Green and social bonds are positioned to raise funding for environmental or climate-related projects that have favourable environmental and social impacts, respectively such as enhancing energy efficiency, preventing pollution, establishing sustainable agriculture, improving education and healthcare outcomes as well as reducing inequality.
In December 2021, Nedbank listed a R1.09-billion green bond on the JSE, whose proceeds would be used to fund green residential developments. The bond was floated on the JSE’s Sustainability Segment. Similarly, FirstRand Bank earlier this year listed two sustainability bonds to finance and refinance borrowers looking to invest in green buildings and affordable housing projects. The two bonds, with a total value of R2-billion, are part of a long-term programme to raise R72-billion for FirstRand’s sustainability projects. TUHF Limited (TUHF) in partnership with Standard Bank listed four social bonds valued at R609-million, in March 2021. The proceeds of the bonds will drive sustainable development through the provision of affordable housing and improved access to funding for property SMMEs and entrepreneurs.
Aside from providing the financial instruments to fund sustainable projects, the need to create a broader enabling environment for sustainable development is also extremely important, especially as regulation and guidance are changing rapidly on a worldwide scale. To this end, the JSE released its Sustainability and Climate Disclosure Guidance in June 2022 to promote transparency and good governance. The aim is to guide listed and unlisted companies on best practice in environmental, social and governance (ESG) disclosure through a combination of global best practice and local relevance, thus simplifying ESG disclosure for companies in a context of the various frameworks, guidelines, standards and ratings in the market.
Now more than ever, there is a critical need for climate financing in Africa, a region that is particularly vulnerable to the devastating impacts of climate change, such as severe droughts and flooding. There is currently a pressing need for capital markets to close the funding gap between the climate action financing needs of developing countries and the funding that has been pledged for sustainable development. Private market participation will be key to achieving this.
Driving a just transition is particularly pertinent in the South African and broader African context, where climate financing will be key to mitigating socio-economic impacts such as job losses and migration. Given South Africa’s massive unemployment crisis and high levels of inequality, it is imperative to achieve the transition away from fossil fuels to a green economy in a manner that does not exacerbate unemployment.
While the retention of jobs is a critical factor, provision must also be made to compensate workers whose jobs might be lost or relocated across the fossil fuel value chain. These specific needs are key aspects that must be addressed in the context of Africa’s climate action financing to enable a just transition.
One of the main themes emerging from COP 27 (the climate conference convened by the United Nations that took place in 2022), is the need for developed countries to deliver on their promises of climate financing, particularly for developing economies to enable their transition away from fossil fuels. This must happen quickly, as the world is moving ever closer to the edge of the cliff if climate action is not undertaken as a priority. This was succinctly summed by UN Secretary-General, António Guterres at the opening of COP 27, who stated: “We are on the highway to climate hell with our foot on the accelerator.”
Another prominent theme raised at the summit is growing concern over the increasing debt burden on developing countries as much of their climate funding is being supplied in the form of debt financing. For example, given that South Africa already has R4.7-trillion debt on its balance sheet and its debt service already amounts to R330-billion annually, it is questionable how much remaining capacity we have for additional debt.
At the same time, South Africa cannot afford to procrastinate on the implementation of its Just Energy Transition Investment Plan (JET-IP), which was approved by government in November 2022 and announced at COP 27 by President Cyril Ramaphosa. Transitioning to a greener economy is as much a socio-economic imperative as it is an environmental one.
The plan outlines the country’s priority sectors as being green hydrogen, decarbonisation of the energy sector and the switch to electric vehicles. It is in these priority areas that urgent focus must be placed on project implementation and funding. However, the president noted that an additional R1.5-trillion would be needed within the next five years for the JET-IP, with a portion of this funding expected to come from international funders while the balance will need to be financed locally and implementation will be extensively supported by the private sector.
At the JSE, we are guided by our view that the stock exchange can a play a pivotal role in creating an enabling environment for better sustainability practices to take root in the markets we serve and facilitate the flow of capital to support the aims of sustainable development as well as resilient markets and economies. By building a sustainable business ecosystem, we can meaningfully contribute to the aims of sustainable development within our sphere of influenc.
*Shameela Soobramoney is the chief sustainability officer at the Johannesburg Stock Exchange.
Financial markets are positioned to act as a powerful force for good in driving sustainable value creation, and the Johannesburg Stock Exchange (JSE) understands the importance of integrating a long-term perspective into markets. This approach facilitates the reduction of socioeconomic and physical climate risks, while contributing to improved financial stability and the transition to a low-carbon economy.
The JSE remains firmly committed to consistently advancing sustainability practices in business and integrating it across its value chain by guiding its markets on the key role that environmental, social and governance (ESG) disclosure plays in investment
considerations. Furthermore, the JSE is leveraging its central role as a connector to drive engagement and advocacy in relation to sustainability, while also providing the tools and investment products needed to facilitate responsible investing and reorientate capital flows to more sustainable development.
In July 2020, the JSE launched its Sustainability Segment, which is a platform for companies to raise debt for green, social and sustainable initiatives. The Segment makes it accessible and easy for companies to list and trade sustainability-related instruments to raise funds for activities directed at sustainable development. The Sustainability Segment is essentially an expansion of the JSE’s Green Bond Segment to cover a wider range of sustainable finance instruments where interested issuers can list social, sustainability and green bonds along with transition bonds.