Sustainable investing has risen to the fore

Strong bonds

Sustainable investing has risen to the fore, not merely as an ideal but as an imperative

Strong bonds

Sustainability is an action-driven imperative that drives practically every aspect of life today, including human needs, respect for the environment and social balance. So many themes are assigned to sustainability, and more so since the UN introduced the Sustainable Development Goals, that it has become the only way companies can strategise and future-proof their operations.

Shameela Soobramoney, the JSE’s Chief Sustainability Officer, says every solution to a challenge now comes with the question of whether it is sustainable. ‘The sustainability agenda has grown in prominence, and markets have a powerful role in supporting the allocation and reallocation of capital to sustainable outcomes and impacts,’ she says. ‘The JSE responds with a variety of options.’

Social bonds is one such option, which offers bond investors an opportunity to allocate investments to the achievement of certain sustainability goals, without any additional credit risk. Proceeds from the bonds are directed at financing selected projects. ‘They allow for a ring-fencing of the proceeds to be channelled to clear socially enhancing activities and give investors confidence that their money is being deployed to positive outcomes. The issuer also benefits from the market demand for these instruments as well as to further their own sustainability plans and objectives,’ says Soobramoney.

The JSE welcomed its first social bond issue in March this year, listed by TUHF Ltd in partnership with Standard Bank. TUHF raises funds through the capital markets and provides these funds to property entrepreneurs who redevelop buildings in urban areas with the aim of supplying high-quality, affordable rental housing. Soobramoney says the TUHF listing is indicative of the growing interest in social bonds globally.

‘Any qualifying bond issuer can use them, provided they have the proper frameworks in place to ensure the credibility of what they will be directing the proceeds of the bond issuance to. Those proceeds are tracked for the lifetime of the bond and supported by appropriate reporting. The JSE listings rules for these instruments help maintain the credibility of the social bond label, along with our other green and sustainability-bond labels.’

Another example is sustainability-linked bonds (SLBs), which, at this stage, are self-labelled listings. Standard Bank was involved in the first continental listing of Netcare’s SLB, also in March. ‘SLBs directly link sustainable performance to the cost of capital. The expectation is that SLBs will grow substantially given the linkage to cost of capital and the explicit need for clear targets and outcomes,’ she says.

Another growing trend, and with particular relevance in SA, is transition financing, which ‘is set to grow in its relevance as economies attempt to transition to low-carbon trajectories, and the need to finance a pathway from “brown” to “green” becomes more pressing’.

The pandemic has laid bare the inequalities that exist in society. ‘Historical underspending on sustainability challenges ended up costing billions in the wake of the pandemic. And the costs were borne by business, governments and societies at large. It also highlighted the growing biodiversity crisis alongside the climate crisis we are already experiencing,’ she says.

‘As our pursuit of economic activity encroaches on nature without sufficient consideration for the limits of the ecosystem, we are threatening the very environment on which we depend. The pandemic should help businesses in scaling up their attention to sustainability matters and consider that our current linear views of costs and profits need to be supplemented with an explicit consideration of value created, value destroyed and value preserved, and how we can begin bringing in concepts such as the circular economy.

‘The growing understanding of the risk perspective is one driver, but the flip side is that with every crisis comes opportunity,’ says Soobramoney. ‘Strong leadership from business, and better consumer awareness and responsible consumption can change the tide. But time is of the essence.’

By Kerry Dimmer
Images: Gallo/Getty Images