Page 50 - Vol 33 Issue 34 2021

Giving the Green Light to Green and Sustainable Finance - Theory
Becomes Reality
mining ESG Finance

Giving the Green Light to Green

and Sustainable Finance - Theory

Becomes Reality

By Jason Wilkinson, Ulrike Naumann and Alison Mellon

nvironmental, social and governance (ESG) initiatives are key market drivers for governments and corporate
Eleaders, given the overwhelming need to advance sustainable investing.

One of the key parameters of the Paris Agreement Examples of typical SPTs: » provide all market participants and
is to reduce greenhouse gas emissions by 40% » improvements in energy efficiency ratings consumers with a common understanding
by 2030 to levels in the 1990s. This is only nine » reductions in greenhouse gas emissions and language of which economic activities
years away. In addition, ESG initiatives are being (usually in production or manufacturing) can unambiguously be considered
prioritised by the younger generation, both in » increases in the amount of renewable energy environmentally sustainable/green.
terms of value-based investing and keen job sa- generated or used by the borrower
tis faction. » water consumption reductions and water We understand that National Treasury is cur-
It has been rewarding to note that the in ter- savings rent ly looking to implement similar measures in
national lending markets have embraced green » increases in the number of affordable South Africa.
loans and sustainability linked loans (SLLs). housing units developed by the borrower Furthermore, key loan organisations such as
Over the past four years alone, the volume of » increases in the use of verified sustainable the LMA, APLMA and LSTA have jointly produced
sustainable finance has grown 15 times. Closer raw materials/supplies the Sustainability Linked Loan Principles and the
to home, green and ESG initiatives and the » circular economy and increases in recycling Green Loan Principles. These are high-level market
related financings are no longer a theoretical rates or use of recycled raw materials/supplies standards to promote the development and
aspiration, but are very much at the forefront for » sustainable farming and food integrity of these loans by encouraging a consistent
governments, banks and corporates. » improvements in conservation and approach, while recognising, in particular for SLLs,
protection of biodiversity the need for flexibility across sectors.
What are green loans and » improvements in the borrower’s ESG rating With governments and corporates embracing
sustainability linked loans? and/or achievement of a recognised ESG and adopting ESG principles, the banking market
certification. has recently seen a significant number of green
Green loans are loans, the proceeds of which are loans and SLLs – which we anticipate will increase
used for a specified green purpose or project Factors driving growth steadily across Africa.
with clear environmental benefits. SLLs are loans
advanced for general corporate purposes (and On 12 December 2015, parties to the UN Frame- Market developments
not for a specified environmental use) where the work Convention on Climate Change reached
benefit of certain terms, is linked to the borrower consensus to combat climate change and in- For many, ESG and green finance is no longer a
achieving negotiated sustainability performance ten sify all actions and investments needed for theoretical issue. Since 2019 there has been a
targets (SPTs). a sustainable low carbon future, known as the marked increase in these financing transactions
The key characteristic of a green loan is its use ‘Paris Agreement’. in South Africa.
of proceeds. The other specified core criteria set This includes reducing greenhouse gas emis-
out in the green loan principles must also be met. sions by 40% by 2030 and becoming carbon neu- For instance, Bowmans has advised:
With SLLs, the focus is on incentivising the tral by 2050. » Motus Holdings Ltd, a non-manufacturing
borrower’s efforts to improve its sustainability The EU Taxonomy has also been a key driver business in the automotive sector, on the first
profile, by aligning loan terms to the borrower’s in ter nationally. It effectively operates as a clas- international syndicated sustainability linked
performance against mutually agreed, ‘ambitious sification system designed, amongst other things, loan to be implemented in South Africa.
and meaningful’, pre-determined SPTs. These to: Motus agreed to reduce its usage of fuel
should be ‘ambitious and meaningful’ goals » create a uniform and harmonised and water over a specified period in return
that are measurable targets to avoid the risk classification system, which determines for which it benefits from better pricing,
of ‘greenwashing’ (i.e.: setting goals, that if met, the activities that can be regarded as provided it meets the pre-agreed targets.
would not reflect a genuine improvement). environmentally sustainable for investment » Netcare Ltd on the first sustainability linked
purposes across the EU; and bond listed on the JSE. Netcare will benefit

50 | AFRICAN POWER Mining & Oil Review Vol33 Issue 34 2021