Investing In A Green Future

Can green bonds unlock the investment to fight climate change? Vanessa Clark finds out.

It’s not often you hear a banker saying something is a matter of life and death. But, this is the level of urgency Akshar Sewkuran, debt capital market specialist at the Johannesburg Stock Exchange (JSE), conveys when talking about green bonds.

“If we don’t do it, we’re going to die,” he says.

The JSE launched its green bond segment in October 2017 and property giant Growthpoint was the first corporate to issue a green bond in March 2018.

Institutional investors met the arrival of the green bond segment on the JSE with enthusiasm — all green bonds issued to date in South Africa have been oversubscribed. But, it’s hard to ascribe their popularity purely to the feel-good factor. Typically, Sewkuran believes, South African investors are not yet embracing green bonds for their “greenness”, but instead are reacting to a general shortage of good bond investment opportunities as well as the appeal of the additional governance built into the bonds which ensures the money is spent on what it is intended for.

Sewkuran makes the point that asset managers and investors who actively embrace environmental, social and governance (ESG) factors do, in fact, de-risk their overall investment portfolio.

“If investors do not address climate risk as part of their portfolio construction, they have effectively introduced unpriced risk into their portfolio, given that the existing investments they already have will be affected by climate change,” says Sewkuran.

This is particularly relevant for emerging markets like South Africa, which have greater exposure to the impacts of climate change.

 A popular investment vehicle 

Green bonds are popular everywhere: the annual HSBC State of the Market report values the global market for climate-aligned bonds at around $1.45-trillion (R21-trillion), of which $497-billion (R7-trillion) is in green bonds. The green bond market alone has more than doubled since 2017, and the overall market for climate-aligned bonds increased 60 per cent.

This international enthusiasm is visible here and Growthpoint has been able to attract a diversity of investors, including an international organisation that only considers ESG investments, making this investment its first foray into the South African market.

“We were able to diversify our investor base through the issue of green bonds and we were also able to lengthen the weighted average term of our debt by doing a public auction of a 10-year bond,” says Dirkje Bouma, Growthpoint’s group treasurer.

This access to previously inaccessible investment, says Sewkuran, is one of the key benefits to green bonds. By extension, investment in sustainability in South Africa is essential to meet the R870-billion infrastructure investment in energy, clean water transportation, waste management and climate adaptation required in the next three years.

In terms of real, on-the-ground outcomes, the proceeds of Growthpoint’s R1.1-billion green bond issue will be used to refinance five recently completed green buildings, all with a four- or five-star green rating. The City of Cape Town, which issued a green bond in advance of the segment being launched on the JSE, has earmarked the R1-billion it raised last year for a mix of climate adaptation and mitigation projects including buying electric buses, energy efficiency in buildings, and water management initiatives such as water meter installations and replacements, water pressure management, and the upgrade of reservoirs.

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