The National Treasury released the SA Green Finance Taxonomy (GFT) for comment this week. The purpose of this much-anticipated taxonomy is to develop a set of definitions for green, social and sustainable finance initiatives for the SA financial services industry to help define what’s hot and what’s not in sustainability investment.
The release followed the launch of the Task Force on Nature-related Financial Disclosures (TNFD) last week. While the GFT has a strong local flavour and is oriented towards guiding domestic investment, the TNFD is global and represents the next evolution of the Task Force on Climate-related Financial Disclosures (TCFD).
Commenting on the launch, chief sustainability officer at the JSE Shameela Soobramoney said the rapid rise of the TCFD reflects a need for “reporting frameworks that can apply to a broad spectrum of entities regardless of their size or sector and must allow for a universal set of basic indicators, with potential for the inclusion of local context considerations, to deliver information that is comparable and decision useful”.
The TNFD intends to build on the financial risk analyses of the TCFD by defining the boundaries required to avoid what is known in academic circles as “the tragedy of the commons”, or more colloquially as “the race to the bottom”. Its aim is to give companies and financial institutions a complete picture of their environmental risk exposure and expand standardisation of environmental reporting for implementation in 2023. It is only when the rules of the game are defined so that all players understand where the boundaries are on social and environmental good practice that a profit-at-all-costs mindset can be avoided.
While the TNFD intends to focus on reporting requirements, the GFT is highly practical, providing technical investment screening criteria through in-depth information on the attributes and requirements for eligible investment activities, including principles, metrics, and thresholds for guiding climate mitigation and adaptation projects.
Low base
The GFT also unwittingly draws attention to just how far we need to go regarding greening the economy. Despite providing guidance on a diverse range of economic activities in energy, transport, manufacturing, water, waste, materials, construction (and much more besides), all the environmental contributions of the listed activities in the document are considered to be minimising harm as opposed to maximising environmental benefit.
This is because despite all of our nature-loving sentiment, SA is starting from a low environmental performance base. The research institution Trade & Industrial Policy Strategy (Tips), found in a report in 2020 that SA is the world’s fifth-most carbon-intensive economy per unit of GDP, while the Endangered Wildlife Trust’s (EWT) Biodiversity Disclosure Project finds that most SA companies are light years away from taking serious stock of their environmental impacts and dependencies.
When approached for comment on the TNFD, EWT’s Gabi Teren said “we need to look beyond reporting frameworks now and equip companies with tools to make real changes to their business models to achieve net positive impacts, and in ways that make financial sense”.
In this sense the GFT is complementary to the TNFD, but with the almost total omission of nature-based solutions from the GFT setting the two apart. Unfortunately, the GFT found that “challenges regarding agricultural management practices, impact on climate, biodiversity and land use specifically related to crop production and livestock production”, effectively relegating the intended inclusion of agriculture, forestry and other land-use (Afolu) projects to future iterations of the taxonomy.
As someone working intimately with the sustainable land-use management space, I won’t hide my disappointment. The business case for sustainable land-use management needs all the support it can get, and given that agriculture’s 13.1% growth between 2019 and 2020 almost single-handedly kept the country’s economic contraction in single digits in 2020, we owe them some support.
• Maguire holds a master’s degree in global change studies from Wits and has been developing green economy solutions for the private sector, NGOs and the state for more than a decade.
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