JSE leverages its sustainability strategy to enable a progressive finance landscape

By: Shameela Soobramoney, Chief Sustainability Officer, Johannesburg Stock Exchange Aug 2021

As a leading stock exchange on the African continent, the Johannesburg Stock Exchange (JSE) supports the vision of markets as a powerful force for good in achieving the aims of supporting and driving sustainable value creation. As a leader in sustainability in emerging markets, the JSE recognises the importance of integrating the long-term perspective into financial markets to reduce socio-economic and physical risks, and to contribute to enhanced financial stability and the transition to a low-carbon economy.

The JSE leverages different aspects of its hybrid sustainability strategy, both globally and locally, to enable sustainable finance, and one of its focal areas has been climate change.

The JSE’s efforts broadly focus on making markets more resilient in terms of their function for capital allocation, particularly in the emerging-market context. The bourse is doing this by using a variety of levers, each of which can be related back to the World Federation of Exchanges’ (WFE) principles for sustainable stock exchanges.

In addition to being the first stock exchange globally to introduce an exchange-sponsored ESG index, and to incorporate a move toward integrated reporting, the JSE took a leading step in supporting the attainment of a sustainable economy by introducing a green segment in 2017, which expanded into the Sustainability Segment in 2020, a first for Africa. This segment enables companies to raise debt for green, social, and sustainable initiatives on a trusted, global marketplace.

A four-pillar approach

The JSE’s sustainability strategy is based on four pillars: regulation, products and services, advocacy, and engagement.

Spanning the regulatory, products, and services pillars are the JSE’s endeavours to use the market as a force for good by enabling the reallocation of capital to more sustainable activities and outcomes. One way to do this is by putting into place listing rules and dedicated segments for instruments that meet these aims.

The Green Bond Segment, which was introduced in 2017, has had a number of successful listings, and was expanded in 2020 to include Social Bonds and Sustainability Bonds. The JSE was one of the first emerging markets to launch a Green Bond segment, which has seen both municipal and corporate listings. Prior to that, there were also self-labelled listings by development finance institutions and one municipal entity

In addition to seeing our first listings of Social Bonds this year, we also saw the continent’s first listed self-labelled sustainability-linked bond list on JSE in March 2021.

The JSE’s Green Bonds aim to unlock the investment potential of green infrastructure, technologies, and services. The proceeds of Green Bonds are exclusively used for the financing or refinancing of new or existing eligible green projects that have a positive environmental and/or climate benefit.

Sustainability Bonds are specifically designed to raise money for environmentally- and socially responsible initiatives. In practice, a Sustainability Bond combines the features of both Green and Social Bonds. Two social bonds listed on the Sustainability Segment in 2021, and both are contributing to very pressing real-economy and social outcomes.

Transition and Sustainability-linked bonds

This year, the JSE has moved rapidly to reposition its Sustainability Segment to enable a dedicated “use of proceeds segment”, which are the existing bonds in the Green, Social and Sustainability Segment, and further expand to include other models.

The exchange is now in the process of introducing a Transition Bond Segment and a Sustainability-Linked Bond Segment, which is quite advanced for emerging markets. We acknowledge the fact that markets and economies are going to need to go through a process of transition – they will not move from brown to green overnight, so transition finance has strong relevance in emerging markets that, in particular, are still heavily fossil fuel-based.

These instruments could play a key role in the global quest to decarbonise, and the stock exchange stepping in to back some of these initiatives is supportive to both global and local needs. From a regulatory, products, and services perspective, we are creating an enabling environment to be able to fast track our environmental, social, and governance (ESG) aims.

Turning to the engagement and advocacy pillars, JSE has been strongly advocating sustainability both locally and globally.

In a global context, JSE, together with the London Stock Exchange Group, co-chaired the work of the Sustainable Stock Exchange Initiative on model guidance for climate disclosures, as well as an action plan for exchanges to help make their markets more resilient. These were released in June 2021, and they are documents that all stock exchanges can use.

We invested a considerable amount of time and effort in leading that work to ensure that there is a product and output that can easily be used and referenced immediately by stock exchanges to help make their markets more resilient, acknowledging that exchanges are at varying stages of their sustainability journeys.

The JSE works closely with the UN’s Global Investors for Sustainable Development Alliance (GISD), co-chaired by JSE Group CEO Leila Fourie, which aims to leverage finance and investment know-how, in order to scale up private-sector contributions to the annual funding gap of the UN Sustainable Development Goals (SDG’s).

COVID bond guide

One of the group’s recently concluded initiatives, led by the JSE and supported by key GISD members, is the publication of a COVID Bond guide that goes beyond just being applicable to exchanges, but is also relevant to wider corporate issuers and sovereign issuers globally.

JSE was aware of the significant sums of money being raised, on both private and public markets globally, to help governments and other entities deal with the impacts of COVID-19. Often these funds were aimed at social impacts but there was not necessarily an explicit consideration of the SDGs. We saw the opportunity to support that work on a global scale to develop a set of guidelines that effectively would help issuers to map their use of proceeds to the Sustainable Development Goals (SDGs) directly, and allow for capital flow to help advance the SDGs.

The aim was to set up a framework that is easy for anyone to use, thereby reducing the cost and time of having to map capital flow to the SDGs, when we already know what most of the proceeds are being used for in relation to the pandemic. This was an initiative that was completed during the course of 2020.

A force for good 

In relation to advocacy, the JSE is part of a number of working groups, and chairs the Sustainable Finance Working Group under the auspices of South Africa’s National Treasury, based on its recent technical paper called “Financing a sustainable economy”.

As part of this effort, JSE is working on developing a sustainable finance roadmap for South Africa, and the exchange is leading that particular working group along with various government departments and a number of other players in the financial sector.

The JSE is taking a climate-first approach in relation to instruments, acknowledging explicitly that this is one of the most pressing of the sustainability challenges that it is working to address, but emphasising also that the social context is equally important, particularly in emerging markets that still face a plethora of developmental challenges.

Balancing the ‘E’ and the ‘S’ is critical, supported by effective governance. These issues intersect with each other and matter to all stakeholders. Therefore, the stock exchange is investing considerable energy to be able to support this aspect on the advocacy and engagement front, with a strong conviction that markets can be a force for significant good.