ESG Risk

Thato Kola, ESG analyst, Matrix Fund Managers

In managing financial assets, Matrix Fund Managers (Matrix) keeps a close watch on policy changes which are likely to impact on the investment environment. We offer a short summary of some of the key changes taking place.

1. Regulatory Reforms

Within the current regulatory landscape, there are two key policy developments that Matrix is monitoring closely.

a.     Carbon Tax

South Africa’s carbon tax, introduced in 2019, is entering its second phase with meaningful rate increases and reduced allowances, effective from 1 January 2026. Based on the “polluter pays” principle, the tax is designed to change corporate behaviour by incentivising lower emissions over time.

While initially introduced at relatively modest levels, the impending increases have prompted resistance, including calls to pause or suspend the tax. The Minister of Electricity and Energy, Kgosientsho Ramokgopa, has previously suggested a temporary suspension, citing pressure from fossil fuel interests, rising electricity tariffs and concerns that the tax is not meeting its objectives.

However, the 2026 National Budget Speech confirmed that implementation will continue in line with the original Carbon Tax Act. Government is, in fact, sharpening its focus on emissions by strengthening the tax framework, including higher rates and adjusted allowances. This signals clear policy continuity rather than retreat.

That said, continued lobbying from the fossil fuel industry is likely, and this remains an area requiring close monitoring.

Carbon tax is one of the primary instruments used globally to address climate change. It seeks to impose a sufficiently punitive cost on high emitters to drive behavioural change, while also generating revenue to mitigate the socio-economic externalities associated with carbon emissions.

More broadly, any suspension or slowing of the planned annual increases could be interpreted as a step back from South Africa’s international climate commitments. As the impact of climate-related natural disasters becomes more evident, the policy emphasis should remain on strengthening mitigation and adaptation strategies, rather than reversing course.

Under the Paris Agreement, countries are required to submit successive Nationally Determined Contributions (NDCs), each representing a progression towards more ambitious climate targets. These commitments are cumulative and forward-looking. In practical terms, the transition cannot simply be paused. The trajectory is set, and progress must continue.

b.    Local Government Coalition Policy

The Local Government: Municipal Structures Amendment Bill, commonly referred to as the “Coalitions Bill”, was introduced to Parliament in 2024 to promote greater stability in coalition-governed municipalities.

Key proposals include:

1.     Conversion to a collective executive system – Where no single party holds a majority, municipalities would be required to adopt a collective executive committee system.

2.     Transparent voting on motions of no confidence – The Bill proposes moving away from secret ballots for certain votes, introducing greater transparency and discouraging backroom deals or vote buying. It also introduces a two-year minimum period before senior office bearers can be removed.

3.     Binding coalition agreements – Where no party holds a majority, parties would be required to enter into written coalition agreements, which must be made public and meet prescribed content requirements.

The Bill represents a significant regulatory reform aimed at addressing instability in hung municipalities. Currently, approximately 70 municipalities are governed through coalition arrangements, and this number may increase following the upcoming local government elections, scheduled between 2 November 2026 and 30 January 2027.

If passed, the Bill could materially improve governance stability at local level, with positive implications for service delivery and municipal performance.

2. Institutional Reforms

Institutional reform has been a key contributor to the improving economic backdrop in South Africa. Sustaining this momentum will require continued reform, particularly within major state institutions. Two developments warrant close attention.

a.     Leadership Change at the South African Revenue Service (SARS)

The current SARS Commissioner, Edward Kieswetter, is scheduled to conclude his term on 30 April 2026. Although his original five-year contract, which expired in April 2024, was extended by two years, that extension is nearing its end. The process to appoint a successor is reportedly underway, though largely outside the public eye.

Given SARS’s central role in revenue collection and fiscal stability, the appointment of a capable successor is critical. Over recent years, substantial progress has been made in restoring the institution following a period of governance and operational decline. Preserving these gains will depend heavily on leadership continuity and institutional strength.

We will monitor the succession process closely and assess its implications for revenue performance and broader fiscal outcomes.

b.    Eskom Unbundling

Another significant institutional development concerns Eskom’s unbundling process. In December 2025, Eskom announced a revised unbundling strategy, approved by the Ministry of Electricity and Energy. Under this approach, an independent Transmission System Operator (TSO) will be established outside of Eskom to provide access to the transmission network, while transmission assets will remain owned by the National Transmission Company South Africa (NTCSA).

The revised proposal has, however, attracted criticism. Some stakeholders argue that to ensure a fair, transparent and non-discriminatory electricity market, Eskom, as the dominant participant, should not retain control over transmission infrastructure. Others contend that for the TSO to effectively raise capital for network expansion, it must have direct ownership of assets.

As this process evolves, it will have important implications for competition in electricity generation, capital investment in transmission infrastructure, and the broader energy reform agenda.

We will continue to track all developments closely.