Panel discussion: the role of internationally compatible sustainable finance frameworks

Panelists

Sarah McPhail, lead policy analyst: sustainable finance, South African National Treasury

Anneke Lund, executive: sustainable finance, Standard Bank

Olano Makhubela, divisional executive: retirement funds supervision, Financial Sector Conduct Authority

Thede Ruest, head: emerging markets debt boutique, Nordea Asset Management

Martin Jonasson, general counsel, Andra AP-fonden

Aldo Romani, deputy head: Euro funding, European Investment Bank

The sustainable financial market is “probably the fastest-growing” market, said Thede Rust, head of the emerging markets debt boutique at Nordea Asset Management. Sustainable bonds and other financial structures are increasingly the “go-to” asset class.

The EU green finance taxonomy is a “guiding star” for European investors, and the high rate of alignment between the South African and the EU green finance taxonomies will enable European investors to invest in South Africa with confidence, and to a higher degree of investment impact, he said.

Without alignment between taxonomies,analysing proposed investments would be more cumbersome, and South Africa’s taxonomy is “a tool to scale up [European investment in South Africa] quickly”, he said. This is because of the high degree of “interoperability” between South Africa’s and the EU’s taxonomies. “A low degree of interoperability would be a significant hurdle.”

Sarah McPhail, lead policy analyst of sustainable finance in the South African National Treasury, said the Treasury had been aware of the “multiple benefits” a green finance taxonomy and developed South Africa’s in order to leverage it to the country’s benefit. Adherence to South Africa’s taxonomy is voluntary, while adherence to the EU’s is mandatory, she said.

Furthermore, as international regulations on sustainable finance increased, South Africa would need to be able to attract investment, and the taxonomy was a tool to be used to this end, she said.

Olano Makhubela, the divisional executive of retirement funds supervision at South Africa’s Financial Sector Conduct Authority (FSCA), said there was no plan as yet to make the South African taxonomy mandatory.

“I don’t think you always need to wait for legislation to do the right thing,” he said. It might be that the FSCA would “endorse” South Africa’s taxonomy, he added.

The standardisation that the taxonomy will bring to financial transactions will assist the FSCA in its policing of investor’s compliance with Regulation 28 of the Pension Funds Act, which protects retirement fund member savings by limiting the extent to which funds may invest in a particular asset or in particular asset classes, and prevents excessive concentration risk, Makhubela said. Regulation 28 includes an environmental, social and governance principle.

Also, the taxonomy put South Africa on an equal footing with the rest of the world Makhubela said. “Globally, everyone is doing the same thing. It is good to have convergence.”

Anneke Lund, the executive in charge of sustainable finance at South Africa’s Standard Bank, said that the South African green finance taxonomy was welcome because “we want ro be able to call something green and know everyone else also calls it green”.

Having the taxonomy meant that the bank, and its peers, would be able to say which of its deals were aligned with the taxonomy, and also which did not, and why, Lund said. This was important because not all investments will be able to align with the taxonomy – this will, for instance, be difficult for small and medium-sized enterprises, and for individuals, for example those who want funding to install solar photovoltaic panels on the roofs of their homes.

Standard Bank is “very active” in the green finance space across sub-Saharan Africa, and raised a green bond in Namibia last year, she said. This was a pilot project that would help the bank understand gaps in its understanding and expertise in this area, Lund said.

Aldo Romani, deputy head of Euro funding at the European Investment Bank, said that the bank had raised approximately €70-billion in green and sustainability bonds over time. In 2018 the bank resolved to link its bonds to the EU’s evolving green finance regulations.

The “whole idea” of the EU green finance taxonomy, [which was legislated in 2020], is to “put capital markets in a better place” to serve the goal of the EU having a net-zero carbon economy by 2050. The EU’s green finance taxonomy was “a recipe for effectiveness” in reaching this goal, investors needed to report on their activities in a language everyone could understand, he said.

Martin Jonasson, general counsel for Andra AP-fonden (AP2), said the Swedish investment house had approximately $40-billion in assets under management, including in South Africa. The fund had voluntarily opted to integrate sustainability principles into its investments, and that “taxonomies drive disclosure” which was beneficial to AP2 and its clients.

“Reliable data has been missing in this market, and that [makes it difficult] for us to make responsible investment decisions,” he said, adding that the interoperability between the South African and EU taxonomies would now smooth this task.

All the speakers pointed out that the high degree of alignment between the two taxonomies would reduce compliance costs in cross-border financial dealmaking, which is a significant factor in attracting investment. South Africa’s President Cyril Ramaphosa had recently said that the country needed R1,5-trillion in investment to switch to a low-carbon economy, and the country’s taxonomy would aid this quest.

The National Treasury is part of Ramaphosa’s Presidential Climate Commision task team, said McPhail. The South African taxonomy, and its alignment with that of the EU, would have a hand to play in realising the goals of the Just Energy Transition Partnership (JET-P). [The JET-P is a partnership between South Africa, the EU, the United Kingdom, the United States, Germany and France through which the developed nations pledged $8.5-billion towards South Africa’s transition to a low-carbon economy.]