The Department of Forestry, Fisheries and the Environment (DFFE) and the National Treasury have launched a technical handbook on the issuance of sustainable municipal bonds in South Africa.

Sustainable bonds are those where the use of the proceeds from the financial instrument have a positive environmental and social impact or meet certain green and social key performance indicators.

The handbook aims to help South African municipalities determine whether a sustainable bond is a suitable tool for financing their climate change and environmental projects. It provides decision-making guidance and outlines a step-by-step process of preparing for, issuing and managing a sustainable bond.

“South Africa has shown significant interest in, and commitment to, strengthening the competencies of key actors in public institutions for a coherent implementation of United Nations Sustainable Development Goals (SDGs) and Nationally Determined Contributions (NDCs) within the context of the green economy,” says Forestry, Fisheries and the Environment Minister Barbara Creecy.

This capacity includes the development of the technical handbook, which sets out detailed, accessible and practical steps in sustainable bonds issuance and discusses the associated tasks and activities for South African municipalities.

The handbook enables municipalities to have a view of the comprehensive process for the preparation, issuance and management of a sustainable bond.

“Further, it ultimately looks to explore key elements of the instrument, and to provide balanced information so that South African municipalities (and others) can determine whether a sustainable bond is a suitable tool for their organisation.

“The application of sustainable bonds may be considered as an essential financing mechanism for investing in climate mitigation and adaptation projects and, more specifically for sub-Saharan Africa, being one of the world’s most vulnerable regions to climate change, and reiterated by the International Monetary Fund,” Creecy says.

The handbook has been tested in the City of Tshwane and eThekwini metropolitan municipalities. The trial process included in-depth, demand-driven and practical capacity building in the two principal municipalities to advance their readiness for a green bond issuance and support decision-making concerning a prospective bond.

The next steps will include disseminating the handbook at local and national level in South Africa, as well as at the international level to enhance sharing of lessons learnt and best experiences, Creecy points out.

Rising temperatures, rising sea levels and worsening erratic rainfall are increasing the frequency and intensity of natural disasters and disrupting agricultural production, damaging infrastructure and threatening the sustainability of urban areas.

According to the United Nations Economic Commission for Africa and the International Monetary Fund, up to $50-billion a year in incremental finance is needed for climate adaptation.

There has been a huge growth in the past decade with the global market of green and sustainability bond issuances in 2021, surpassing €875-billion in all currencies where the use of proceeds was linked to green, social, sustainable and SDG frameworks. In 2022, this market is set to surpass the €1-trillion mark.

However, sub-Saharan Africa is not participating in these trends at any level of global significance, and while South Africa dominates private and public sector issuances, which is about two-thirds of the market, only 0.4% of global issuance are African, even when including North Africa.

The technical handbook was developed in partnership with the United Nations Development Programme-United Nations Environment Programme Poverty-Environment Action, the International Climate Initiative 'Green Economy Transformation' project, which is implemented by German Technical Agency and United Nations Environment Programme on behalf of the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection and the Partnership for Action on Green Economy.