The urgency of addressing climate change has placed Development Finance Institutions (DFIs) at the forefront of climate finance mobilisation. These institutions are uniquely positioned to drive sustainable development by funding renewable energy projects, climate resilience initiatives, and green industrialisation. However, for DFIs to meet the demands of the climate emergency, their mandates, governance, and financing mechanisms must align with the goals of a just transition.
This policy brief explores how DFIs, particularly South Africa’s Industrial Development Corporation (IDC), can enhance their role in climate finance mobilisation to support localisation strategies and worker transitions. By analysing the IDC’s operations, we identify key challenges and propose actionable recommendations to strengthen its capacity to drive equitable and sustainable climate action.
The Role of DFIs in Climate Finance
DFIs are critical players in climate finance mobilisation, bridging the gap between public and private funding. However, current financing levels fall short of global needs. For instance, South Africa requires between R334 billion and R535 billion annually to meet its climate goals, yet only R131 billion was mobilised on average between 2019 and 2021. DFIs contributed just 7.6% of this total, highlighting the need for reform.
The IDC, as a key DFI in South Africa, faces significant challenges in aligning its operations with climate goals. Despite a mandate to support green industrialisation, its portfolio remains heavily skewed toward carbon-intensive sectors like mining and energy. This misalignment stems from its reliance on commercial financing, conservative lending practices, and governance structures that prioritise private sector interests.
Key Challenges in Climate Finance Mobilisation
- Capital Constraints: The IDC’s self-financing model makes it vulnerable to capital market fluctuations, limiting its ability to provide patient capital for long-term climate projects.
- Conservative Lending: High interest rates and short repayment periods discourage investments in green transitions, which require extended timelines and concessional financing.
- Governance Gaps: The IDC’s board lacks representation from civil society and workers, skewing decision-making toward traditional, high-carbon industries.
Recommendations for Strengthening Climate Finance Mobilisation
To enhance the IDC’s role in climate finance mobilisation, we propose the following reforms:
- Recapitalisation:
- Inject up to R100 billion in fiscal support and leverage monetary policy initiatives to raise an additional R180 billion.
- Provide guarantees for loans exceeding 10-15 years to support long-term climate projects.
- Concessional Lending:
- Offer loans at 2% below prime with grace periods of at least five years.
- Adjust risk ratios to enable investments in socially impactful, long-term projects.
- Governance Reforms:
- Diversify the board to include representatives from civil society, workers, and green industries.
- Improve transparency by aligning reporting with the Green Finance Taxonomy and making policies publicly available.
Conclusion
As global climate finance discussions evolve, South Africa must ensure its domestic institutions are equipped to meet the demands of a just transition. By reforming the IDC’s financing mechanisms and governance structures, the country can enhance its climate finance mobilisation efforts, fostering a sustainable and equitable green economy. These reforms not only address local challenges but also provide valuable lessons for other nations striving to achieve their climate goals.
Amaarah is a Junior Programme Officer in the Rethinking Economics for Africa project. She is currently studying towards her Masters in Applied Development Economics at Wits University. 
Dr James Musonda is the Senior Researcher on the Just Energy Transition at the IEJ. He is also the Principal Investigator for the Just Energy Transition: Localisation, Decent Work, SMMEs, and Sustainable Livelihoods project, covering South Africa, Ghana, and Kenya.
Dr Basani Baloyi is a Co-Programme Director at the IEJ. She is a feminist, development economist and activist. She gained her research experience while working on industrial policy issues in academia, at the Centre For Competition, Regulation and Economic Development (CCRED) and Corporate Strategy and Industrial Development (CSID) Unit.
Dr Andrew Bennie is Senior Researcher in Climate Policy and Food Systems at the IEJ. He has extensive background in academic and civil society research, organising, and activism. Andrew has an MA in Development and Environmental Sociology, and a PhD in Sociology on food politics, the agrarian question, and collective action in South Africa, both from the University of the Witwatersrand.
Juhi holds a Bachelor of Arts degree in International Relations and Sociology from Wits University and an Honours degree in Development Studies from the University of Cape Town. Her current research focus is on social care regimes in the South African context, with a particular focus on state responses to Early Childhood Development and Long-Term Care for older persons during the COVID-19 pandemic. Her other research areas include feminist economics, worlds of work and the care economy.
Bandile Ngidi is the Programme Officer for Rethinking Economics for Africa. Bandile has previously worked at the National Minimum Wage Research Initiative and Oxfam South Africa. He holds a Masters in Development Theory and Policy from Wits University. He joined the IEJ in August 2018. Bandile is currently working on incubating the Rethinking Economics for Africa movement (working with students, academics and broader civil society). 
Liso Mdutyana has a BCom in Philosophy and Economics, an Honours in Applied Development Economics, and a Masters in Applied Development Economics from Wits University. His areas of interest include political economy, labour markets, technology and work, and industrial policy. Through his work Liso aims to show the possibility and necessity of economic development that prioritises human wellbeing for everyone.
Joan Stott holds a Bachelor of Business Science in Economics and a Master’s in Economics from Rhodes University. She brings to the IEJ a wealth of experience in public finance management, policy development, institutional capacity-building, and advancing socioeconomic and fiscal justice.
Siyanda Baduza is a Junior Basic Income Researcher at IEJ. He holds a BSc in Economics and Mathematics, an Honours degree in Applied Development Economics, and is currently completing a Master’s degree in Applied Development Economics at the University of the Witwatersrand. Siyanda’s research focuses on the impacts of social grants on wellbeing, with a particular focus on the gendered dynamics of this impact. His interests include applied micro-economics, policy impact evaluation, labour markets, gender economics, and political economy. He is passionate about translating economic research into impactful policy.
Shikwane is a Junior Programme Officer at IEJ focusing on civil society support and global governance in the G20. He has a background in legal compliance, IT contracting and student activism. He holds degrees in Political Studies and International Relations, as well as an LLB, from the University of the Witwatersrand.
Dr Tsega is a Senior Researcher focusing on Women’s Economic Empowerment within the G20. She examines gender equity in economic policy, with expertise in food systems and small enterprise development. She holds a PhD in development studies from the University of the Western Cape, an MA in Development Economics, and degrees in Development Studies and Economics from UNISA and Addis Ababa University.
Nerissa is a G20 Junior Researcher at IEJ, focusing on advancing civil society priorities within the G20 framework. She bridges data, research, and policy to advance inclusive economic frameworks. She is completing a Master’s in Data Science (e-Science) at the University of the Witwatersrand, and holds Honours and Bachelor’s Degrees in International Relations with distinction. She has worked as a Research Fellow at SAIIA and a Visiting Research Fellow at Ipea in Brazil.
Dr Mzwanele is a Senior Researcher supporting South Africa’s G20 Sherpa with policy research. He holds a PhD in Economics from the University of Birmingham and an MSc from the University of the Witwatersrand. His work covers open macroeconomics, trade, finance, and higher education policy, and he has published widely on inequality, unemployment, household debt and higher education curriculum reform.
Kamal is the Project Lead for IEJ’s G20 work, focusing on sovereign debt and development finance. He holds a BComm (Hons) in Applied Development Economics from the University of the Witwatersrand and an Erasmus Mundus Joint Masters in Economic Policies for the Global Transition. He has worked with SCIS, UNCTAD and co-founded Rethinking Economics for Africa.