Vukile Davidson, chief-director of financial sector policy, South African National Treasury

South Africa’s green finance taxonomy is an essential tool for facilitating cross-border financial capital flows, said Vukile Davidson, chief-director of financial sector policy in the South African National Treasury.

As a classification system that defines whether assets, projects, activities and sectors are eligible to be defined as “green” in line with international best practice, South Africa’s green finance taxonomy, has been shown to be closely aligned with the European Union’s (EU’s) green finance taxonomy, he said. This will smooth the processes involved in South Africa’s trade with the EU, one of the country’s major trading partners.

South Africa has pledged, via the United Nations Framework Convention on Climate Change, to start reducing its greenhouse gas emissions by 2030, and to reach net-zero emissions by 2050. Along with a carbon tax, the South African green finance taxonomy is a tool that will be used by the government in its quest to achieve its 2050 goal, Davidson said.

South Africa needs approximately R1.5-trillion in investment over the next five years, just to switch from a high-emissions to a low-emissions energy sector, and a “significant portion” of those funds would have to come from the private sector. Having a green finance taxonomy that is well-aligned with that of the EU will help South Africa to attract investment from the 27-country economic bloc.

While South Africa’s taxonomy is based on the EU’s, adaptations had been made that suited South Africa as an emerging economy, Davidson said. Consultations on what should be changed had been broad, including the private sector, civil society, regulators and more.

Davidson said South Africa was not yet focused on having the “interoperability” between the South African and the EU taxonomies formally recognised, although this step might come later.