DRIVING AN ENABLING ENVIRONMENT FOR SUSTAINABLE VALUE CREATION

DRIVING AN ENABLING ENVIRONMENT FOR SUSTAINABLE VALUE CREATION

By Shameela Soobramoney Chief Sustainability Officer at the Johannesburg Stock Exchange

As a conduit between buyers and sellers in the financial markets, the Johannesburg Stock Exchange (JSE) is well positioned to create an enabling environment for sustainable value creation, with the ultimate goal of reducing socio-economic and physical climate risks, while contributing to better financial stability and supporting the transition to a low-carbon economy.

To this end, as Africa’s largest stock exchange, the JSE is committed to the consistent advancement of sustainable practices in business, while also integrating sustainability across its value chain by guiding its markets on the key role that environmental, social and governance (ESG) disclosure plays in investment considerations.

There has never been more urgency or need to drive engagement and advocacy in relation to sustainability by leveraging our vital role as a conduit between business and investors. However, we do this in conjunction with the provision of tools and investment instruments that facilitate responsible investing and reorientate capital flows to increased sustainable development.

To help achieve this, we launched our Sustainability Segment in July 2021, thus giving companies a platform to raise debt for green, social and sustainable initiatives in a trusted, global marketplace. The Sustainability 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 was the result of the expansion of the JSE’s Green Bond Segment into a platform where interested issuers can n addition to green bonds, list Social, Transition Bonds, Sustainability Bonds. These sustainable finance instruments are used to raise funding for environmental or climate-related as well as social projects with expected favourable environmental and social impacts.

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, First Rand 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 have a total value of R2 billion, and are part of a long-term programme to raise R72 billion for FirstRand’s sustainability projects. These are but two examples of the rising capital flow towards sustainability projects and climate action

The need for climate financing in Africa has never been more urgent, especially because it is a region that is most vulnerable to the catastrophic effects of climate change, such as the recent instances of droughts and flooding experienced in the country. A pressing necessity is for capital markets to close the funding gap between the climate action and sustainable development financing needs of developing countries, and the funding promised for these endeavours via various international climate funds and the like. This cannot happen with private market participation.

In addition to providing the financial instruments to fund sustainable projects, just as important is creating a broader enabling environment for sustainable development, especially in light of the pressing needs to meet the 2030 agenda, and the fast evolving global regulation and guidance. To facilitate this, the JSE released its Sustainability and Climate Disclosure Guidance in June this year to promote transparency and good governance by guiding listed companies on best practice in environmental, social and governance (ESG) disclosure. The guidance is based on a combination of global best practice and local relevance to simplify ESG disclosure for companies in a context of several frameworks, guidelines, standards and ratings in the market. It takes an “impact” view and hence relates every indicator to a clear rationale for why the associated practices are meaningful in relation to achieving the aims of sustainable development.

Yet, we cannot drive sustainable development meaningfully without embracing South Africa’s just transition framework to maximise the social and economic opportunities presented by climate action, while minimising and carefully managing potential challenges that can arise.

Enabling a just transition by harnessing climate financing will be key to mitigating socio-economic impacts such as job losses and migration, which is a crucial consideration across the African region. In light of South Africa’s high unemployment figures, retaining jobs will be critical during the transition away from fossil fuels. However, financing must also be in place to compensate for jobs that will be made redundant or those that will be relocated across the fossil fuel value chain. These are key needs that must be addressed through climate action financing if we are to see a just transition.

One of the main themes that emerged from the Climate Change Conference (COP 27) in Sharm El Sheikh, Egypt, is for the critical need for developed nations to deliver on their promises for climate financing for developing economies to enable them to shift away from fossil fuels. That real climate action is now a matter of urgency was succinctly underscored by UN SecretaryGeneral António Guterres, who issued a stark warning at the opening of COP 27: “Humanity has a choice: co-operate or perish. It is either a climate solidarity pact, or a collective suicide pact.”

The summit also thrust a spotlight on the growing concern about the increasing debt burden being placed on developing countries, as many receive climate funding in the form of debt financing. If we consider that South Africa already has R4.7 trillion debt on its balance sheet, any additional debt obligation will need to be very carefully considered. However, we can also not afford any further delays in the implementation of South Africa’s Just Energy Transition Investment Plan (JET-IP), which was approved by the government at the beginning of November and announced at COP 27 by President Cyril Ramaphosa.

The plan names the priority sectors for projects funding and implementation as green hydrogen, the decarbonisation of the energy sector and the switch to electric vehicles. However, President Ramaphosa warned that an additional R1.5-trillion would be needed within the next five years for the JET-IP to be implemented. A portion of this funding is expected to come from international funders while the balance will be financed locally, and implementation action will be driven in no small part by the private sector.

The JSE plays a pivotal role in creating an enabling environment for better sustainability practices to become entrenched in the markets we serve and facilitate the flow of capital to support the aims of sustainable development and resilient markets and economies. A sustainable business ecosystem is key to supporting the transformation of the economy through a just transition to a better future for us all.