The JSE planned to expand its green bond segment with a sustainability segment, the stock exchange said as investors increasingly demand investments that have an environmental, social and governance (ESG) focus.
The public has until March 19 to submit comments to the JSE on the proposed amendments to its debt listing requirements for the new segment.
Leila Fourie, the chief executive of the JSE, said on Friday: “Our vision is for our green bond segment to evolve into a holistic sustainability segment, which will provide companies with an effective tool to raise capital for investments into sustainable projects and continue in the spirit of making the markets work to support sustainable development.”
Fourie co-chairs the UN’s Global Investors for Sustainable Development Alliance, which aims to leverage finance and investment know-how, in order to scale up private sector contributions to the circa $2 trillion (R30trln) annual funding gap of the UN’s Sustainable Development goals.
The new sustainability segment would include sustainability instruments under the International Capital Market Association, green bond principles, social bond principles and sustainability guidelines.
The JSE already houses the FTSE/JSE Responsible Investment Index and launched its green bond segment in 2017, which is ring-fenced for low carbon initiatives to enable investment in securities that contribute to sustainable development and a low carbon economy.
The JSE said this expansion would build on the success of the green bonds’ “use of proceeds” model, which would broaden the options available to its investors and offer applicant issuers the ability to increase their participation in the broader impact and sustainability markets.
“The JSE has long championed sustainability. It was the first emerging market and the first stock exchange globally to introduce a sustainability index in 2004, which measured companies on indicators related to environmental, social and governance practices,” the stock exchange said.
The JSE was also a signatory to the UN-backed Principles for Responsible Investment, which is a global investor initiative which encourages consideration of ESG in investment decisions as well as a founding partner of the Sustainable Stock Exchanges Initiative.
ESG matters have become mainstream in all areas of corporate activity in 2020, including mergers and acquisitions (M&A).
A new report by international law firm Herbert Smith Freehills titled “M&A in 2020” found that many governments were tightening controls on foreign direct investment.
The report found that increased awareness of climate change, unease with globalisation, and pressure from activists and consumers were some of the other ESG risk and reputational issues that deal makers needed to be mindful of, in any buy or sell situation.
Law firm Herbert Smith Freehills’ head of global M&A, Gavin Davies, said: “ESG matters demand heightened attention on M&A transactions, across all sectors. Thorough ESG due diligence and post-transaction risk management should now be part of the M&A practitioner’s toolkit.”
For sellers, a trend towards increased due diligence by sellers, and sometimes in post-completion undertakings is also manifesting, because sellers that have embraced ESG no longer want just “a good price” and “clean break”, they also want to assure themselves that the asset will continue to be managed responsibly, post completion of the sale.
A number of deals were disrupted in 2019.
According to the 13th edition of PricewaterhouseCoopers’ “Non-executive directors: practices and fees trends” report issued last week, climate change was a complex and challenging issue for many organisations, and it was visibly disrupting business.
“Companies are under pressure from investors, regulators and other stakeholders to take responsibility by taking an integrated, strategic approach to addressing climate change.
“So-called ‘long emergencies’ need to be taken heed of, and companies should ensure that they are not overly focused on the short term.”
BlackRock, the world’s biggest asset manager, with $6.8trln under management, is working to reverse the impact of greenhouse gas emissions.
At the World Economic Forum last month it said it would make climate change central to its investment decisions.