The Johannesburg Stock Exchange (JSE) has announced that it has changed its debt listing standards, resulting in the creation of a new Transition Segment and the enlargement of the current Sustainability Segment. The Financial Sector Conduct Authority (FSCA) has accepted these changes, which will take effect on April 11, 2022.
The Transition Segment will serve as a marketplace for Transition Debt Securities, allowing issuers to raise financing for the climate or transition-related purposes. Transition finance is expected to play a significant role in enabling a just transition and is especially important for a carbon-intensive economy like South Africa in helping us meet our national commitment to the Paris Agreement and the associated goal of being net-zero by 2050 as part of our nationally determined contributions (NDCs).
Sustainability Use of Proceeds Debt Securities or Sustainability-Linked Debt Securities will be used to fund the Transition Debt Securities. Sustainability-linked securities do not require a ring-fencing of proceeds, allowing the issuer to use the proceeds of a capital raise in whatever way it sees fit, as long as it satisfies the agreed-upon goals and targets connected to its sustainability objectives.
These securities are forward-looking and are also known as performance-linked securities. The issuer will be required to report on its performance against its goals on an annual basis, and the cost of capital will be tied to the achievement of these goals via a “step-up” or “step-down” aspect.
Sustainability Use of Proceeds Debt Securities, which require issuers to declare which sustainability assets they will invest the proceeds in, are now listed on the JSE’s Sustainability Segment. The JSE enlarged the Green Bond Segment into a full-fledged Sustainability Segment in June 2020, allowing corporations to list social, green, and sustainability bonds on one platform for the first time, as well as allow investors to trade in these securities.
JSE’s Sustainability Segment has raised its market capitalization to R21.421 billion since its expansion in 2020, and the introduction of Sustainability-Linked Debt Securities to the Segment will increase market capitalization even more.