THE SCALING UP OF DEVELOPMENT FINANCE INSTITUTIONS IN CLIMATE FINANCE PROVISION TO SUPPORT LOCALISATION AND WORKER TRANSITIONS

The research paper assesses the capacity of public DFIs and Multilateral Development Banks (MDBs) to mobilise climate finance, focusing on a case study of South Africa's Industrial Development Corporation (IDC). It argues that the IDC's current self-financing model and commercial risk appetite hinder its ability to provide the 'patient capital' necessary for a just transition. The authors propose recapitalising the IDC through fiscal and monetary instruments, scaling concessional lending, and democratising its governance to better align with green industrialisation and worker-centric goals.

• Public DFIs and banks possess immense global financial resources, with the Finance in Common Summit (FiCS) identifying 536 PDBs with over $23 trillion in assets, and a broader group of 1,115 public financial institutions holding over $91 trillion.
• Public institutions outperformed private investors in global climate finance between 2017 and 2022; in 2022, public institutions accounted for 51.6% ($730 billion) of total climate finance, while private investors accounted for 32.7% ($463 billion).
• South Africa's annual climate financing needs are estimated between R334 billion and R535 billion to reach net-zero by 2050, but tracked annual average finance from 2019 to 2021 was only R131 billion.
• The Industrial Development Corporation (IDC) remains heavily exposed to carbon-intensive sectors; as of fiscal year 2024, 37.2% of its R94 billion portfolio value was in the mining and metals sector, and 12.8% was in energy.
• The IDC's 'self-financing' status as a Schedule 2 entity means it has received no government funds since 1954, forcing it to rely on volatile capital markets and short-term loan advances to fund daily operations.
• The IDC's risk management is characterized as risk-averse and similar to commercial banks, utilizing a 'prudential policy upper limit' of 60% for its gearing ratio to maintain credit ratings rather than prioritizing patient capital.
• The IDC's governance is criticized for a private sector bias, with six out of ten board members coming from the private sector, many associated with the minerals-energy-finance complex (MEFC).
• A study by the Centre for Environmental Rights (CER) found the IDC scored 0.8 out of 10 on transparency and accountability, ranking last among six studied DFIs due to a lack of publicly available formal policies.
• The IEJ recommends recapitalising the IDC with up to R100 billion from the fiscus and potentially over R180 billion through monetary policy initiatives to support the transition.
• To support the Just Energy Transition, the IEJ proposes that the IDC reduce its profit motive to cover only three years of operating costs and provide grace periods of at least five years on loans.

APA

Stott, J., & Chikowore, A. (2025). THE SCALING UP OF DEVELOPMENT FINANCE INSTITUTIONS IN CLIMATE FINANCE PROVISION TO SUPPORT LOCALISATION AND WORKER TRANSITIONS. Institute for Economic Justice. https://iej.org.za/wp-content/uploads/2025/02/IEJ-ClimateWorkingPaper-ScalingDFIs2025.pdf

Chicago

Stott, Joan, and Adrian Chikowore. THE SCALING UP OF DEVELOPMENT FINANCE INSTITUTIONS IN CLIMATE FINANCE PROVISION TO SUPPORT LOCALISATION AND WORKER TRANSITIONS. Institute for Economic Justice, 2025. https://iej.org.za/wp-content/uploads/2025/02/IEJ-ClimateWorkingPaper-ScalingDFIs2025.pdf.

Wikipedia

{{cite report |last1=Stott |first1=Joan |last2=Chikowore |first2=Adrian |title=THE SCALING UP OF DEVELOPMENT FINANCE INSTITUTIONS IN CLIMATE FINANCE PROVISION TO SUPPORT LOCALISATION AND WORKER TRANSITIONS |publisher=Institute for Economic Justice |date=February 2025 |url=https://iej.org.za/wp-content/uploads/2025/02/IEJ-ClimateWorkingPaper-ScalingDFIs2025.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{stott2025scaling, author = {Stott, Joan and Chikowore, Adrian}, title = {{THE SCALING UP OF DEVELOPMENT FINANCE INSTITUTIONS IN CLIMATE FINANCE PROVISION TO SUPPORT LOCALISATION AND WORKER TRANSITIONS}}, institution = {Institute for Economic Justice}, year = {2025}, month = feb, url = {https://iej.org.za/wp-content/uploads/2025/02/IEJ-ClimateWorkingPaper-ScalingDFIs2025.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }