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However, in May 2020, National Treasury released a technical paper, entitled Financing a Sustainable Economy, that aimed to increase access to sustainable finance and stimulate the allocation of capital to support a development-focused and climate-resilient economy. Critically, it also recommended the enactment of a taxonomy similar to the EU Sustainable Finance Taxonomy (EU Taxonomy), in force since 12 July 2020.

In line with this recommendation, in June 2021, National Treasury published the Draft Green Finance Taxonomy (Draft Taxonomy), which sets out a more concrete regulatory framework for South Africa’s ESG goals.


The Draft Taxonomy is an official classification document that defines a minimum set of assets, projects and sectors that are eligible to be defined as ‘green’, in line with international best practice and national priorities. It can be used by investors, issuers, asset owners and other financial sector participants (as ‘users’ of the Draft Taxonomy).

This project aims to adapt international best practice to South Africa’s context and needs. In particular, South Africa’s green economy should be viewed from two perspectives:

  • economic activities that are intrinsically aligned to and/or are expected to make a substantial contribution to the future South African green economy; and

  • economic activities that presently have significant detrimental environmental impact, but are needed as part of the future South African green economy and for which there are presently no known alternatives.


Investor appetite

Due to its role in capital distribution, the financial services sector is integral to achieving sustainable development. Generally speaking, institutional investors and asset managers in South Africa recognise the importance of ESG, and are taking steps to improve the integration of ESG into their operations.

A revised draft Code for Responsible Investing in South Africa (CRISA) 2.0, a voluntary initiative that seeks to guide institutional investors in developing and implementing sustainable, responsible and long-term investment strategies, was published for comment in November 2020. It sets out various principles and practice recommendations with a clear emphasis on ESG and broader sustainable development issues. It also proposes a shift from an ‘apply or explain’ to an outcomes-based, ‘apply and explain’ application regime.

It is clear that investors are able to influence ESG conduct through their investment mandates and investment management agreements concluded with investment managers. The majority of investors and asset managers support CRISA and apply its principles, though the manner in which they do so varies considerably.  Many institutional investors will regularly publish ESG policies and sustainability reports dealing with ESG issues. There are also a growing number of ESG-related products being provided by the various asset managers.

Consumer considerations

International lending markets have embraced green loans and sustainability linked loans (SLLs). Over the past four years alone, the volume of sustainable finance has grown 15 times. In South Africa, green and ESG initiatives and the related financings are no longer a theoretical aspiration, but are very much at the forefront for the Government, banks and corporates.

Ultimately, sustainable finance transactions depend on the nature (and the measure) of each key performance indicator or sustainable performance target, as agreed between the borrower and lenders. The finance providers will likely look at several factors when assessing potential financings, with reporting and verification being of primary importance.

ESG initiatives are being prioritised by the younger generation, both in terms of value-based investing and keen job satisfaction. The next few decades will see the largest generational wealth transfer in history, from the baby boomers to millennials. With this will come newly prioritised investment criteria, notably in where they choose to work, how they invest their funds, and who they select for business relations.



The main issue of concern for proponents of ESG is to move beyond virtue signalling and bare minimum compliance to a more proactive approach to ESG. Different approaches to ESG, both across a range of industries and within an industry, make it difficult to compare ESG performance.  Added to this is a lack of capacity and expertise in ESG, requiring training on ESG integration.

However, ESG will become a core strategic concern for corporates, driven by exogenous and endogenous factors and pressures, including a shift towards a more stakeholder-inclusive capitalism.

Climate change is the key ESG challenge of the coming decades, which we expect will be a dominant theme as governments, investors, regulators and pressure groups increase engagements around climate change.

The trend of increasing pressure on companies and institutional investors to tackle ESG issues is likely to continue. Stakeholders are becoming increasingly proactive in engaging with institutional investors and asset managers on the integration of ESG factors into their decision-making, and companies are facing increasing scrutiny of their investment activities and AGM voting records.  They, in turn, are taking a more proactive stance on ESG, and in holding management to account on ESG issues.


Wilkinson is a Partner | Bowmans South Africa.


Giving the green light to green deals in Africa

Jason Wilkinson

Environmental, social and governance (ESG) initiatives are key market drivers for governments and corporate leaders, given the overwhelming need to advance sustainable investing. It is rewarding to see that such a key global initiative is being driven from a number of critical pressure points: from regulatory to investor and consumer. We think of this as the sandwich effect.

The regulatory regime
Regulatory requirements are a driving force behind sustainability in the lending market. It is expected that market practice will evolve as regulators enhance rules on disclosure and risk management, and develop green taxonomies. Key to this is the Paris Agreement, and one of its critical parameters is to reduce greenhouse gas emissions by 40% by 2030, to levels in the 1990s. This is only nine years away.

From a South African perspective, several foundational documents inform the domestic regulatory framework to achieve the country’s ESG goals, including the Paris Agreement on Climate Change and the UN’s 2030 Sustainable Development Goals.

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