Countries not adapting to a green transition will find themselves behind and excluded, says Premal Ranchod, head of ESG research at Alexander Forbes Investments.

“They will be behind on the innovation curve, the cost curve and thus be laggards. Thus, the question is not whether, but how.”

Ranchod says following the devastating impact which the Covid-19 pandemic has had on South Africa and the world, governments, corporates, and citizens have had to collaborate to focus on a green economic recovery.

“This is a result of the pandemic being inextricably intertwined with global environmental issues such as biodiversity loss, climate change, air and water pollution.”

He says the South African government is subscribing to a ‘green recovery’ as the blueprint for rebuilding and growing the economy with sustainability, resilience and inclusion as key priorities.

Ranchod added that while it is important to focus on the implementation of President Cyril Ramaphosa’s eight-point economic recovery plan (delivered on October 15, 2020), “a green recovery directive is sound thinking.”

“In assessing the above point, the Presidential Economic Advisory Council released briefing notes in October 2020, and it is poised in pointing out what used to be a choice is now mandatory.”

In the UK, £100 billion (just over R2 trillion) has already been earmarked for infrastructure projects that will be supporting a green recovery and drive economic growth and jobs. 

Europe’s largest economy, Germany, is planning to use the economic recovery to accelerate its transition towards renewable energy. 

Regulatory commitment

As a signatory to the 2015 Paris Climate Agreement, South Africa has a commitment to reduce greenhouse gas emissions by 2030.

Considering this, Ranchod says, “we recognise that South African specific climate change risks and social concerns are as important as governance concerns.”

Evolution in regulatory environments around the world are a key sign that the importance of environmental, social and governance (ESG) integration and measurement of impact in an investment process is growing, he said.

Accessing opportunity

In South Africa, he says, the green bond market exists as a niche.

Ranchod pointed to the recent Sustainable Development Goal (SDG) bond instrument which he said was successful in funding R2 billion of sustainable finance in Africa.

In June 2020, the JSE also launched a sustainability segment as a platform to raise capital; with the long-term goal being for capital markets with worthy niche ideas becoming mainstream.

Green finance investments can find “expression” through impact investments or specific thematic investments, said Ranchod.

The Global Impact Investing Network has defined impact investments as ‘investments made into companies, organisations and funds with the intention to generate measurable social and environmental impact alongside a financial return.

Products can be developed with specific reference to the 17 United Nations Sustainable Development Goals.

According to the Impact Management Project, a forum for building global consensus on impact measurement, an enterprise’s intention around impact, positive or negative, intentional or not, can be classified into a kind of ABC approach:

  1. Act to avoid harm
  2. Benefit stakeholders
  3. Contribute to solutions

Thematic investing can also extend to include environmental or social imperatives through a specific theme that is being explored. For example, a fund with a social theme can be found in microfinance, urban regeneration, property and social infrastructure, says Ranchod.

Several organisations and youth-led discussions are also calling for a ‘green recovery plan’ to be implemented with urgency for South Africa. 

Songo Didiza, Associate Editor of the GreenEconomy.Media, said the government is considering raising a green infrastructure bond as part of its biggest drive ever to kick-start private investment in projects ranging from energy to water reticulation.

And he is excited about the prospects of a green recovery plan for South Africa. 

” I hold a huge responsibility to use this platform to endeavour to influence how this green recovery plan might unfold, and bring economic recovery and social upliftment to the country as a whole.” 

Supportive governance frameworks

Ranchod says South Africa’s economic recovery plan requires the contribution of robust governance frameworks in listed and unlisted investments.

“Listed shareholders who have concerns around ESG issues have power and can vote, attend annual general meetings or write shareholder letters to the management to raise these issues. Listed bonds currently do not have this avenue for recourse and more stewardship effort by the industry is needed to level the playing field.”

Raising transparency is of paramount importance to citizens and investors alike, Ranchod said.

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Presh JM Reporter

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