Climate action: SA's finance sector can now track green activities – News24

The country's first green finance taxonomy was published following a two-year consultation process.

The country’s first green finance taxonomy was published following a two-year consultation process.

  • South Africa has its first green finance classification system to help track and monitor green activities in the sector.
  • The taxonomy would be beneficial in drawing more climate-friendly investments to the country.
  • It has been two years in the making, and is aligned with international trends.

Investors, lenders and other financial sector players can now track and monitor their green activities through the country’s first green finance classification system, launched on Friday

The taxonomy or catalogue is part of the country’s Sustainable Finance Initiative that National Treasury chairs. This launch follows a two-year consultation process by the Taxonomy Working Group which includes government departments like National Treasury and the Department of Forestry, Fisheries and Environment. It includes the Reserve Bank’s Prudential Authority and other sector players such as the Financial Sector Conduct Authority and the Banking Association of South Africa.

The green finance taxonomy sets out the minimum set of assets, projects, and sectors deemed “green” or environmentally friendly, Treasury said in a statement. The taxonomy was one of the recommendations from National Treasury’s technical paper, Financing a Sustainable Economy

The taxonomy, which reflects national priorities, is aligned with global trends. The EU taxonomy for sustainable activities was launched two years ago – as part of efforts to meet climate and energy targets for 2030 and is aligned with the European Green Deal.

According to Treasury, the taxonomy considers the EU’s model in identifying activities that contribute to six environmental objectives. These are climate change mitigation and adaptation, sustainable use and protection of water and marine resources, sustainable resource use and circularity, pollution prevention, ecosystem protection and restoration.

There are several benefits to the taxonomy. It will unlock large-scale capital and climate-friendly investment in South Africa as it creates transparency about the green activities and bolsters their credibility. It also assists in reducing financial risks through the improved management of environmental and social performance. The taxonomy will reduce costs linked to labelling and issuing green financial instruments. It also supports the regulatory oversight of the finance sector.

The taxonomy will be treated as a living document to be updated and expanded over time. Market participants should use the taxonomy as it undergoes development.

The Prudential Authority and Financial Sector Conduct Authority will provide oversight and regulatory guidance.

“This regulatory guidance will consider emerging international best practices and approaches…,” Treasury said. Investors and other market participants can use the taxonomy to stay informed about a companies’ sustainability-related risks which will help them make informed decisions.

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