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Taxonomy

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The South African Green Finance Taxonomy

On 1st April 2022, the National Treasury of South Africa unveiled its Green Taxonomy. The South African framework aims to help investors, issuers, lenders, and other financial market participants to assess the environmental credentials of their portfolios & business activities. Read Charlaine’s blog to find out more.

CharlaineBaartjes

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“In South Africa there is a hunger for hope, an ache towards a better future” - Charlaine Baartjes.

Financing a Sustainable Economy

The report, ‘Financing a Sustainable Economy’ was first published by the National Treasury of South Africa on the 15th of May 2020 and then updated on the 21st of October 2021.  This initiative focuses on shepherding available green-leaning investments towards both socio-economic development and climate-resilient growth. In short, its objective is to provide the investment that is pivotal to building the South African economy and encouraging growth.

 As a part of the process of drafting the report, the question arose, ‘which investments qualify as “green” in South Africa?’.  A tool that was considered useful in determining “green investments” recommended by the “Financing a Sustainable Economy” report, was the development of a green finance taxonomy to be drafted in line with international taxonomies. This would provide credibility on what classifies as a ‘green investment’, encourage investment, enable monitoring, and transparent, relevant performance disclosures.

To this end, the National Treasury of South Africa, with the support of the International Finance Corporation (IFC) and Sustainable Banking and Finance Network (SBFN), launched the South Africa Green Finance Taxonomy on the 1st April 2022, as part of the initiative on Financing a Sustainable Economy.

 

The Green Finance Taxonomy

This classification system (taxonomy) can be used by companies, investors, lenders, issuers, and other financial institutions to distinguish truly green projects, from green-washed to grey projects, identify opportunities, monitor progress, and demonstrate in a transparent fashion the credentials of activities that qualify to be considered “green finance” initiatives.  Once an activity qualifies as “green investment worthy,” the opportunity to obtain finance through various sources (bonds, debt, grants, etc.) increases, and investment can flow into the organisation from more sources.

 

Data Management & Greenomy

The release of the South African Taxonomy constitutes a considerable step towards channelling investment into green finance within South Africa. However, the introduction of new legislation and reporting requirements inevitably comes hand in hand with challenges. The most significant of these is the management of data required to fulfil the criteria set out by the green finance taxonomy.  This is where Greenomy shines.The  benefit of the Greenomy solution is that it:

a) Enables the screening of single activities, multiple activities, or all company activities

b) Provides a template for all the data requirements needed for the green finance disclosure of companies, banks, and asset managers

c) Generates a machine-readable ESG / sustainability report that can be directly shared with regulators

d) Links corporates to auditors who verify the reported data

e) Provides the reported ESG data to relevant banks, financial institutions, and investors to satisfy the requirements of their own reporting

f)   Enables the reporting of financial institutions on their contribution to ‘green finance’ assets 

g) Enables the electronic submission of the required information to the relevant government department, should there be legal requirements, as is applicable for funds obtained from the EU.

Benefits of a Green Finance Taxonomy 

The impact of the green finance taxonomy on the South African financial sector is to identify opportunities that will enable the transition to a sustainable, low-carbon, and climate-resilient economy, which is also socially inclusive. It can effectively mile-post the just energy transition required in South Africa and other large developing economies. The opportunities consider sustainability-focused instruments that include: green, social, and sustainability bonds, sustainability infrastructure grants, sustainability-linked loans, and just transition finance, as well as others.  The key benefit this brings to South African companies is to identify green objectives and obtain deals at better rates, from both national and international investors; thereby increasing their sustainability / ESG reporting credentials and improving their investment reputation.

What’s next?

Potential future developments encompass the inclusion of legal requirements to ensure sustainability (as non-financial) reporting is done with the reporting of company financials.  The JSE has already released its guidance document on sustainability climate disclosure, on the 14th of June 2022, aiming to guide listed companies towards the promotion of good governance, transparency, and providing best practice metrics in environmental, social, and governance (ESG) disclosure.

“Obtaining a software service that assists the economy towards sustainability might be easier than you think” – Greenomy.  Start your green finance transition today. Give us a call, or request a demo.


 

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