South Africa: Treasury issues updated document on financing a sustainable economy
The National Treasury has released an updated version of its document “Financing a Sustainable Economy” as part of efforts to encourage longer-term investments in sustainable economic assets, activities and projects.
The technical document was first published in May 2020.
In the updated document released on Friday, the Treasury said that while financial institutions previously focused only on project return on investment, the focus on sustainable finance also encourages them to be aware of the impact of their investments. environmental investment decisions.
“It is envisioned that this will help reduce pressures on the environment, including supporting the transition to a low-carbon economy by phasing out greenhouse gas emissions and optimizing the use of natural resources.
“The impact of climate change on the global and South African financial sector is potentially significant, if not effectively mitigated,” the Treasury said.
In the document, the Treasury broadly categorized climate-related risks to the financial sector as follows:
Physical risks due to extreme weather conditions – directly affecting the operations or assets of the financial institutions they finance through damage, business disruption or the risk of default;
Transition risks – resulting from disruptive technologies, changing regulations, consumer or market preferences; and
Liability and Disclosure Risks – resulting from loss and damage, rising insurance costs, directors’ liability and disclosure failure.
The comments received broadly support the recommendations and proposed workflow on sustainable finance. The main recommendations include the introduction of a green finance taxonomy; create technical guidelines for disclosure aligned with the Financial Stability Board (FSB) Working Group on Climate Related Financial Disclosures (TCFD) and develop a climate risk baseline scenario for use in industry stress testing financial and financial regulators.
The Treasury said the document also takes into consideration new international developments in climate finance and policy, including the G20 and FSB roadmap for addressing climate-related financial risks.
The updated technical paper has been broadly amended to incorporate substantive issues such as the possibility of a more holistic approach to sustainable finance over time, expanding the document beyond climate risk issues to include the broader sustainability and social issues.
The document has also been modified to integrate the recognition of broader sustainable financing opportunities than those represented by green bonds, by including an expanded list of sustainable financing instruments and by better addressing issues of biodiversity, circular economy , water and environmental risk.
The updated technical document and feedback matrix are available on the National Treasury website (www.treasury.gov.za) and on the Sustainable Finance Initiative website https://sustainablefinanceinitiative.org.za.
Comments were received from 15 different stakeholders, including the Ministry of Environment, Forests and Fisheries, other ministries and financial sector regulators (the Financial Sector Conduct Authority and the Prudential authority).
Much feedback from other departments, industry and civil society actors was also received.
The updated technical paper released today incorporates responses to comments received, along with a comment matrix.