Anneke Lund, Executive: Investment Banking at Standard Bank Group
While sustainable finance frameworks have been seen as a niche document for businesses to have, the environment is rapidly changing and within a few years they will become the standard way of raising sustainable finance. With growing importance being placed on sustainable business practices in the wake of accelerating climate change, sustainable finance frameworks provide a strong tool to issuers and borrowers looking to enter the market.
As much as this framework can be used to access the debt capital and loan markets, it also allows the issuer to communicate its holistic ESG strategy to the market and narrow down focus, think through their sustainable projects, ideas and strategies in a way that turns an ESG plan into reality.
Developing a sustainable finance framework helps fast-track the ESG agenda and ways of thinking within an organisation. It provides a mechanism for tracking progress on projects and in turn will help organisations meet their ESG objectives. These frameworks are assisting the evolution in ESG thinking; instead of just talking about your ideas, you are putting them down on paper and taking action to achieve the stated outcomes.
Ultimately, any issuer or borrower wants to make sure that they attract a strong investor base, achieve full volume and a favourable price for their instrument. There are many precedents in the market with success stories linked to these outcomes.
In February 2020, Standard Bank Group published its sustainable bond framework. Our framework was evaluated by Sustainalytics, whose second party opinion confirmed it to be credible and impactful and aligned with the four core components of the International Capital Market Association’s Green Bond and Social Bond principles.
It is a public document that we put out to market in order for us to issue sustainable, green and social bonds that support our lending to green projects, social projects and sustainable projects being a combination of these.
Then in March 2020, we issued our inaugural USD200 million green bond via private placement with the World Bank’s International Finance Corporation. This 10-year facility is Africa’s largest green bond and South Africa’s first offshore green bond issuance. The capital raised as a result was used to finance eligible green assets (renewable energy, energy efficiency, water efficiency and green buildings) aligned to our framework.
Through our framework, we raised almost R5 billion in green and social bonds in 2021. In August, we issued our first sustainable issuance in the local market and our first social bond, which raised a total of R2 billion. We tapped the bond again in November for another R1.5 billion, under the category of affordable housing with a focus on female borrowers.
We also launched our first local tier 2 capital qualifying green bond in December. The 10-year, R1.4 billion bond is listed on the Johannesburg Stock Exchange’s Sustainability Segment and proceeds will be used to finance renewable energy projects in South Africa.
Essentially, having our sustainable bond framework in place has given us the ability to successfully come to market multiple times with faster turnarounds. This is because the market is already aware of what our corporate strategy is from an ESG perspective, and the market knows the type of projects we are going to fund.
At the beginning of last year Standard Bank started workstreams with some of our clients to help them develop their own frameworks. The first was with the Trust for Urban Housing Financing (TUFH), a Johannesburg based company that finances property entrepreneurs in their purchase and refurbishment of affordable rental properties. The second framework was with SA Taxi, a subsidiary of Transaction Capital Limited, whose business model contributes to the recapitalisation, sustainability and safety of the minibus taxi industry.
Since the establishment of their frameworks, both companies have successfully launched social bonds. TUHF, with Standard Bank acting as the arranger and sustainability agent, executed South Africa’s first social bond listed on the JSE’s sustainability segment with the proceeds directed towards inner-city affordable housing projects.
Both these companies have subsequently tapped their social bonds for further fundraising.
There’s no standardised way of creating a framework. There are guidelines in terms of what content is required, but it’s specific to the company’s ESG strategy and the type of projects that they’ll be funding. It is a living document that is updated from time to time, for example additionality to existing green and social categories or updates to the principles.
It is important to note that there is always going to be external assurance over these frameworks. Obtaining a second party opinion helps to ensure that the framework is robust, credible and aligned with the principles stated. This is also allowing for some form of benchmarking against other frameworks.
The establishment of frameworks streamlines the fund-raising process and sends a clear signal to the market around the importance of embedding sustainability into business operations and financial decision-making.