As investors, we must navigate a landscape shaped by regulatory complexities, shifting market dynamics, and varying risk profiles. To harness the potential of infrastructure investment and effectively address these challenges, stakeholders must collaborate to create financing models that are adaptable, transparent, and sustainable. This requires leveraging technology, mobilising private capital, and fostering partnerships between public and private entities, ultimately ensuring a resilient and efficient infrastructure landscape for future generations.

 

The growing demand for sustainable infrastructure


The global commitment to achieving net-zero carbon emissions by mid-century is one of the key drivers accelerating the demand for sustainable infrastructure investments. For instance, the International Renewable Energy Agency (IRENA) highlights that renewable energy investment needs to triple to more than $5 trillion annually by 2030 to meet international climate goals. 


Water management, a critical component of sustainable infrastructure, presents equally pressing challenges. According to a 2024 United Nations report, an estimated 2 billion people currently live in countries experiencing high water stress. By 2025, it is projected that 1.8 billion people will face absolute water scarcity. The World Economic Forum also indicates that the global investment required to meet the water-related Sustainable Development Goals (SDGs) is about $300 billion annually.


We could extend this to various other areas, such as healthcare and education, but the point is clear: the scale of the challenge and opportunity for investors in meeting the global need for investment in sustainable infrastructure to improve the human situation. The opportunities are especially abundant in emerging markets like South Africa, where infrastructure deficits are paired with strong renewable energy potential.
Critical challenges that have arisen in sustainable finance and some of the efforts that have been made to create certainty include the following:

 

1. Risk perceptions

One of the most significant challenges in financing sustainable infrastructure is the perceived riskiness of long-term infrastructure projects, especially in markets with political and economic instability.

Investors require a stable regulatory environment, transparent project governance, and reliable returns, often in flux in developing economies. 

In countries like South Africa, where infrastructure projects are essential for both economic growth and climate resilience, addressing these risks through policy support is vital. The following are examples of what has been done to address the risk perception issue. 

Energy

The South African government has implemented policies to promote investment in renewable energy. The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is a cornerstone of these efforts, playing a crucial role in attracting private investment in solar, wind, and other renewable energy projects. Since its inception, REIPPPP has successfully channelled billions of rands into renewable energy infrastructure, creating jobs and improving energy security.
Importantly, the government has introduced regulatory reforms to accelerate energy investments. For example, recent amendments allow private companies to generate up to 100 MW of power without requiring a license, enabling large-scale industrial users to invest directly in renewable energy projects. 
This deregulation has unlocked new opportunities for the private sector, making the energy landscape more attractive to investors by reducing bureaucratic hurdles.

Water

South Africa has made strides in tackling water management and infrastructure challenges, recognising the urgency of developing sustainable solutions. The government’s National Development Plan (NDP) emphasises the importance of investing in water supply and sanitation infrastructure to support economic growth and social equity.


Additionally, initiatives such as the National Water Resource Strategy and Master Plan aim to promote integrated water resource management and ensure that water infrastructure is resilient to climate change impacts. The Department of Water and Sanitation has also launched the Water Sector Leadership Group, bringing together various stakeholders to address water scarcity and improve governance.


Moreover, South Africa’s investment in renewable energy sources, such as the REIPPPP, also aims to enhance water security by promoting efficient water use in energy generation. These measures reflect a comprehensive approach to addressing water and infrastructure challenges while aligning with global sustainability goals.

2. Data gaps and standardisation

Our view at Prescient Investment Management is that a lack of consistent and transparent data significantly hinders sustainable investment in South Africa. Investors often encounter challenges accessing reliable information regarding environmental impact, project performance, and financial sustainability, complicating their decision-making processes. Simply put – one cannot invest without the required information to support an investment case. This data deficit can lead to uncertainty and increased perceived risk, deterring potential investments in sustainable infrastructure projects. Furthermore, the lack of data also creates issues in reporting on outcomes. 


While steps have been taken to enhance sustainability reporting, South Africa still lacks a comprehensive national framework that mandates consistent data collection and transparency across sectors. Voluntary initiatives exist, with some companies adhering to international reporting standards such as the Global Reporting Initiative (GRI). However, these efforts are neither widespread nor standardised, resulting in a fragmented reporting landscape. South Africa could take several proactive steps to improve data transparency and standardisation.

These include:

1. Establishing a national framework for sustainability reporting would enhance the availability and reliability of data across various sectors. This could foster a culture of accountability and transparency by mandating consistent reporting standards for companies and projects. This could be modelled on international efforts such as the European Union’s Sustainable Finance Disclosure Regulation (SFDR), which seeks to improve access to reliable data.

2. Additionally, promoting the adoption of international best practices in sustainability reporting, such as those outlined by the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB), could further enhance the quality and comparability of data. Encouraging local companies to align their reporting with these frameworks would facilitate better benchmarking and enhance investor confidence.

 

3.    Liquidity and Market Maturity

Despite global growth in renewable energy investment, market liquidity remains challenging, particularly in emerging markets like South Africa. While private debt has become an essential tool in financing infrastructure projects, offering flexible funding options where traditional banks may see too much risk, we still need to ensure sufficient liquidity and broaden access to capital for smaller-scale projects.

South Africa has made notable progress in addressing market liquidity, mainly through initiatives like the REIPPPP. This government-led programme, launched in 2011, has successfully attracted billions in private capital into the renewable energy sector, facilitating investments from both local and international sources. REIPPPP has helped de-risk the renewable energy market by offering competitive bidding processes and long-term Power Purchase Agreements (PPAs), making renewable projects more attractive to investors. The programme has played a vital role in positioning South Africa as a leading player in the renewable energy market on the continent.

In addition, South Africa has seen the emergence of private debt funds focusing on infrastructure, such as Prescient Investment Management's infrastructure debt offerings. These funds provide an alternative source of capital, offering flexible financing solutions for infrastructure projects that may not meet traditional banks' risk thresholds. 

The Johannesburg Stock Exchange (JSE) has also contributed to market development by facilitating the issuance of green bonds supporting environmentally sustainable projects. These initiatives have laid a foundation for improving market liquidity and diversifying funding sources for infrastructure investments.

What further steps can be taken:

1. Deepen the private debt market by encouraging the development of innovative financial instruments tailored to infrastructure investments. For instance, securitising project debt could improve liquidity, allowing institutional investors like pension funds and insurance companies to participate more actively in the market.

2. Broaden access to capital for smaller-scale projects by incentivising investors to fund these initiatives. Government-backed guarantees or risk-sharing mechanisms could reduce the perceived risks, making it easier for investors to finance smaller projects with high developmental and environmental impact, particularly in under-served areas.

3. Strengthen public-private partnerships to enhance market maturity. Collaboration between government, private sector players, and development finance institutions could help pool resources, share risks, and improve liquidity. This would foster a more resilient infrastructure financing ecosystem, ensuring that liquidity challenges do not impede the growth of renewable energy markets in South Africa.


International successes in sustainable infrastructure finance

Internationally, there have been notable examples of how the right regulatory and financial frameworks have accelerated sustainable infrastructure investments. In Europe, offshore wind development has benefited significantly from supportive government policies and financing structures, including public-private partnerships that de-risk projects. The UK’s Contracts for Difference (CfD) scheme is a critical mechanism in the UK and the EU to encourage investment in low-carbon energy generation. We understand this has been instrumental in ensuring long-term price stability for renewable energy projects, attracting significant institutional investment.


The US, too, has demonstrated the importance of tax credits and public incentives to foster private-sector engagement in infrastructure development. The Inflation Reduction Act of 2022, which includes substantial provisions for renewable energy investment, has been hailed a game-changer for the US renewables market.


Bringing it back to the South African context:

The lessons from these international experiences are clear for South Africa. To overcome financing bottlenecks, the government must prioritise regulatory certainty and institute and provide risk-sharing mechanisms. It would also need to offer clearer incentives for private sector participation and close the data gap that hampers investor confidence. 

South Africa’s Integrated Resource Plan (IRP) is a vital blueprint for expanding renewable energy capacity, providing the policy foundation necessary to transition the country toward a more sustainable and diversified energy mix. The IRP prioritises renewable energy projects such as solar, wind, and hydroelectric power, outlining the need to significantly reduce reliance on coal-based energy, which currently dominates the South African energy landscape. 


However, while the IRP is a critical step forward, its implementation has faced challenges due to regulatory uncertainty, bureaucratic delays, and insufficient alignment across government agencies. A more cohesive policy effort is required to fully realise the IRP’s potential. This includes streamlining approval processes for renewable energy projects, providing consistent financial incentives for investors, and integrating energy, water, and land-use planning to ensure that renewable projects are not hampered by infrastructure or resource constraints.


Furthermore, South Africa needs to strengthen partnerships between the public and private sectors. Leveraging public-private partnerships (PPPs) can help reduce financial risks, increase investment flows, and de-risk projects for private investors. Another critical aspect is integrating climate resilience into planning to ensure that new energy infrastructure can withstand the growing impacts of climate change.
Aligning provincial and national policies is also vital. Local governments play a crucial role in implementing infrastructure projects, and greater cooperation between national energy targets and local regulatory environments would accelerate the deployment of clean energy. By fostering this policy cohesion and addressing gaps in the IRP’s execution, South Africa could significantly enhance its renewable energy capacity and meet its long-term climate goals.


Moreover, as private debt emerges as a critical component in global infrastructure funding, South Africa can leverage its growing private debt market to finance renewable energy and infrastructure projects. Institutions like Prescient Investment Management have a role to play by offering credit solutions that align with the country’s long-term development goals while meeting the sustainability requirements of international investors.


Opportunities for investors

Despite the challenges that still need to be overcome in South Africa, the opportunities for investors to invest in infrastructure are substantial. Sustainable infrastructure is not only essential for meeting climate goals but also offers long-term financial returns. Our lived experience at PIM shows that sustainable infrastructure investments do not need to be made at the expense of returns. Long-term clean energy investments offer robust risk-adjusted returns and, to a large extent, outperform many traditional asset classes. 
By addressing the financial and regulatory bottlenecks, South Africa can unlock the potential of its renewable energy market and pave the way for a sustainable infrastructure future—one that offers both environmental and financial rewards.

 

Disclaimer

Prescient Investment Management (Pty) Ltd is an authorised Financial Services Provider (FSP 612). Please note that there are risks involved in buying or selling a financial product, and past performance of a financial product is not necessarily a guide to future performance. The value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. There is no guarantee in respect of capital or returns in a portfolio. No action should be taken on the basis of this information without first seeking independent professional advice. 


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