Climate Finance Colloquium

Environment, Forestry and Fisheries

28 November 2017
Chairperson: Mr M Mapulane (ANC) (Acting)
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Meeting Summary

The Chairperson of the Committee on Environmental Affairs introduced the colloquium on climate change financing by warning that sufficient scientific evidence existed that proved the continued devastating effects of climate change throughout the world, and especially in Africa. The levels of carbon dioxide (CO2) and global temperatures had grown at a record rate in 2016. The ongoing drought, with water shortages in the Western Cape, remained a case in point. The decrease in levels of rainfall, as well as South Africa’s dependence in its agricultural resources, remained a major concern in the face of climate change. Unless drastic measures and the much-needed climate actions were implemented, South Africa stood to be heavily exposed to reduced yields from agriculture and an increase in arid and semi-arid land, heightened food security issues and an extremely high cost of adaptation in low lying coastal areas.

The Committee received a wide range of contributions from organisations with an interest in climate change and its financial implications.

The DEA detailed South Africa’s response to implementing climate action on a national scale, referring to the need for public-private partnerships to provide financial support, and said that the climate change flagship programme team, in collaboration with the relevant lead partners, was actively involved in the development of nine funding proposals for the Green Climate Fund (GCF).

One World, Cape Town, said that there was a need to determine how much money was needed for climate finance, and how much was enough. It had been estimated that climate change expenditure would absorb about 70% of domestic budgets. Local climate change finance was necessary since the rural communities stood as the most vulnerable groups to climate change, and local climate change response was largely fragmented and lacking in scale.

The National Business Initiative (NBI), said that for there to be private sector investment, there had to be clear policy signals from government and long-term policy certainty, an enabling regulatory framework, clear processing for leveraging public sector finance, and clarity on priorities for investment and timeframes. From the private sector, what was needed was an enabling financing framework in terms of project scale and levels of risk, financing instruments that could be accessed easily and speedily, appropriate levels of risk tolerance, and an ability to understand and engage with governmental processes.

The Johannesburg Stock Exchange (JSE) said that approximately US $6-7 trillion in annual investment would be needed globally over the next 15 years to meet the demand for green investment. US $1 trillion would also be needed from green bonds by 2020 to cater for projects dealing with environmental remediation, energy efficiency, clean energy, clean transportation and green buildings. It would also facilitate the global transition to an environmentally sustainable and low-carbon economy. Rising climate change concerns exacerbated the need to fund this transition to a low-carbon economy as soon as possible.

The City of Cape Town said it was investing in a low carbon future, and the green bond was a way of bringing some green funding into the city. It had had various engagements with many investors, including the Development Bank of South Africa (DBSA), before the launch of its green bond. The city’s stable investment portfolio had attracted a lot of investors during the release of the bond. The city had also instructed its asset managers to remove its investments from fossil fuels in order to stop their contribution to the world.

Members said there was a need to identify which of the interested facilitators of the green bond in the private sector were honest individuals who had no conflict of interest issues. They asked what the tax implications of the green bond were -- whether they were exempt from tax on the interest paid, or the capital gains earned. How many other municipalities were issuing green bonds in South Africa? Was the JSE aware of any companies that had joined the fossil-free divestment movement that was taking place all around the world? Also, were banks financing fossil fuel industries?

Meeting report

Chairperson’s Introduction

The Chairperson said that the series of the colloquiums had proved to be of great success ever since they were introduced. The timing of this colloquium was opportune, as it came after the conclusion of the UN Framework Convention on Climate Change (UNFCCC) COP23 / Fiji climate change negotiations in Bonn, Germany. Sufficient scientific evidence existed that proves the continued devastating effects of climate change throughout the world, and especially in Africa. This evidence was ably and indisputably demonstrated through the research report issued in the United Nations Green House Gas Bulletin which revealed that the levels of carbon dioxide (CO2) and global temperatures grew at a record rate in 2016.

The ongoing drought, with water shortages in the Western Cape, remained a case in point. The decrease in levels of rainfall, as well as South Africa’s dependence in its agricultural resources, remained a major concern in the face of climate change. Unless drastic measures and the much-needed climate actions were implemented, South Africa stood to be heavily exposed to reduced yields from agriculture and an increase in arid and semi-arid land, heightened food security issues and an extremely high cost of adaptation in low lying coastal areas.

The financial implications of climate change were noted in the United Nations conference on environment and development. This had been a point of reference in international negotiations, and was included as well in the UNFCCC negotiations document in which it was stated that developed countries should provide additional financial resources to developing countries to support meeting the full and incremental cost of climate change. This was made on the premise that developing countries would need financial support to alter or change their developmental patterns to a low carbon trajectory.

The basis for climate change had evolved and was included in negotiations to this day. However, the original intention was articulated in the UNFCCC, which had focused on international climate finance. There was now a broad subset of climate finance definitions, which included private and public sector climate finance from domestic sources. The emergence of these various subsets and their unique characteristics had presented challenges for assessing progress. Climate finance negotiations had been the subject of polarised debate between nations, despite the centrality that finance in the UNFCCC played.

At the engagement hosted by the Inter-Parliamentary Union on the occasion of the parties, in Marrakesh and in Fiji, it was agreed that $100 billion would be mobilised by 2020 to address the needs of developing countries during the COP 15 negotiations in Copenhagen. This was included in the Paris Agreement as well. This figure had been the financial focal point for discussion around climate change. It was agreed that this would be financed from a wide variety of sources; public and private, bilateral and multilateral, including alternative sources of finance.

In the Paris Agreement in 2015, it was agreed that developed party countries should assist developing party countries with respect to mitigation and adaptation, in continuation of their existing obligations under the Convention.

Due to the uncertainty over the level of funding likely to be available internationally, developing countries ought to build their capacity in generating local resources for climate finance, to better assist their citizens to withstand the threats of climate change. As such, South Africa could not wait for developed countries to come to its aid in order to meet its obligations. The need for cooperation between the government and the private sector was of paramount importance. In this regard, South Africa’s own Green Fund had been established, and was being administered by the Development Bank of South Africa (DBSA).

Lastly, the United States of America’s decision under the Trump administration, to withdraw from the Paris Agreement, posed a challenge as it had an impact on climate finance.

Progress with Paris Agreement and Draft Climate Change Bill

Mr David Mostsepe, Acting Deputy Director General (DDG): Climate Change and Air Quality. Department of Environmental Affairs (DEA) briefed the Committee on the progress of the legal framework, and said that during past few months there had been extensive engagements, through the National Committee on Climate Change, with sector departments and stakeholders. The draft Climate Change Bill had gone through the internal process, through the IGCC, an intergovernmental structure, and through the Ministers and Members of Executive Council (MINMEC). Currently, the DEA was finalising the socio-economic assessment, and its initial assessment had been submitted to the Department of Performance Monitoring and Evaluation (DPME), which had in turn provided feedback. The DEA would finalise the assessment and send it back to the DPME for final approval, after which the Bill would be taken to Cabinet for gazetting for public consultations. The main objective of the Bill was to create the institutional structures of governance.

The climate change flagship programmes in section 8 of the National Climate Change Response Policy (NCCRP) were South Africa’s response to implementing climate action on a national scale. They provided the greatest opportunity for high impact climate action in the near to medium term, responding to the three key challenges facing South Africa and other countries as global efforts to address climate change intensified.

South Africa was in the final appraisal phase of the Nationally Appropriate Mitigation Actions (NAMA) facility fund -- a programme for national energy efficiency in public infrastructure and buildings -- to be implemented in 2018 as part of the energy efficiency and demand management flagship programme led by the Department of Energy and Department of Public Works.

On the target beneficiaries of the climate change flagship programme pipeline development, the national, provincial and local government’s role was to drive and coordinate programme development, anchor supply chains and stimulate demand at scale, and provide incentives for the supply of required services to meet demand for low carbon/climate resilience. This would enable the private sector and civil society to partner in programme conceptualization and implementation.

The climate change flagship programmes currently constitute the majority of South Africa’s Green Climate Fund (GCF) programme proposal pipeline. The climate change flagship programme team, in collaboration with the relevant lead partners, was actively involved in the development of nine funding proposals to the GCF.

The UNFCCC financial mechanisms include operating entities of the financial mechanism, such as the; Global Environment Facility, the GCF and the Kyoto Protocol “Mechanism,” including the adaptation fund (revenue levy - Centre for Environmental Rights (CER)). The adaptation fund was established as a mechanism to finance concrete adaptation projects and programmes among developing country parties. The fund was capitalised mainly from a percentage of proceeds from the Clean Development Mechanism.  Future capitalisation was under discussion. The adaptation fund resources were accessed via multilateral implementing entities (MIEs) and national implementing entities (NIEs).  It had an initial country cap of US $10 million, which was currently under revision.

The Green Fund had been established to support initiatives that would contribute to South Africa’s transition to a low carbon, climate resilient, resource-efficient development path. A total of 55 projects had been approved -- 31 investment, 16 research and policy development and eight capacity building. Among the 31 investment projects approved,12 were under implementation, eight had been were withdrawn, and one had been cancelled as the projects had failed to meet the terms and conditions as per the approval. Ten projects had been completed so far. In order to assist in the transition to a green economy, the Green Fund supported strategic capacity-building initiatives. A total of eight capacity-development projects had been approved to a value of approximately R66 million. Capacity building project timeframes varied from one to three years.

Discussions

Mr T Hadebe (DA) asked for clarification as to why, according to the geographical spread of Green Fund projects, Limpopo province had not been mentioned, whereas all other provinces had been featured.

Ms H Nyambi (ANC) commented that the Northern Cape province had also not been mentioned. She asked who had set the initial country cap at $10 million cap, and which criteria had been used in determining the cap. She said the SA National Biodiversity Institute (SANBI) worked with some of the municipalities to implement the adaptation project, and asked who in particular got to choose which municipality to work with on the adaptation project.

Mr R Purdon (DA) asked whether the $10 million country cap on the adaptation fund was per year or for another period interval. How much was allocated per year to the Green Fund by the National Treasury?

Mr Z Makhubele (ANC) asked for clarity on the COP23 outcomes -- in particular, the adaptation fund -- and whether there were new conditions or restrictive measures for the loans, and whether they had been adopted or taken out. The presentation relating to multilateral funding mechanisms of the development funds had spoken of the World Bank Clean Technology Fund, which required co-funding, and some people had suggested it should be included in the adaptation fund. He expressed his concern that it might create a situation whereby access to such funds might be inaccessible to small municipalities, who might get left out. He asked what assistance would be given to municipalities that might not have access to these funds. Did the funds or the projects have a manager, or were they coordinated so as to ensure that they were not concentrated in one geographical area and were spread out fairly throughout the rural areas affected by climate change. The funds should be accessible to all, and not just to a chosen few.

Ms Tembeka, of One Million Climate Jobs Campaign, expressed her concern regarding the number of sustainable jobs that had been created, since the current approach seemed to target the mainstream job creation sectors, such as mining, energy and transport. This approach would not be sustainable and the labour movement would have to be convinced on how many jobs would be created in order to move to a low carbon economy. She asked whether South Africa was being realistic enough in terms of meeting its sustainable development goals within the next 13 years as they shifted to a low carbon economy.

Ms Louise Naude, Climate Change Officer, World Wildlife Fund (WWF), said that the WWF moved very strongly from the principle of common but differentiated responsibility, which was a principle of the UNFCCC, and had not been acted upon effectively by the developed word. The commitments in the most developed countries (MDCs) in the Kyoto Protocol showed that they were not doing their fair share and also not paying the money they should contribute. The WWF, together with other global civil society organisations, had conducted an equity review of the MDCs on their stated responsibilities of individual countries, and had found that South Africa did not get its fair share. South Africa could achieve its fair share and do more if it got funding from other sources.

Prof Jan Glazewski, Institute of Marine and Environmental Law: University of Cape Town (UCT), said that South Africa was heavily dependent on its two oceans, and had launched the Phakisa programme so as to tap into the wealth of the oceans. However, none of the projects referred to anything relating to the oceans or the coastal communities, with exception of aquaculture involving catfish. He asked whether there was any intention of the projects to fund anything around the marine environment and the coastal communities. He asked for clarification on the funding allocation to provinces and municipalities.

Ms Telly Chauke, Specialist: Environment & Climate Change, South African Local Government Association (SALGA), said that cities were under-represented, and funds that had been allocated to cities and local government made up less than 6% of the Green Fund. There was a need to look into how the national fiscus could be complemented by external funding sources.

Ms M Lilley, a member of the public, said that if South Africa was genuine in reducing in its green house gas (GHG) emissions, it should not be doing things that contributed to it, such as fracking. She expressed her concern regarding South Africa’s efforts at preventing the emission of GHG that resulted from fracking,and suggested that more attention should be placed on preventive measures.

Bishop Jeff Davis expressed his concern as a private citizen with the continued exploration and exportation of coal and fossil fuel. Regardless of the fact that South Africa may not be exploiting the coal itself and exported it, this did not change the fact that the coal would still end up being burnt. The Department of Energy should come out more strongly in preventing this.

Mr M Balabala, member, Curriculum & Social Justice Campaign, asked what role education played, as there was not enough emphasis on it. He suggested that a certain percentage of the Green Fund should be channeled to educational activities so that the youth could learn how to manufacture solar panels and thereby end the importation of such products from other countries. He asked how the local multinational companies could be included so that they could assist in the Green Fund project and reduce South Africa’s dependence on European countries.

Prof Phillip Lloyd, Energy Institute, Cape Peninsula University of Technology (CPUT), said that China anticipated to leveling off at around 2030, and the matrix they used to level off was their emissions per unit of gross domestic product (GDP). They allowed their emissions to increase according to their national contribution. South Africa should look harder into the future, as there was no scientific evidence to support the notion that extreme climatic events were on the rise.

Dr Eliya Madikane, Parliamentary Liaison, Council for Scientific and Industrial Research (CSIR), said that there should be more effort exerted in adapting what was being done currently. There was no organised effort in the sectoral plan to tap into funding opportunities and as such the real cost of adaptation to climate change was yet to be known. What organised efforts were being made to quantify climate change costs? Once the costs were established, South Africa would be in a better position to know how to reduce those costs. There was a need for a much larger intervention for the adaptations and a more organised intervention.

The Chairperson asked whether the Fiji COP23 report was a preliminary or final report. In the event it was a final report, it was very thin, and he had anticipated more detail, especially with each of the outcomes negotiated. $100 billion needed to be financed per annum as part of the 2020 actions. Finance was one of the key issues for developing countries in order for them to strengthen their adaptation efforts. However, there was no clear indication as to South Africa’s current status. He had anticipated this to be featured in the report. He expressed his concern regarding the fact that there already was a financial programme that dealt with the Expanded Public Works Programme (EPWP) and asked why the Green Fund was being targeted to finance the EPWP.

Dr Moshibudi Rampedi, Chief Executive Officer (CEO), SANBI, responded to the question of selecting municipalities, and whether they worked with all the municipalities regarding to the adaptation fund. In the past, when SANBI had to make such an investment decision, it would make an open call and received various expressions of interest from different interested parties. Thereafter, SANBI would choose from the applications received and as a result, in this case, three municipalities had been chosen. There were some indications that the process may not be inclusive, since the open call may not have used a medium which was accessible to all the affected communities. The Green Climate Fund would still adopt the same procedure. However, there would be a road show aimed at sharing with the local communities on the funds aspects, benefits and how they could participate.

On the adaptation fund cap, the country cap had been a decision of the Adaptation Fund Board in 2011 and applied for all the countries until the fund was properly resourced.

The Chairperson asked for a response regarding the biased biodiversity projects and the marine projects.

Mr Motsepe said that the adaptation fund should be looked at as a whole, as it was vulnerable at the moment since it relied on voluntary contributions from developed countries. There were some countries which had committed additional funds to the fund, but the collective contributions remained small. The fund was not yet large enough to deal with other issues. The fund’s approach had been a donor-driven approach as opposed to a much more coherent approach, and it thereby required an alignment to a more strategic approach.

On the eligibility criteria of the finance, there had been increasing pressure from developed countries to revise the criteria to accommodate only Least Developed Countries (LDCs) and small island developing states. The USA’s withdrawal from the Paris Agreement only increases the momentum towards this revision.   

The adaptation fund would remain crowd funded, and a final decision would be made for its inclusion in the Paris Agreement. The DEA had conducted a risk and vulnerability assessment throughout the provinces and noted that some sectors had developed adaptation plans, and the DEA was currently working on a national adaptation plan strategy to bring about more coherent planning. The project would be designed to respond to the hot spots identified by the assessment.

Although Limpopo and the Northern Cape were not represented, there were other projects, which were not in the National Green Fund, but were funded through other mechanisms such as the land transport motorized system, funded under German funding, as well as the Swiss Africa Green Projects. In the Northern Cape, there was also the wastewater management project funded by the European Union.

The Green Fund had a project dubbed ‘Active Origination,’ where it worked with the provinces and municipalities in trying to come up with projects which it could fund. This would address the gap in the geo-graphical spread.

On education, there was a component in the National Green Fund that looked into capacity building for research. There was support for green entrepreneurs, and also efforts to take the green economy into the learning process.

The DEA had also tried to ensure that any project that was supported by the National Green Fund would not be susceptible to double-dipping, and thereby tap into other government resources.

On job creation, the Department of Economic Development was currently undertaking a study on an employment sustainability assessment, which would translate to sector jobs plans to be developed. As such, a lot of consultation was expected to be undertaken on the sector job plan.

The DEA had only made an overview of the Fiji COP23 Report.  However, a more detailed report on the individual outcomes could be availed to the Committee if need be.

There was a need to put up a capacity-building programme so as to ensure access to funds by the smaller organisations and municipalities. The DEA gets significant international support, but they want the international financial system to be structured in a way that was accessible to all eligible applicants.

Mr Motsepe admitted that in terms of job creation, there was a gap in the data collection regarding sustainable jobs. The data was collected by Stats SA, which did not have the structure that would show exactly how many jobs had been created, although examples could be drawn from the international community.

Operation Phakisa had its own budget allocation and was yet to access international finance. There was a need to review the fiscal instruments available to local government to ensure their accessibility.

On the issue of fracking, the decision on a policy guidance system was yet to be made, and there was a lot of work to be done just to find out if the gases were there. On the approval of coal mining for export purposes, this decision did not lie with the DOE, but rather the Department of Mineral Resources (DMR).  

Ms Judy Beaumont, DDG: Oceans and Coasts, DEA, said that the DEA was currently engaging with the DMR to build a carbon constraint alliance.

The Chairperson said that the Intergovernmental Panel on Climate Change (IPCC) advised the UNFCCC which consisted of a lot of scientists who had the consensus on the realities of the impact of climate change.

Financing Climate Resilient Development: Panel Discussion

Ms Belynda Petrie, CEO: One World, Cape Town, said that there was a need to determine how much money was needed for climate finance, and how much was enough. It had been estimated that climate change expenditure would absorb about 70% of domestic budgets. Local climate change finance was necessary since the rural communities stood as the most vulnerable groups to climate change, and local climate change response was largely fragmented and lacking in scale.

The institutional framework of local climate finance relied on the Municipal Systems Act, which determined the powers and functions of municipalities; the Municipal Finance Management Act (MFMA), which outlined rules and requirements for finance planning; and the Division of Revenue Act  (DORA), which determined division of revenue between levels of government.

Mechanisms of municipal planning and finance were the Integrated Development Plan (IDP), the spatial development frameworks and the sector plans. The Integrated Development Plan was a five-year policy framework for the development of a municipality and acted as the basis for annual budgets and implementation plans. However, it was yet to be implemented across South Africa. Although spatial development frameworks were critical for climate change planning, they were not well aligned with sector plans or IDPs. Sector plans were mandatory for housing, water, electricity, waste management, transport, local economic environmental management, and disaster management.

There were, however, no formal public and transparent systems for tracking climate expenditure. Various sources of international funding were used to supplement the municipal sources available. However, this was done on an ad hoc basis since the predictability of climate finance was not yet secure, which made planning difficult. Identified sources of funding were conditional and unconditional grants, transfers, external sources, intergovernmental grants such as the DOE energy efficiency funding, and other sources such as the Municipal Infrastructure Grant (MIG).

Some of the challenges facing domestic climate finance were that, climate change competes with other priorities such as basic socio-economic and environmental issues that seem to be more urgent. Also, the effects of climate action across the value chain were still uncertain and as such, accessing long-term decent jobs and the protection of enterprises were among the main concerns. The municipal revenue model also created a conflict of interest, as the bulk of municipal revenue came from electricity sales and thereby created a disincentive for emission reductions. There were also knowledge capacity issues on how to access international funds and leverage domestic sources in municipalities. The regulatory environment was limited, in that the Municipal Finance Management Act (MFMA) did not lend itself to municipalities accessing climate finance, which imposed limitations on what local government could do.

A more strategic approach to climate finance access would help local government to leverage further funds from donors and development banks, which were increasingly available to municipalities that demonstrated success. Robust and consistent monitoring and evaluation (M&E) was a significant opportunity for increasing climate finance access. Tracking climate finance through M&E, reporting and verification, and public expenditure frameworks would increase their ability to access climate finance.

It could be recommended that a revision of the intergovernmental grants for climate resilience and low carbon development through transformative approaches would result in improvements to national poverty, employment and equality. Climate finance could be strengthened through tracking and monitoring the progress of climate change across all spheres of governance. Consideration should be given to alternatives to municipal revenue models – for example, for embedded generation to demonstrate possibilities and gradually transform the electricity sales mind-set, and improve structures for climate planning and budgeting. Interpretations of the regulatory framework, such as the MFMA, should be reviewed in light of the triple challenges and climate resilience.

National Business Initiative (NBI): Should the private sector do more?

Ms Joanne Yawitch, CEO: NBI, said that although the private sector was not doing enough, there were reasons for this, and there was room for improvement. In order for there to be investments, there had to be clear policy signals from government and long-term policy certainty, an enabling regulatory framework, clear processing for leveraging public sector finance, and clarity on priorities for investment and timeframes. From the private sector, what was needed was an enabling financing framework in terms of project scale and levels of risk, financing instruments that could be accessed easily and speedily, appropriate levels of risk tolerance, and an ability to understand and engage with governmental processes.

There was a need to build consensus on the national priorities in terms of building pipelines and by looking into both governmental and private sector priorities and existing investment priorities (IPPs and buildings), to assess where current blockages and impediments to project development and investments lay, and what the current financing frameworks could and could not support, and how one funded more “risky” and entrepreneurially-led investments.

These pipelines could be built through facilitating a process that brings in the private sector partners, to generate scale and build consensus with the public sector partners, since building pipelines requires resourced intermediation. There should also be clarity on areas for investment, the process to create infrastructure for agglomeration –  to allow small and medium size company involvement -- and an upfront agreement on environmental, socio-economic and empowerment issues.

Johannesburg Stock Exchange: Green Bonds Market

Ms Shameela Soobramoney, Senior Manager: Group Strategy and Sustainability, JSE, said that approximately US $6-7 trillion in annual investment would be needed globally over the next 15 years to meet the demand for green investment. US $1 trillion would also be needed from Green Bonds by 2020 to cater for projects dealing with environmental remediation, energy efficiency, clean energy, clean transportation and green buildings. It would also facilitate the global transition to an environmentally sustainable and low-carbon economy. Rising climate change concerns exacerbated the need to fund this transition to a low-carbon economy as soon as possible.

South Africa had significant infrastructure financing needs. The National Development Plan had identified that R870 billion would be required over the next three years for infrastructure investment in energy, clean water, transportation, waste management, and climate adaptation, among others. There was a demand from the private sector to reduce climate risk as a part of their portfolio construction requirements and also to incorporate the private sector into the finance infrastructure. Climate risk had been identified as a systemic risk to the economy, and further needed to be addressed by investors and issuers to promote their need to address climate change in respect of their sustainability goals concerning jobs and investments.

Green bonds were any type of bond instruments where the proceeds would be exclusively applied to finance, or to re-finance in part or in full, new and/or existing eligible green projects which were aligned with the four core components of the green bond principles. The key feature of green bonds was the use of proceeds, which were described in the bond’s legal documentation, that were separately managed within the company and monitored and reported throughout the life of the instrument.  The bond would provide an additional source of green financing, enable more long term-green financing by addressing maturity mismatch, enhance issuers’ reputation and clarify environmental strategy, among other benefits.

City of Cape Town’s Green Bond

Mr Daniel Sullivan, Strategic Support Analyst: City of Cape Town, said that the City was investing in a low carbon future, and the Green Bond was a way for bringing some green funding into the city. The launch of the green bond had come at the same time as the implementation of the climate change policy, which addressed how the city would invest in green infrastructure going forward and mitigate some of the effects of climate change.

The city had also instructed its asset managers to remove its investments from fossil fuels in order to stop their contribution to the world. It had had various engagements with many investors, including the DBSA, before the launch of its green bond. The city’s stable investment portfolio had attracted a lot of investors during the release of the bond.

The Mayor had authorised the development of the bond. After that, a framework had been developed to identify what was to be included in the bond and how the funds would be utilised, the refinancing and the governance around the bond. Once the framework had been developed, projects and assets were identified, together with the relevant reporting process. The bond was thereby accredited, and a third-party insurance provider was appointed. An assurance opinion was conducted on the bond by the insurer and was submitted to the Climate Bond Initiative, which was a global organisation that governs a standard on green bonds. The Climate Bond Initiative gave the City a pre-issuance certification. The bond was then launched and currently the city was in the process of getting a post-issuance assurance.

Moody’s had come on board and given an ‘excellent opinion’ on the green bond issued, which was the highest standard that could be issued. The city had also hired a transaction adviser to facilitate the listing on the JSE. The mayor had done a roadshow and had gone to several asset managers to create market excitement on the bond and to secure their bids once the bond went to market. The bond was currently being allocated with the help of the National Treasury, which was assisting with the monitoring and evaluation of the bond.

On the projects identified, the city focused on the refinancing of existing and significantly developed projects, since bonds were better utilised for retroactive funding. The projects had been aligned to the CBI’s taxonomy, in which a number of standards were identified to be adhered to. The projects mainly centred on the city’s water projects, such as flood defences, pressure systems, and sea wall developments. Old equipment was replaced with more energy-efficient equipment.

The bond value was a total of R1 billion, which was relatively small when compared to the budget of the city. The bond had been oversubscribed, with over 35 bidders and only eight allocated bidders fell within the R1 billion mark.

Discussion

Mr Makhubele said that there was a need to identify which of the interested facilitators of the bond in the private sector were honest individuals who had no conflict of interest issues.

Mr Purdon asked what the tax implications of the Green bond were -- whether they were exempt from tax on the interest paid, or the capital gains earned.

Ms Nyambi asked how many other municipalities were issuing green bonds in South Africa.

Ms Lilley asked if the JSE was aware of any companies that had joined the fossil-free divestment movement that was taking place all around the world. Also, were banks financing fossil fuel industries?

Ms Soobramoney said she had had a discussion with Fossil-Free South Africa. However, it was something that she had only begun investigating and was therefore presently not in a position to tell how many companies were involved. However, this was more of a mandate-driven issue of the respective companies.

At this stage, there was no clear indication of how many municipalities intended to issue green bonds, as it was a new phenomenon. The City of Johannesburg had been the first municipality to issue a green bond, but it was a self-labeled green bond and it had had no external body to accredit their bond.

The Chairperson said that the conflict of interest issue raised by Mr Makhubele was not necessarily a green bond issue, but a general business issue in South Africa. The aim of the colloquium was to create a national platform for dialogue by all stakeholders. The engagement had benefited the Committee and the officials, and had been eye opener on the various issues raised. There was a lot to be learnt from informed constructive criticism. In order for the Committee to do proper oversight, it needed to be properly informed on the underlying issues.

The meeting was adjourned.

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