FSCA Statement on Sustainable Finance and Programme of Work
On 31 March 2023, the Financial Sector Conduct Authority published its Statement on Sustainable Finance Programme of work, which includes 5 pillars and cross-cutting activities.
Click the image above or download the statement from the FSCA website.
Prudential Authority Communication on Climate Risk
The Prudential Authority within the South African Reserve Bank published a Communication in August 2022 setting the initial views of the Prudential Authority (PA) on climate related risks and their potential impact on financial institutions supervised by the PA. It aims to highlight the importance of considering the potential impacts from these risks on the business of financial institutions, including all registered banks, mutual banks, licensed insurers and licensed financial market infrastructures supervised by the
Prudential Authority (PA).
On 3 August 2023, the Prudential Authority issued the following proposed guidance notices and notes for comment by 13 September 2023:
- Proposed Guidance Notice on Climate related risk practices for Banks.
- Proposed Guidance Notice on Climate related disclosures for Banks
- Proposed Guidance Notice on Climate related risk practices for Insurers.
- Proposed Guidance Notice on Climate related disclosures for Insurers.
These milestones build on a Climate Risk Survey Report published by the Prudential Authority in October 2021.
The Code for Responsible Investing in South Africa (CRISA)
CRISA 2, launched by the CRISA Committee in September 2022, builds on the first CRISA Code (2011) and contains five voluntary principles for stewardship and responsible investment as a key component of the South African governance framework.
The primary objective of CRISA 2 and its principles is to affirm CRISA as a key component of the governance framework for South Africa. CRISA 2 is endorsed by Association for Savings and Investment South Africa (ASISA), Batseta, FSCA, GEPF and the Institute of Directors in Southern Africa (IoDSA).
Launched in July 2011, the first Code for Responsible Investing in South Africa (CRISA) consisted of 5 principles that provide guidance on how the institutional investor should execute investment analysis and investment activities with a view to promoting sound governance. The effective date for reporting on the application of the code was 1 February 2012.
Through the Code, South Africa became the second country after the UK to formally encourage institutional investors to integrate into their investment decisions sustainability issues such as environmental, social and governance (ESG).
Johannesburg Stock Exchange — Sustainable Finance Initiatives
The JSE was the first emerging market stock exchange to form a Socially Responsible Investment Index (SRI Index) in 2004. In June 2015, JSE partnered with FTSE Russell, the global index provider, to progress the JSE’s work in promoting corporate sustainability practices over the last decade. The JSE adopted the FTSE ESG Ratings process to create the following two indices, launched on 12 October 2015:
- The FTSE/JSE Responsible Investment Index: A market-cap weighted index calculated on an end of day basis – benchmark; Comprises all eligible companies who achieve a FTSE ESG rating of 2.0 or above.
- The FTSE/JSE Responsible Investment Top 30 Index: An equally weighted index calculated on a real time basis – tradable; Comprises the Top 30 companies ranked by FTSE ESG Rating.
In 2017, the JSE opened a Green Bond segment on the exchange, with a first issuance by Growthpoint in 2018, followed by Nedbank in 2019. In 2020, JSE announced the expansion of the Green Bond Segment to a fully-fledged Sustainability Segment allowing issuers to list social and sustainability bonds along with green bonds. The JSE Debt Listings Requirements were further expanded in 2021 to include instructions on
- External Reviews of Green, Social, Sustainability and Sustainability-Linked Bonds
- Sustainability-Linked Bond Principles
- Climate Transition Finance.
Survey of Sustainable Finance Practices In South African Retirement Funds (2020)
From January to August 2020, South Africa’s Financial Sector Conduct Authority (FSCA) and IFC collaborated to survey how well South Africa’s retirement industry is positioned to unlock significant investment opportunities in the new global trend towards green and climate finance. Despite the challenges of COVID-19, 140 funds responded to the survey, representing roughly 74% of the total assets under management and 28% of total retirement funds in the South African retirement industry.
Download the report from the FSCA website or click the image below.
ESG considerations in Regulation 28 of the South African Pension Funds Act
Banking Association South Africa (BASA) – Sustainable Finance Principles
Based on the international trend of increased focus on E&S risks by banks, BASA in partnership with its members developed a banking-specific policy framework for E&S risk management. Since 2011, banks have voluntarily committed themselves to BASA’s Principles for managing Environmental and Social Risk, which focus on four areas:
i. Own operations and procurement – recognising that members need to manage their own organisational impacts and promote
responsible practice through their value chains.
ii. Lending practices – ensuring that credit and risk management policies give due recognition to E&S risks when making lending
decisions, and lenders are thereby encouraged to adhere to E&S regulations and legislation.
iii. Investment practices –requiring members to maintain appropriate E&S due diligence guidelines for investee companies in high-risk industries.
iv. Products and services – developing sustainable technologies through the provision of lending facilities and financial products in
support of the national agenda.
The Principles apply to all financial activities but the implementation is not mandatory. A Sustainable Finance Committee within BASA discusses the implementation of the Principles and shares good practices. In addition, BASA members worked with the BankSETA to develop E&S risk assessment (ESRA) training.
King Code of Corporate Governance
The 4th iteration of the King Report and Code on Corporate Governance (King IV), published in 2016, is a booklet of guidelines for the governance structures and operation of companies in South Africa. It is issued by the King Committee on Corporate Governance. King IV expects governing bodies to demonstrate thinking that integrates economic, environmental and social aspects into value creation strategies and operations. The Code is principles-based and voluntary. However, JSE listing requirements do require companies to incorporate the principles into their business practices. To give effect to the Code, organisations should establish corporate governance structures to provide oversight in respect of the 6 Capitals: financial, manufactured, intellectual, social, human and natural. They should also publish an annual Integrated Report.
Access the report and Code here.