Apart from its ongoing work in promoting good governance and deeper engagement between issuers and investors over many years, the JSE has also been working on sustainability through two key products. The first is its recent introduction of green bonds via dedicated green bond listing rules – an achievement for which it gained international recognition at the Climate Bond Initiative’s Green Bonds Awards in March. The second is through the FTSE Russell/JSE Responsible Investment Index series, which has sharpened awareness of responsible investing, and has been an important feature of environmental, social and governance (ESG) disclosure in the SA market for more than a decade – together with its predecessor, the JSE SRI Index.

The global interest in sustainable investments is a catalyst for change and JSE-listed companies have made positive strides in their ESG disclosure and practices as they move towards integrating sustainability thinking into business strategy. ‘The JSE’s ESG indices push the market along in a way that considers ESG factors more explicitly and in line with global best practice,’ says Shameela Soobramoney, JSE Senior Manager: Group Strategy & Sustainability for Capital Markets. ‘It’s about trying to get the market to think more holistically about what’s important, disclose this thinking to stakeholders, and embedding these factors, and hopefully change behaviour.’

JSE-listed companies, which are constituents of the FTSE Russell/JSE ESG indices, have been improving their ESG scores over time. They also lead other emerging markets assessed by FTSE Russell.

Green bonds are in sync with SA’s ratification of the Paris Agreement on climate change as they allow for the raising of capital to finance initiatives that – among other things – can contribute to a lower carbon economy. ‘South Africa has made commitments in terms of the Paris Accord, which will require a reduction in the country’s carbon footprint in the transition to a low carbon economy over time. These efforts will require funding. There’s definitely an appetite for investing in high-quality green assets,’ says Soobramoney.

She adds that there is opportunity in supporting the types of projects that would move towards a low-carbon economy and help to support better water conservation and waste management strategies. An example of this is investing in technologies to deal with challenges such as the acute water shortages in the Western Cape.

In tune with the four components of the green bond principles, defined by the International Capital Market Association, the JSE recently listed two green bonds – one corporate and one municipal. Soobramoney is encouraged by the interest in both sectors. There was an overwhelming response to the City of Cape Town’s first-ever green bond of R1 billion. The funds are being ploughed into projects such as water-management initiatives, rehabilitation and protection of coastal structures and energy efficient buildings. ‘This shows us that the green factor definitely appeals to investors,’ she says.

Growthpoint Properties also made a significant foray into the sustainable space when it became the first SA company to issue a green bond on the JSE. The Growthpoint green bonds were issued and listed on 9 March 2018, for terms of five, seven and 10 years. These bonds will be used mainly to refinance funding for the green office buildings in its portfolio, which includes Growthpoint’s top green-rated office properties. Suitable industrial and retail properties with 4-star Green Star ratings or higher will also qualify for green bond funds, as well as projects such as solar energy in buildings.

For shareholders and pension fund holders, using an ESG lens to invest in assets with a more sustainable future in mind is very appealing and goes beyond monetary returns. ‘You are using money from pension funds to finance a better, more responsible and sustainable future into which to retire,’ she says. Regulation 28 of the Pension Funds Act requires that trustees consider any factor that may materially affect the sustainable long-term performance of the asset including those of an ESG character. ‘This requirement highlights the importance of factoring in ESG considerations into investment decision-making.’

Soobramoney views the green bonds as early shoots of a new era in financing. ‘We’d like to see more listings on the JSE like this. Ideally there should be different parties involved, spread across the market. We’d like to see different banks and assurance providers getting involved as more people see the value of green bonds,’ she says. ‘At the heart of it, through our key competence in building better markets, the JSE would like to contribute to a more healthy and sustainable development pathway for South Africa and beyond.’

By Kim Cloete
Image: Gallo/Getty Images