South Africa’s Sustainable Finance Initiative, chaired by National Treasury, has launched the country’s first national Green Finance Taxonomy in April 2022. This responds to recommendations from National Treasury’s 2021 Technical Paper: Financing a Sustainable Economy, which calls for the development or adoption of “a taxonomy for green, social and sustainable finance initiatives, consistent with international developments, to build credibility, foster investment, and enable effective monitoring and disclosure of performance.”
The Green Finance Taxonomy reduces uncertainty by providing an official classification that defines a minimum set of assets, projects, and sectors that are eligible to be defined as “green” or environmentally friendly. Investors, issuers and lenders and other financial sector participants can therefore use the taxonomy to track, monitor, and demonstrate the credentials of their green activities in a more confident and efficient way.
The benefits of the Taxonomy include:
- Providing clarity and certainty in selecting green investments in line with international best practices and national priorities and standards;
- Helping to unlock large-scale capital for climate-friendly and green investment in South Africa by increasing the credibility and transparency of green activities;
- Reducing financial risks through enhanced management of environmental and social performance;
- Reducing the costs associated with labelling and issuing green financial instruments;
- Supporting regulatory and supervision oversight of the financial sector.
The Intergovernmental Sustainable Finance Working Group, including South African regulatory authorities like the Prudential Authority and Financial Sector Conduct Authority, will provide oversight and governance to update and expand the taxonomy over time, and inform the development of future regulatory instruments.
The working group will also draw on emerging international best practices and approaches, such as the comprehensive global baseline for sustainability‐related disclosure standards led by the International Sustainability Standards Board. These will ensure that investors and other capital market participants have the requisite information on companies’ sustainability-related risks to help them make informed decisions.
The taxonomy’s development has been overseen by a Taxonomy Working Group under South Africa’s Climate Risk Forum, a multi-representative group drawing from the national government, financial sector regulators and the financial services sector, chaired by National Treasury and hosted by the Banking Association South Africa. the IFC, through IFC’s Green Bond Market Development program, in partnership with the Swiss State Secretariat for Economic Affairs (SECO) and the Swedish International Development Cooperation Agency (SIDA) have also provided support, with technical input provided by the National Business Initiative (NBI) and Carbon Trust.