The COVID-19 crisis has heightened the focus on climate change and financial instruments that promote sustainable economic development, Standard Bank Group CEO Sim Tshabalala says in the latest episode of the ClimateBiz podcast series hosted by the International Finance Corporation (IFC).
In a discussion focused on “Financing the green rebuild”, Tshabalala notes that pressure is building on financial institutions, asset managers and corporates to give more attention to environmental, social and governance (ESG) issues in their day-to-day operations. By highlighting issues such as inequality, state capacity and mounting pressure on the natural environment, the Covid-19 pandemic has accelerated this trend.
Against this backdrop, the growth of the sustainable finance market’s growth is being supported by the establishment of ESG linked funds, Sustainable Indices, and by an evolving regulatory environment. Social bonds, which are used to finance projects focused on delivering positive social outcomes, have come to the fore during the pandemic as investors and corporates seek to make an impact – while also generating attractive returns.
In July, the Johannesburg Stock Exchange (JSE) expanded its green bond segment into a fully-fledged sustainability segment, meaning that issuers can now list social and sustainability bonds along with green bonds. Numerous other stock markets across Africa are moving in the same direction.
South African President Cyril Ramaphosa has spoken of the need for a climate-resilient economy in response to the crisis, and in August, government approved a national climate change adaptation strategy. Moreover, policymakers are currently considering a climate change bill.
In this context, loans and bonds issued specifically to tackle the COVID-19 crisis have had both social and environmental elements to them.
Tshabalala said Standard Bank has recognised that Sustainability Linked loans present a growing business opportunity for both banks and corporates. These instruments incentivise sustainable and responsible corporate behaviour by linking the cost of funding to the achievement of certain predetermined ESG targets.
Sustainable Finance corporate solutions offer clients an opportunity to directly fund ESG improvements, or to refinance existing general corporate funding. The solution also delivers benefits for the communities and environments in which they operate.
In March, Standard Bank issued its first-ever green bond, via a private placement with the IFC. The 10-year US$200 million facility will raise capital for on-lending by the group’s sustainable finance unit, which will fund eligible green assets – renewable energy, energy efficiency, water efficiency and green buildings – aligned to the bank’s sustainable bond framework.
The bank was the lead arranger for Acorn Holdings’ green bond issuance in Kenya and has structured ESG-linked loans for numerous corporates, including schools’ group Curro Holdings, mobile operator Vodacom, and Equites Property Fund.
Tshabalala said that the bank has also provided a facility for a multinational shipping company aimed at incentivising the client to reduce emissions. In addition, to funding, Standard Bank provides ESG advisory and technical assistance to clients to help them achieve their sustainability targets.
“Sustainable finance is a continent-wide opportunity,” said Tshabalala. “Given the scale of the climate crisis, and Africa’s significant social challenges, shareholders, Africa’s corporates and other key stakeholders are increasingly looking to operate in a way that drives positive social, economic and environmental change.”