Green finance taxonomy standards have emerged to provide clarity on what economic activities can be considered green for the purpose of attracting investment and counteracting greenwashing. This paper analyses the determinants of the climate change mitigation ambition level of the South African green finance taxonomy in comparison to the EU’s own taxonomy, given (i) the interplay between EU’s and RSA’s production and financial networks, and (ii) South Africa’s willingness to attract European funding for sustainable development. We find that EU private investor bond holdings across different South African sectors and economic activities and South African commodity exports to the EU are positively related with a higher level of greenness of the economic activities in the South African taxonomy. In contrast, financing from European government owned development banks seems to lower the ambition level of the South African taxonomy compared to the EU’s taxonomy, particularly in the sectors which have historically depended on development finance. South Africa’s efforts to launch a green finance taxonomy have redirected both bondholders’ investment and banks’ loan allocation from economic activities excluded from the taxonomy to those which are included as green under the taxonomy. Our results do not suggest though that this effect is enhanced by the ambition level of the South African taxonomy in relation to its European equivalent. In contrast, our results indicate that while bondholders are ambition agnostic, banks increase loans in activities which the South African taxonomy classifies as green, particularly when the ambition level is lower.
