After years of talking, it is time we delivered the goods
As we begin to wrestle with the task of rescuing and then reviving our shattered economy, certain points are becoming clear. State stimulus packages may be imperative, but they cannot hope to meet the challenge alone.
We can also no longer afford to ignore the economic and social effects of investment decisions that externalise costs now, only to internalise them in grand fashion further down the road. If ever there was a moment for the many years of pontification on how to build a sustainable economy to start delivering the goods, surely it must be now. Long-term economic, environmental and social risks are linked.
Environmental disasters such as floods, droughts, fires and pandemics inevitably cause economic, social and health stresses — particularly for those who lack the financial resilience to ride out the shocks. Transitioning to a sustainable economy poses additional threats to jobs and communities if this transition is not well planned and socially just.
While progress has been made on the transition to lowcarbon energy sources, broader climate change and sustainability impacts through food and agriculture, sustainable cities, materials, land use, health and wellbeing remain largely unaddressed. The World Bank estimates that $1.68-trillion is needed for climate mitigation and adaptation actions in SA. This need not all come from the state and development finance.
The International Finance Corporation (IFC) estimates the SA climate business investment potential to be about $588bn in selected sectors over the next 10 years alone. Given this context, the timing of the Treasury’s release of the Financing a Sustainable Economy technical paper last week was impeccable. The paper provides an overview of the essential legislation, trends, developments, risks and opportunities for the constituent components of the SA finance sector.
Apart from providing an excellent introduction to those wishing to explore sustainability within the finance sector, the paper recommends actions that must be taken to enable a “sustainable economy”. These include prompting the finance sector to take the initiative and step up the voluntary development of environmental and social engagement capacity to mitigate risks and maximise opportunity. They also include establishing a “taxonomy” that will assist in building credibility and consistency in sustainable investments.
Taxonomies of this nature are mechanisms that assist with defining and monitoring sectors, assets and projects that can be defined as “green” or “sustainable”. Taxonomies enable a co-ordinated and consistent approach by regulators and the private sector to ensure the right foundations are in place to identify, implement and disclose investments that meet criteria to be considered green, climatefriendly, and socially inclusive.
This has become important as the global issuance of sustainable debt has grown from $15bn in 2013 to $465bn in 2019, with a 78% increase last year alone. Sustainable debt comprises social, green and sustainable loans and bonds, which have been issued occasionally in SA since 2012.
As a contribution to the Treasury’s broader sustainable economy programme, the IFC has appointed the National Business Initiative and the Carbon Trust to facilitate the development of a local taxonomy to unlock finance for sustainable projects that support our developmental priorities. The initiative supports complementary efforts by other private and public sector actors, including the JSE’s current expansion of its green segment.
At a global level, a number of leading initiatives have emerged in recent years to offer agreed classifications and technical guidance to enable and facilitate sustainable finance innovation.
In 2019, the EU completed a comprehensive stakeholder consultation as part of its sustainable finance action plan, to develop a taxonomy on sustainable activities for Europe.
This taxonomy will influence global issuances that seek to comply with the requirements of European investors as well as delivering compatibility with other global taxonomies, including the climate bonds taxonomy, the international capital markets association green project mapping, and the joint multilateral development banks methodology for climate finance tracking.
Maguire holds a Wits master’s degree in globalchange studies and developed green-economy solutions for the private sector, NGOs and the state for more than a decade.