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

This research paper by the Institute for Economic Justice (IEJ) examines the role of Development Finance Institutions (DFIs) in providing climate finance for South Africa's Just Energy Transition (JET). It focuses on the Industrial Development Corporation (IDC), arguing that its current self-financing model and commercial risk appetite hinder its ability to provide the 'patient capital' necessary for green industrialisation and worker transitions. The paper proposes a shift toward recapitalisation via fiscal and monetary instruments, more concessional lending, and democratised governance to align the IDC with socially just and worker-centred climate goals.

• The Industrial Development Corporation (IDC) is the largest DFI in South Africa and is specifically tasked with industrialisation, localisation, job creation and skills development, making it a primary entry point for supporting the Just Energy Transition (JET).
• South Africa's annual climate financing needs are estimated by the Presidential Climate Commission (PCC) to be between R334 billion and R535 billion to achieve net-zero by 2050 and Nationally Determined Contributions (NDCs) by 2030. However, tracked annual average climate finance between 2019 and 2021 was only R131 billion.
• The IDC's investment portfolio remains heavily skewed toward carbon-intensive sectors. In fiscal year 2024, 37.2% of its R94 billion portfolio value was in the mining and metals sector, with 12.8% in energy.
• The IDC's classification as a 'self-financing' Schedule 2 entity forces it to rely on volatile capital markets, making it vulnerable to shocks and limiting its ability to provide long-term patient capital. It has not received government funds since 1954.
• The IDC's financial behavior is described as commercial and risk-averse, utilizing a 'prudential policy upper limit' of 60% for its gearing ratio and relying increasingly on short-term loan advances (which rose from R17.3 billion in 2023/2024 to a projected R23 billion by 2026/2027) rather than long-term borrowings.
• The IDC's governance is characterized by a private sector bias, with 6 out of 10 board members coming from the private sector, many associated with the minerals-energy-finance complex (MEFC). There is no civil society or NGO representation on the board.
• A study by the Centre for Environmental Rights (CER) found that 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 through budget support of up to R100 billion annually and monetary policy initiatives that could provide more than R180 billion by leveraging retirement industry assets.
• To support the JET, the IEJ proposes that the IDC restructure its lending by providing grace periods of at least five years, reducing its profit motive to cover only three years of operating costs, and increasing its debt-to-equity ratio to 75%.
• The IEJ recommends democratising the IDC Board by including representatives from civil society, workers, and government departments specifically tasked with the green transition, such as environmental affairs and agriculture.

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} }