Households will be hardest hit if South Africa is forced to self-finance the transition to net zero

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South African household spending could fall by a total of $281.8 billion by 2060 if the country were to self-finance its journey to net zero, new research from Standard Chartered has found.

According to Just in Time: Financing a fair transition to net zero, which examines the transition financing gap for emerging markets and how to fill it, South Africa will need $833.6 billion to move to net zero and will need help from developed countries. markets to achieve its goals.

The study found that…

– If the financing South Africa needs to move to net zero is provided by developed markets, South African household spending could increase by $311.1 billion by 2060 from self-financing

– If emerging markets finance their own transition, without help from developed markets, household consumption in these markets could fall by an average of 5% each year

– If developed markets fund the transition, global GDP could be $108.3 trillion more cumulatively by 2060

The financing gap of the transition

While South Africa needs $833.6 billion in investment to go to net zero, Just in Time reveals that emerging markets as a whole need to invest an additional $94.8 trillion – more than the Annual World GDP – to spend in time to meet long-term global warming goals. This is in addition to the capital already allocated by governments under their current climate policies.

However, as our previous report, The USD50 Trillion Question, shows, encouraging investment in emerging markets is a difficult task. The world’s top 300 investment firms, with total assets under management of more than $50 trillion, have only 2%, 3% and 5% of their investments in the Middle East, Africa, respectively. and in South America.

Closing the transition funding gap

Just in Time examines two paths to closing the emerging markets transition financing gap, self-financing by emerging markets and financing from developed markets, where capital is provided through grants and loans.

Exclusively self-financing emerging markets would lead to higher taxes and increased government borrowing, which means families in emerging markets, including South Africa, will have less to spend on their day-to-day needs. However, financing from developed markets has the opposite effect.

Making Developed Market Financing a Reality

However, to make the transition as fair as possible, collaboration is needed on strategy, policy and funding. Emerging markets need to put in place net-zero strategies and roadmaps to facilitate the flow of funding to products within their borders. Enabling policy and regulation are crucial, and policy frameworks that prioritize interoperability and do not hold all markets to the same standard are important in the short term.

In addition, the public sector needs to play a more strategic role in mobilizing capital from the real economy, but the private sector needs to step up and take the lead with innovative financing products for investments in emerging markets, as much as about $83 trillion of the $94.8 trillion is expected to come from private sector investors.

Bill Winters, Group Managing Director, Standard Chartered, said: “Emerging markets need a lot of investment to get to net zero and the stakes have never been higher. Without help from developed markets, the improvement in emerging market prosperity could be halted or reversed, which would not only be unfair but would have a hugely negative impact on the global economy.

“However, more importantly, the failure to provide financing for the transition of emerging markets could mean that climate goals are not met, triggering an environmental catastrophe. Governments and the financial sector must come together to facilitate any The flow of investment to emerging markets is urgently needed Funding from developed markets could help prevent the worst of global warming, as well as boost global GDP.

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