Regulating green bonds as a driver for environmentally responsible investment in the South African energy sector

Abstract

Human economic activity through production processes and overuse of fossil fuels have unequivocally caused the negative impacts of climate change, producing green bonds critical threats to sustainability and thus necessitating the investment into low carbon and resilient infrastructure such as renewable energy to mitigate rising temperatures. The aim of the study is to determine how green bonds should be regulated and governed in South Africa in order for green bonds to facilitate environmentally responsible investment in the country’s energy sector, taking learning points from foreign jurisdictions. An examination of the theoretical and conceptual background on the relationship between climate change and mobilised finance is made, with green bonds providing the basis of this study as an environmentally responsible, effective investment and response mechanism to the impacts of climate change at the global level. An exposition of the international and regional law governance frameworks related to climate change, climate finance, environmental social governance, green bonds and other financial instruments are analysed in order to distil guidelines for the governance of green bonds within the South African legal context. The South African legal framework is addressed in the context of how current regulations act as drivers for environmentally responsible investment in the energy sector and how such regulations provide for green bonds as a financial mechanism. An analysis and discussion of the position in Nigeria, Kenya and the United Kingdom in relation to climate change regulation and green bonds follows as a means of addressing the gaps or deficiencies identified in South African law and providing remedial action. The finding of this study is that green bonds are not regulated in South African legislation, except for listing requirements on the Johannesburg Stock Exchange. There is legislation that can be utilised to facilitate the introduction green bonds. A strong legal framework will catalyse the growth of green bonds and protect the interests of investors. Some of the recommendations include that harmonisation of green bonds should include both market regulation and national policy into a single framework to avoid confusing issuance thereof. There are several voluntary instruments such as the Green Bond Principles, Green Bonds Standard and the draft

ISO 14030-1 that could be incorporated into South African regulation on green bonds. The recommendation is made that a regulatory framework for green bonds should be introduced through new legislation, existing legislation (by way of regulation) or to be included into the draft Climate Change Bill , 2018. The recommendations set out the framework for such regulation.