The Development Bank of Southern Africa (DBSA) has been awarded funding to the value of $55.6m from the Green Climate Fund (GCF) to establish a R2bn Climate Finance Facility (CFF).

“We are very excited about the Climate Finance Facility. It is an innovative financial product that enables us to crowd-in third party investors and increase our financial support for climate friendly projects,” said Patrick Dlamini, CEO of the DBSA. 

The DBSA will provide R650m and is in advanced discussions with a local institution for the balance.

The GCF is a global fund set up as a funding mechanism of the United Nations Framework Convention on Climate Change (UNFCC) to support developing countries in responding to climate change.

The CFF is a debt facility that aims to address market constraints in the private sector and play a catalytic role with a blended finance approach in increasing climate related investments in Southern Africa.  

The CFF will co-fund projects and businesses that mitigate or adapt to climate change. Once implemented, this will potentially be the first green bank concept adapted for developing countries, certainly for Africa.

The CFF is designed to enable private sector financial institutions to scale up climate finance by crowding in capital.  

It will focus on infrastructure projects and businesses that mitigate or adapt to climate change and will concentrate on two main instruments, being credit enhancements and tenor extension to projects and businesses that are commercially viable but not yet bankable in the private sector.

In addition to South Africa, the facility will also extend financing to the common monetary area, which includes Namibia, Swaziland and Lesotho.  

“Through this initiative the DBSA will be able to support eight of the United Nations’ 17 Sustainable Development Goals (SDG’s) and in the process, support the South African Government in terms of their proposed Nationally Determined Contributions emanating from the Paris agreement,” said Paul Currie, CIO at the DBSA.  

The Paris Agreement calls on countries to reduce carbon emissions incrementally in order to collectively meet the global target of limiting the increase in the global average temperature to below two percent.
 
The development of the CFF was supported by Convergence Blended Finance and the Climate Works Foundation. 

Convergence awarded a design-funding grant to the Coalition for Green Capital (CGC) to support the DBSA with critical business planning, institutional design, financial product support, capitalisation and operationalisation of the CFF.  

The Climate Works Foundation provided support for critical market analysis to inform the market focus and project pipeline potential for the CFF.