The BSE Becomes a One-Stop Shop for Sustainable Finance

The Botswana Stock Exchange (BSE) has come full cycle, following the launch of the new BSE Sustainability Disclosure Guidance. The Acting CEO of the BSE, Mr. Kopano Bolokwe, describes this milestone as positioning the BSE as a one-stop shop for sustainable finance. Speaking at the launch of the BSE Sustainability Disclosure Guidance at the BSE offices in Gaborone on August 8th, Mr. Bolokwe explained that the BSE is becoming a world class securities exchange offering innovative solutions and products, and that it is now a leader in the region and Africa in so far as sustainable finance is concerned. He said that the BSE has launched a number of services, products and incentives and entered into strategic partnerships and all of these things allow customers to access sustainable finance services under one roof.

According to Mr. Bolokwe, in 2023, the BSE launched the Sustainable Bonds Segment, where green, social, sustainability and sustainability-linked bonds can be issued, and to support this segment it also introduced a fee incentive, being a discount of 25 percent for listings of sustainable bonds. This helped to raise Botswana’s financial markets ranking in the OMFIF-Absa Africa Financial Markets Index for 2023, from No. 8 in 2022 to No. 6 in 2023.

Mr. Bolokwe explained that the BSE now enables customers to access the technical and financial benefits and expertise provided by strategic partners. Under the SADC Green Programme, launched in 2021, which is a partnership between the Committee of SADC Stock Exchanges and FSD Africa, the BSE’s clients can access financial and technical assistance in respect of the formulation of sustainable bond frameworks, ESG strategies, the independent verification, identification and selection of eligible assets, as well as post-issuance reporting or impact reports.

“This partnership has been helpful in areas of capacity building, and this helped most organisations in Botswana to transition seamlessly towards sustainable finance as a financing tool. It has touched both the public and private sector entities, and equity and debt issuers alike. It has complemented the overarching support that some of the large issuers have from their international parent companies, as they walk into transactions and the preparatory journey with the knowledge and skills for successful execution of these transactions,” Bolokwe explained.

In December 2023, the second-largest listed bank, Absa Bank Botswana Limited, listed the first-ever sustainable bond on the BSE, with proceeds going towards affordable housing. The issuance was tapped again in February 2024, signaling increased demand for the bond. This is an area that is burgeoning in Botswana, as other banks are now currently updating their programme memorandums to be able to issue sustainable bonds.

In January 2024, the BSE signed a partnership agreement with Risk Insights, the largest provider of ESG ratings in African exchanges, to publish ESG ratings for BSE-listed companies. This partnership has been well received by issuers and the entire capital market ecosystem, as it has not only revealed the inadequacy of the disclosure levels and the unimpressive scores, but it has helped listed companies undertake remedial actions in promoting sustainability practices and with disclosure.

“Now, with the launch of the new Sustainability Disclosure Guidance, we have come almost full cycle with services and incentives that could be accessed under one roof. Moreover, this new guidance implies that there will be increased standardisation and comparability in reporting and this will enable us to create a sustainability index that could form the basis for the development of more products such as exchange-traded funds and independently managed funds,” Bolokwe said.

The Disclosure Guidance is anchored on international disclosure guidelines, such as the Global Reporting Initiative, International Financial Reporting Standards and European Sustainability Reporting Standards. The international investor and advisory communities have praised it for including and promoting double materiality reporting.

In addition, the guidelines are aligned to the artificial intelligence model that produces ESG ratings for listed companies. In essence, the compulsion is implicitly embedded as poor reporting leads to poor ESG rating scores, with implications for the cost of capital and capital allocation.

At present, the Disclosure Guidance is voluntary and not part of the BSE listing requirements. This decision has been taken to allow the local market to gradually and broadly embrace sustainability reporting and develop adequate capacity to report. However, sustainability is no longer a matter of choice, as only companies that take sustainability into account will be able to access capital at an optimal cost and even achieve higher ESG rating scores. Local asset managers, which are all signatories to PRI, already take ESG into account when making investment decisions, as they no longer focus solely on financial returns, but also on the impact that the capital creates. The capital markets regulation has also evolved to promote ESG investing.

The Disclosure Guidance is a critical milestone in enabling the BSE to become a world class securities exchange, and the primary objectives of the guidance are to: (a) improve the quality of information available on companies’ sustainability-related impacts, risks and opportunities to enable more informed investment decisions, internally and externally; (b) encourage improved sustainability performance and business leadership in addressing the country’s environmental, social and governance challenges, by enabling stronger accountability; (c) assist Botswana’s companies to navigate the plethora of recent and emerging sustainability-related disclosure standards, and to encourage them to strengthen their disclosure in alignment with these standards; and (d) present the business case for companies to strengthen their disclosure on sustainability governance and management practices, and their performance on material ESG metrics.

The BSE guidance is designed to be of value to companies with little or no experience in sustainability and ESG disclosure, and to those companies with significant experience in sustainability reporting that are looking for assistance in aligning their disclosures with the latest developments in global reporting standards.

Although developed primarily to assist BSE-listed companies, this guidance is also intended to be of value to institutional investors and the various entities that they invest in (including non-listed companies and debt issuers), as well as a range of stakeholder groups interested in sustainability disclosure and performance. Investors are increasingly interested in sustainability issues as this pertains to all of their investments, irrespective of whether they are large or small, equities or bonds, listed or unlisted, across all sectors. All these entities are encouraged to use these guidelines.

The guidance was developed with the technical and oversight support from GRI, and with financial assistance from GRI partners, being the Swiss State Secretariat for Economic Affairs (SECO) and the Swedish International Development Cooperation Agency (SIDA).

To this end, the BSE is the third stock exchange in Southern Africa to publish disclosure guidelines under this partnership and the sixth in Africa to do so.