The Financial Sector Conduct Authority (the “FSCA”) has approved amendments to the JSE Debt Listing Requirements (the “Requirements”) so as to introduce a new issuance platform stemming from the JSE – known as the “Transition Segment” – effective 11 April 2022. This segment will be an expansion of the current Sustainability Segment operated by the JSE. The purpose of the Transition Segment is to create a mechanism where issuers can raise debt for green, social and sustainable initiatives.
The Debt Listings Requirements
The JSE introduced the Transition Segment with the intention of aiding both issuers and investors in reaching their ESG goals by catering for the issuance of Transition Debt Securities. The principal of a “just transition” is especially topical in emerging markets as these market economies, such as South Africa, are generally characterised as carbon intensive economies which are required to meet the national commitments to sustainability that were given in the 2015 Paris Agreement. It is hoped that the high level of transparency associated with a listing on the JSE will mitigate any possible allegation of ‘greenwashing’ for issuers and investors alike.
The amendments to the Requirements introduce Transition Segment standards (the “Standards“) which include adhering to the Debt Listings Requirements but, in addition, there has to be compliance with the Climate Transition Finance Standards (the “Climate Transition Standards“). Such Climate Transition Standards include the issuer creating a climate transition strategy (the “Climate Strategy“) that focuses on how the issuer’s finance programme supports the implementation of its climate change strategy as well as demonstrating how the issuer is going to adapt its business model to ensure that a productive contribution is made towards the transition to a low carbon economy. The Climate Strategy should further be based on sustainability performance improvement targets that are science- based and, in addition, an issuer will have to disclose how the proceeds derived from the raised capital are used so as to ensure that they are indeed being utilised for just transition purposes. Further, an independent external reviewer (who is well acquainted in assessing transition debt securities) should be appointed to ensure that that the Standards have been met by the Issuer.
An issuer can apply to the JSE to have the issuance labelled as Transition Debt Securities and, provided that the Standards are met, the issuance will be so classified. Transition Debt Securities issued on the Transition Segment can either be Sustainability Use of Proceeds Debt Securities or Sustainability-Linked Debt Securities. Sustainability Use of Proceeds Debt Securities requires the usage of capital derived from the issuance to fund a green, sustainable or social project. Further, in order to qualify as Sustainability Use of Proceeds Debt Securities, proof must be provided to an independent external reviewer (as described above) that the proceeds will indeed be used to finance such abovementioned projects. The proceeds derived from Sustainability-Linked Debt Securities do not require ring-fencing pertaining to their use, but rather an issuer can utilise the proceeds as they deem fit so long as the predetermined “green” goals are fulfilled.