Green route may be among few financing options for government
Pandemic has strengthened the investment community’s commitment to ESG issues
President Cyril Ramaphosa faces enormous challenges to get the country’s economy on the road to recovery. While the temptation — and clamour — is for a speedy business-as-usual approach, the solution lies in a more long-term and sustainable strategy.
The government is relying on an ambitious R2.3-trillion infrastructure programme over the next 10 years to achieve this. The president recognises that attracting the domestic and international investor community to fund this requires making several practical and strategic decisions.
On the latter, he correctly identified that the country must base future recovery and sustainable growth on a climate-resilient economy. The Covid-19 pandemic has not only highlighted but also strengthened the investment community’s commitment to environmental, social and governance (ESG) issues. The recently released HSBC sustainable financing and investing survey indicated that 90% of debt issuers and investors see sustainable finance as “important” or “very important” in guiding their policies.
The survey, which polled 2,000 capital market participants on their attitudes to ESG issues, revealed that 30% of investors and 40% of companies had reinforced their commitment to ESG during the pandemic. The main drivers for environmental and social engagement, according to the survey, are risk and return (49%), external pressures (43%, for example society’s expectations) and regulators (41%).
HSBC made the decision earlier this year to establish a dedicated ESG solutions unit through which to apply a climate lens on financing decisions. The bank announced plans in October to prioritise financing and investment supporting the transition to a net-zero global economy and aligning our financed emissions — the carbon emissions of our portfolio of customers — to the Paris Agreement goal to achieve net-zero by 2050 or sooner.
The SA government needs to convince the investment community that it has the political will and the commitment to deliver on its promises. The pursuit of the “green route” may prove to be one of the few viable strategic options available to secure external financing. That is because it has the opportunity to attract investments across the multiple sectors signalled by the government. But it is on the practical implementation front that much more should be done.
The government must tackle head-on the bureaucratic mire that has hampered investment projects in the past. The creation of Infrastructure SA (ISA) is intended to do just that. ISA will be the entry point for all projects covered by the infrastructure investment plan.
Public works & infrastructure minister Patricia de Lille announced in October that ISA, in partnership with private investors, would co-ordinate licence applications and environmental impact assessments on “blended finance” projects that fall under the remit of the R100bn Infrastructure Fund. De Lille also said the government had adopted the sustainable infrastructure development system (Sids) to identify, evaluate, approve and implement feasible infrastructure projects that are “bankable”. These are necessary and practical steps.
Achieving secure and sustainable energy supply is vital for all and any infrastructure investments to get beyond the drawing board. The current energy deficit is one of the key threats to this country’s future. SA will need to partner with experienced international conventional and renewable energy companies that can rapidly deliver worthwhile projects without delays and interference.
Another required action hinges not so much on how to tap into the investment sentiment surrounding ESG strategies, but rather how to leverage sustainable financing to shape future investments that help to restart the economy and create much-needed jobs.
SA needs to ensure it adopts common standards in ESG data reporting to establish and demonstrate the robustness of these investments. According to the HSBC survey, investors feel issuers’ ESG data does not allow for comparisons to be made and assessed. Almost 50% of investors find this an obstacle to full and broad ESG investing.
As ESG deals are considered an asset class in their own right, the long-term success will be shaped by the ability of ESG investments to compete with other conventional financing options and provide greater access to funding at competitive rates and or longer maturities. This may require the sovereign to establish benchmarks across the maturity spectrum to provide the basis for more efficient pricing for public and private sector borrowers.
It is clear that only a blended effort garnered from the public and private sectors will be able to help solve funding challenges to secure a more sustainable tomorrow. SA is the standard-bearer for the Southern African Development Community, if not for the entire continent, and infrastructure programmes must be pre-positioned on the premise that they will build an inclusive, sustainable economy that harnesses resources for the many rather than the few.
• Stadler is CEO of HSBC SA.
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