Interview with Shameela Soobramoney, Chief Sustainability Officer of the Johannesburg Stock Exchange

We talk with Shameela Soobramoney, Chief Sustainability Officer of the Johannesburg Stock Exchange (JSE), discussing green finance initiatives.

00;00;09;27 – 00;00;38;13
Simran: Today, we are joined by Shameela Soobramoney, the Chief Sustainability Officer of the Johannesburg Stock Exchange, to explore the green financing initiatives they have in place and the difference they will make. Simply put, green financing is an investment or loan which supports environmentally friendly activity. For example, building environmentally friendly infrastructure. Due to this, green financing plays an important role in fighting against climate change and achieving Net Zero. So, Shameela, could you briefly explain green financing and why it has to do with sustainability?

00;00;38;21 – 00;01;14;04
Shameela: So Simran, green financing really is, you know, in the simplest terms, the financing of activities and assets that are directly aligned with positive environmental outcome, with a low carbon economy. So it’s those instruments that we have and that we can use to direct financing towards those outcomes ideally. And of course, there’s a range array of different instruments that can be deployed in the capital markets to do this. And it is of course, an explicit need for these particular instruments now, as we’ve realised, you know, the imperatives of sustainable development and the critical role that markets can play.

00;01;14;19 – 00;01;20;09
Simran: What are the main issues facing green financing right now and do they adversely impact society as a whole?

00;01;21;08 – 00;01;41;27
Shameela: So the main issues, I think facing green financing, firstly is that it’s probably just too little as a, you know, as if you can look at it relative to the whole in terms of financing. And the other issue, I think that is facing is a definitional one. And you know, Green unfortunately does not have the uniform kind of a definition across jurisdictions.

00;01;41;27 – 00;02;01;23
Shameela: Taxonomies, which is really a catalogue of what is green that helps as a reference point. So that that certainly helps. And they are also inter-jurisdictional issues as to what is required in terms of the activities that will need to be undertaken to achieve a low carbon economy going into the future and decarbonising those economies as an example.

00;02;01;23 – 00;02;22;04
Shameela: So those are some of the challenges and understanding of that. The also the work to the practitioner level to develop an instrument that will qualify, for example, as a green bond. There are a number of entities that will see that they’re lacking in terms of the expertise of the skills within the organisations to do that. So those I think some of the immediate challenges.

00;02;22;04 – 00;02;48;19
Shameela: The other one is, and it is a related challenge, which is around the concerns about greenwashing, that something is labelled as green or ESG. Is there clarity as to what it is actually enabling? And, and that again is linked to, you know, some of the definitional issues that I mentioned earlier. So those I think are perhaps the main ones we have now alongside just a general public awareness about these instruments.

00;02;49;08 – 00;02;54;06
Simran: Could you please describe the different bonds within your sustainability segment? And what they can offer investors.

00;02;54;20 – 00;03;16;23
Shameela: So the different bonds include green bond, social bonds and sustainability bonds and where sustainability bonds are a combination of green and social. And I’ll get into some of those descriptions just now. And so they really are the combination of where you might be looking at things that have social impact as well as an environmental impact. Just to recap quickly, that bonds are fixed income instruments, right?

00;03;17;10 – 00;03;59;02
Shameela: And your borrowers are usually governments or large corporations in the context of a listed bond in order, and they do this in order to gain access to capital, which is to fund operations, investments and projects. The bond specifies its maturity date, so that’s the date on which bondholders will be repaid the principal of the bond, because effectively, your bond holders are lending you money, and it will also specify the interest rate that’s going to be paid, so how much is going to be paid back, you know, to compensate them for having leant you that money. And once issued, most bonds are traded. So in terms of the JSE’s regulations on the sustainability segment, and green bonds are specifically designed to raise money for environmental or climate related projects.

00;03;59;12 – 00;04;52;07
Shameela: Social bonds are specifically designated to raise capital for socially responsible initiatives or, you know, have social impact initiatives. If you think about employment creation, building low-cost housing, contributing to education, those would be the types of things that would qualify under a social bond umbrella. They need to meet certain criteria, of course, and the guidelines for those criteria will be set out in things like the social bond principles and then for sustainability bonds, so the sustainability bonds guidelines, which are governed by the International Capital Market Association. You could use other standards, the JSE would need to look at whether it’s acceptable and you would need to prove why and are you choosing to use that particular standard. And then Sustainability Bonds is specifically designed to raise money for, like I said, a combination of activities that follow both the environmental and social objectives.

00;04;52;14 – 00;05;02;01
Simran: So regarding that zero by 2050, is there a role that the Johannesburg Stock Exchange is playing in order to support Net Zero by 2050.

00;05;02;01 – 00;05;26;28
Shameela: In relation to the support of Net Zero, by 2050, our approach is effectively two pronged. The first one is that what can we do to enable the market? You know, there are a number of companies listed on the JSE and collectively there’s a huge opportunity there to, to support that. And so the first thing that I think is in relation to what I’ve already mentioned and on our transition segment in our sustainability linked bonds and our Green Bonds.

00;05;27;09 – 00;06;02;16
Shameela: And so these are aiming to finance the outcomes in a supportive of a pathway to Net Zero. So that’s using the market and creating instruments deliberately to be able to help finance that and attract capital that might be needed for that. In addition to that, we have a partnership with FTSE Russell, and so we have data, ESG ratings, for example, on listed companies. This data could easily be disaggregated by an investor and, for example, who’s focussed on just carbon emissions and looking at pathways to Net Zero, and be able to start using that and factoring that into investment decision making. So that’s a tool that we have there as well.

00;06;02;17 – 00;06;36;01
Shameela: The other one, of course, is our disclosure guidance. We’ve spoken about the disclosure guidance earlier and we have both the sustainability disclosure guidance, which has elements of climate change and, you know, for example, emissions disclosures within that, and then there’s the Climate Change Disclosure guidance itself. Now the Climate Change Disclosure guidance obviously goes into a lot more detail to assist companies to understand that. And it sets up that framework under the TCFD which is the Task Force for Climate-Related Financial Disclosure, and that’s already pretty much considered now to be the global standard for planning disclosure.

00;06;36;01 – 00;07;26;08
Shameela: So giving our companies the support on that, given a guidance document that is very resource rich and allows them to have multiple references to different sources of information, makes that access to information a lot easier for them and hopefully helps them to start setting the pathway and the foundations within the organisations to begin reporting on that. And of course the idea behind the reporting is that they will also start taking the actions that are required in that regard. And then the second facet is that of the JSE Limited itself is a listed company, so we joined the Net Zero Service Providers Alliance under the Glasgow Financials and the Financial Alliance fir Net Zero, commonly known as the GFANZ, and that’s to promote and champion sustainability measures within our own country and of course look at ourselves and internationally and so then through that, committed to supporting Net Zero by 2050.

00;07;26;08 – 00;07;43;10
Shameela: And that is within the context of our own country’s nationally determined contributions of course, and that common but differentiated responsibility so that those are the efforts that we’re making overall both that’s market facing so well as internally to try to align to a Net Zero goal.

00;07;43;22 – 00;07;59;11
Simran: I guess I want to move on to then, like the South Africans stock market as a whole. And so I guess how has the South African stock market conformed to the green funding financing initiatives that have been implemented by the Johannesburg Stock Exchange?

00;07;59;26 – 00;08;31;13
Shameela: So yes, that’s, it’s an interesting one, I think because it’s difficult to assess how they’ve responded. We certainly can look at that firstly from a quantitative metric and look at how much capital has been raised so far on their sustainability segment. So that’s been in excess of $1,000,000,000 as it stands now. Obviously, in contrast to the fuller Bond market, it’s just it’s a small amount of money, but the fact is that it has been growing and and the sustainability segment has actually been a more successful part of the bond market year on year.

00;08;31;13 – 00;08;56;01
Shameela: If you looked at 20 versus 21, 2021. So any growth in the bond market actually came from that segment, which I think is a very interesting indication. The other thing that has been I think for us quite valuable is to see the amount of interest and demand from investors. So in our green bonds, for example, every single issue has been between three and five times oversubscribed, which is a clear indication of demand for such instruments.

00;08;56;11 – 00;09;14;25
Shameela: So we’re certainly seeing very positive indication of interest in the market at this point in time. But also you can see now from the track record, we’ve built up, I think very positive uptake in there and we’re hoping that that is only going to grow going into the future as we are certainly seeing more and more demand for these kinds of instruments coming to market.

00;09;15;15 – 00;09;24;11
Simran: Perhaps we should discuss also the future of green financing and what else can be done within the finance industry in order to achieve Net Zero by 2050.

00;09;24;11 – 00;09;53;14
Shameela: Certainly, I think the number one is education. There’s a lot of education that can certainly help. So there’s always been a need be a need for advocacy, engagement, education in this market. And the financial sector, I think, can do a lot more in that regard of understanding what it is that needs to be financed, what role they can play. In some instances, many of the projects that need financing are not immediately bankable and won’t require, for example, the blending of financing.

00;09;53;14 – 00;10;35;12
Shameela: You know, we talk about blended finance but finding those models that bring together, the different types of capital, the different tiers of financing in a way that supports those kinds of projects that are critically needed but might not be immediately bankable because the fact that they’re bankable things will attract the finance anyway. And so how do we look at that tier of things that might not be immediately bankable, and used the might of, you know, the financial markets and those really clever guys that construct a great deal to be to bring that together to see this is a societal imperative. If we don’t achieve, for example, the aims of the Paris Agreement, we know what path we were setting ourselves on to climate change. And so how can we bring the markets to bear – that’s the second one.

00;10;35;12 – 00;11;00;27
Shameela: So there is advocacy, there’s engagement required, there’s actually a lot of financial innovation that’s I think there’s an opportunity for as well, and so the markets can definitely come to bear in that regard. So innovative financial instruments, platforms that are maybe different and new, that can allow for different types of financing that might be needed outside of your traditional structures, that might have their own impediments and bring their own kind of barriers in the way.

00;11;00;27 – 00;11;11;04
Shameela: I think those are the things you need to have – education, like I said, more clarity sometimes on definitions, and as we are seeing different taxonomies, for example developed globally.

00;11;11;10 – 00;11;25;15
Shameela: I think there’s an opportunity for creating more interoperability because, you know, as you have nuanced differences between jurisdictions that can create fragmentation in a market and so the opportunity to do to have a more interoperable that allows for things to come together.

00;11;25;15 – 00;11;33;25
Shameela: And, you know, sometimes you might find that there’s a really big thing that needs to be done, that for a global good, that has that requires those barriers to be broken down for example.

00;11;33;25 – 00;12;05;11
Shameela: So I think those are some of the things that the biggest scale that can be done, and an explicit acknowledgement that financing needs to have, it needs to have some environmental objectives as well. What is it that you’re financing? That I think it may be a little bit more mature stage if you’re starting to see disclosures happening, you know, via banks the and the portfolio measures and the pressure that’s coming to bear even some you know shareholder, shareholder activist are now asking what are you financing and what does that mean? And you know, what is your actual trajectory towards Net Zero?

00;12;05;11 – 00;12;25;22
Shameela: So those are things that are positives, I think that we’re starting to see and there’s huge opportunity for financing to be innovative and for education to happen, also to those looking to raise finance to see they are instruments available. This is what you can do. And perhaps you know, maybe remove some of those mental block barriers.

00;12;25;29 – 00;12;52;24
Shameela: This looks like a step too far from a normal bond. How am I going to do this? Is going to cost me a lot of money. So those things are perception barriers and in a way those are real barriers. For example, where may be, you know, the regimes that are that are put in place to look at these things are costing too much for an issue of perspective. There’s opportunity there for an ecosystem to work together to bring down the cost, for example, while not sacrificing availability, I think those are some of the big opportunities for finance going forward.

00;12;53;16 – 00;13;01;06
Simran: Are there any future projects that the Johannesburg Stock Exchange is currently working on? And is there anything else you’d like to add about green financing?

00;13;01;26 – 00;13;22;05
Shameela: So in terms of projects, I think right now the big thing for us is to roll out the disclosure guidance, which was issued in June, and to start working with companies to understand how they’re applying that and, you know, where there are opportunities for us to assist further in that regard. Also the collection of data, for example, around that and see what sort of uptake we might be seeing in that regard.

00;13;23;01 – 00;13;43;19
Shameela: The other big ones of course, would be to work together at a national level, and an international level, where the real big drivers for sustainable financing are happening. You know, ultimately a market also exists within the context of the country within which it operates, and also with the international pressures that are coming to bear on, for example, the companies that are listed on that market.

00;13;43;26 – 00;14;02;20
Shameela: And so the need to be able to make sure we’re engaging globally, understanding what’s happening, how that might impact our market, how we need to maybe influence those discussions is the first level, the second level is certainly a national conversation and to be able to say what is the right pathway for our country, where do we need to go?

00;14;02;20 – 00;14;29;07
Shameela: What is the vision that we need to enable for financing? And so there’s a bigger objective that we need to see ourselves supporting as well. I think that those are the areas that we will certainly be applying our minds to. And then, of course, you know, a level below that is going on as a consequence of that then, what are the instruments that we can enable on our market, and how can we create a more enabling environment for those better practises and sustainability to grow, to grow and to thrive.

00;14;29;07 – 00;14;39;01
Shameela: For us there’s also that level below even the instruments to suggest what needs financing, right? And what is the vision for the country and what other ways can we assist with that?

00;14;39;13 – 00;15;17;25
Shameela: And so there could be different elements that we can use opportunities as a connector, because the JSE or the market in any way is a connecter. It brings together buyers and sellers, it brings together different elements of the financial ecosystem. And so where’s that opportunity for us to leverage that, to be able to advance the aims of sustainable development and certainly, you know, that future as a low carbon economy. A big conversation in a country like ours is of course the just transition. And that’s and it’s the just element of the transition that I think every entity is going to have to play its part in being able to understand and being able to enable.

00;15;17;25 – 00;15;48;22
Shameela: And if you think about it, in a country like South Africa with huge amounts of inequality, a lot of unemployment, and you’re sitting at about 40% unemployment right now, going up into the 70% to 80%, if you consider the youth population as a subset, those are very big concerns for a country like ours. So whilst the environmental objectives, for example, of decarbonisation are certainly important and we’re sitting on a continent that already is model to experience much higher than what ever average the global temperature rises.

00;15;48;22 – 00;16;15;10
Shameela: There’s no doubt that that’s an imperative. But decarbonising your economy in a way that also enables a just transition socially is important. And so that’s not going to be an easy thing to achieve. You know, you have to consider what happens when you start decommissioning coal fired power stations, what happens to jobs that are tied into that value chain and what are you going to be able to do to to enable, you know, upskilling, reskilling, new industries.

00;16;15;10 – 00;16;41;21
Shameela: That way you can absorb and even increase employment, for example, so there’s a massive conversation to be had across the economy. And I think the JSE you know, is going to be a critical player in that as a cog in the wheel to help with the financing of those things and understanding how the markets need to play a part, but also how we need to feed into a more international conversation on these issues that understand these kinds of circumstances.

00;16;42;01 – 00;16;45;25
Shameela: So I think there’s a there’s a number of things that we will be occupied with in the near future.