Transcending the interregnum: exploring how financial systems relate to sustainability transition processes

The financial system – defined as intermediaries, markets and infrastructure – plays a central role in shifting towards new sustainable paths. The Paris Climate Agreement, Agenda 2030 and the Sustainable Development Goals and the Addis Ababa Action Agenda acknowledge this central role by setting objectives for finance flows to be “consistent and integrated” when responding to the sustainability and climate breakdown. Although existing framings on sustainability-related finance and its role address financial innovations and new instruments for the transition, it pays limited attention to financial system-level issues. Sustainability transitions studies position finance as serving a functional, resource-based role within the economy critical for driving radical system-level changes. However, limited critical research on the role of financial systems in transitions processes has been conducted thus far. This thesis addresses these research gaps by exploring how financial systems relate to sustainability transitions processes during the “interregnum”, i.e. the period of discontinuity where old paths are faltering, and new paths have not yet fully emerged. The thesis opens with a theory-focused paper, which proposes a “transition demands” framework, and identifies design features for the financial system to meet the demands of transition processes. South Africa represents the empirical context for the next two papers. The second paper outlines the structural features and experimental approaches within South Africa’s financial system and identifies issues of how transitions may be supported or inhibited. The third paper turns attention to energy transitions in South Africa which are essential for creating new sustainable pathways. It applies the “transition demands” framework to the case of South Africa’s energy transition from 1994 to 2019, focusing on how financial intermediaries related to the US$20 billion renewable energy procurement programme. The thesis offers conceptual contributions by establishing that financial systems require explicit framing and engagement to address issues such policy contexts, and implicit assumptions. The empirical contributions provide a basis for critically evaluating the degree to which the system-level changes being implemented by the financial system contribute towards new sustainable pathways. The thesis also derives policy insights for meeting the multilateral objectives of achieving “consistency and integration” in finance flows. These insights relate to mutual learning, dialogue, and adopting experimental approaches between policymakers and financial intermediaries.