South African municipalities get less than 10% of climate finance
South African municipalities receive less than 10% of the country’s climate finance, despite being responsible for delivering local infrastructure for the just energy transition, leaving a major funding gap, new research finds.
The report shows that South Africa needs around ZAR 1.5 trillion (USD 81.83 billion) between 2023 and 2027 to finance its energy transition. Municipalities alone need about ZAR 200 billion (USD 10.91 billion), but city-level projects received just ZAR 1.71 billion (USD 93.3 million) in 2024, underscoring the scale of the funding gap facing local governments.
The International Institute for Sustainable Development report Bridging the Gap: Financing Mechanisms for Municipal Energy Transitions in South Africa comes as President Cyril Ramaphosa acknowledged the governance and financial challenges facing local governments in the 2026 State of the Nation Address and called for structural reforms to strengthen the municipal funding model.
The findings also reflect a broader global trend, with cities receiving only about 10%–15% of total climate finance—but the gap is particularly stark in South Africa. While total climate finance has increased, reaching ZAR 239 billion (USD 14.06 billion) in 2024, municipalities still struggle to access these funds due to low creditworthiness, limited technical capacity, and limited financing channels.
“Municipalities are on the front lines of South Africa’s energy transition, yet they receive only a small share of climate finance,” says Bathandwa Vazi, Policy Advisor at IISD. “Without stronger financial mechanisms and targeted support, local governments will struggle to deliver the infrastructure and investments needed for a just and effective transition.”
Municipal finances further constrain investment. Property rates and service charges account for 62.5% of operating budgets, while national transfers make up 25%, leaving limited fiscal flexibility. A 2023 IISD survey shows municipalities rely heavily on their own revenues, with limited use of debt financing—highlighting institutional barriers to borrowing. Smaller and rural municipalities face even greater constraints.
Why Climate Finance Is Not Reaching Cities
The report also finds that the structure of climate finance itself makes it difficult for municipalities to access funding. Around 64% of available climate finance is directed toward clean energy projects, through large-scale private investments and debt instruments. Adaptation and locally led initiatives receive far smaller shares, a design that tends to favour national or private sector projects over municipal ones.
Between 2022 and 2023, South Africa mobilized about ZAR 10 billion (USD 611 million) in green finance grants across 160 projects implemented by 90 agencies. However, publicly available data does not specify how much of this funding went to municipalities. This lack of transparency makes it difficult to track whether climate finance is supporting local governments responsible for delivering much of the infrastructure needed for the energy transition.
A related imbalance is seen in the Just Energy Transition Investment Plan. While billions have been allocated to national priorities such as electricity infrastructure and green hydrogen, municipal projects received only ZAR 1.71 billion (USD 93.3 million) in 2024—less than one sixth of total funding—highlighting a persistent gap at the local level.
“South Africa’s energy transition will not be socially just or economically viable unless municipalities—particularly smaller and under-resourced ones—have the tools, financing, and institutional support needed to implement renewable energy projects, modernize electricity grids, and strengthen climate resilience,” concludes Vazi. “Empowering municipalities will ultimately determine whether the transition succeeds on the ground.”
Closing this gap will require strengthening municipal capacity to develop bankable projects, improving transparency in climate finance tracking, expanding access to blended and concessional finance, and fostering partnerships between municipalities, development banks, and the private sector.
Media Contacts
Bathandwa Vazi, Policy Advisor, IISD, [email protected]
Madhulika Verma, Senior Communications Officer, [email protected]
About IISD
The International Institute for Sustainable Development (IISD) is a globally recognized think tank with 3 decades of experience working to solve the world’s most pressing sustainable development challenges. We combine deep expertise in a wide range of issues with a collaborative approach to research, policy advice, and hands-on support to ensure these solutions are brought to life. Headquartered in Winnipeg, Manitoba, we are a diverse team of over 300 professionals working from offices in Canada, Switzerland, and other locations around the world.
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