to enrol their children in Grade R, creating an absurd situation where caregivers are legally bound to access services the government refuses to provide. The DBE tacitly acknowledges its own inability to meet its obligations in the draft implementation guidelines for Bela, which state: 'Any parent whose child must be enrolled in Grade R at a school in terms of section 2(a) of the Bela Act and who can demonstrate that there are no Grade R places available to that child at registered early childhood development centres, public schools and independent schools within 5km of their place of residence or place of work would justifiably not be able to comply with the compulsory school attendance requirements.' Not only is the burden shifted to already disadvantaged families, these guidelines introduce onerous administrative hurdles. It is now the responsibility of parents to 'demonstrate' unavailability of places within an arbitrary 5km radius — regardless of transportation costs, fees, safety concerns or other access barriers. The problem with unfunded mandates An unfunded mandate – when legislation or policy establishes a legal obligation for a sphere of government to deliver specific services without Treasury allocating the requisite financial resources to fulfil this obligation – is a breach of the principle 'finance follows function'. Unfunded mandates are not inherently unlawful, but Grade R is not just any unfunded mandate. When Grade R was included in the definition of basic education, it created not just an obligation for parents to send their children to school, but a corresponding right that children have now — not whenever Treasury decides it is convenient. It is noteworthy that not a single political party has taken up Grade R funding as an issue in their engagement with the budgets, despite almost all having vigorously campaigned on early learning and literacy. This funding gap reveals three serious governance failures. First, it fundamentally disrupts the separation of powers. When Parliament passes a Bill, it exercises its law-making authority. When Treasury subsequently refuses to fund these mandates, it overrides Parliament's legislative authority without any democratic process. Parliament becomes a hollow chamber if its laws can be rendered meaningless through budgetary decisions made behind closed doors. Second, it fractures our system of cooperative governance. The Constitution envisions a harmonious relationship between national and provincial governments, where responsibilities are matched with resources. This is not to suggest that provinces bear no responsibility — many have failed to efficiently utilise existing education resources and could reprioritise certain expenditures. However, an unfunded mandate of such gravity goes far beyond ordinary budgetary tensions, creating an environment where even the most efficiently run provinces are set up to fail. Third, unfunded mandates fundamentally weaken the rule of law while breeding cynicism among a public already excluded from Treasury's inner workings. When government enacts laws promising educational rights it has no intention of honouring, it teaches the public that law creates binding obligations only for them — not for the state itself. Each unfunded mandate not only chips away at public trust, but also introduces the dangerous idea that laws are merely optional guidelines for government while remaining strict mandates for the public. If Treasury can quietly decide which democratically enacted laws deserve resources — while parents simultaneously face potential criminal sanctions for non-compliance with those same laws — we no longer live under a constitutional democracy, but under rule by executive discretion. Government processes then become merely theatrical performances rather than substantive governance, with Parliament reduced to a stage for political grandstanding while real decisions happen behind Treasury's closed doors. Way forward The path ahead is painfully clear. Almost every political party represented in Parliament promised during the election to prioritise early learning, literacy and numeracy. Now, those promises have to translate into concrete budgetary commitments. Having made Grade R both compulsory and part of basic education, there is no grey area, no room for budget gymnastics or administrative workarounds. The only solution is to fund Grade R implementation. Not next year. Not when fiscal conditions improve. Now. Because the right to basic education is not conditional, and laws are not suggestions. DM Katherine Sutherland and Daniel Peter Al-Naddaf are with Equal Education Law Centre's research department and are members of the Budget Justice Coalition.
