As one of the Top 20 largest exchanges in the world by market capitalisation ranked by the World Federation of Exchanges, the JSE provides Issuers with access to deep and liquid capital markets in a regulated and secure marketplace for over 130 years.
The JSE’s capital markets enable innovation, raising capital and shared prosperity. As a leading global exchange, the JSE co-creates and unlocks value through innovative products and services that meet the needs of our clients.
In addition to being the first stock exchange globally to introduce a sustainability index and to incorporate a move toward integrated reporting, the JSE once again paves the way towards a sustainable economy by introducing the JSE’s Sustainability Segment, a first for Africa. This segment enables companies to raise debt for green, social and sustainable initiatives on a trusted, global market place.
In 2022, the JSE introduced the Transition Segment which is a platform to list Transition Debt Securities where issuers can raise funds for the climate or just transition-related purposes. Transition finance is expected to play a significant role in enabling a just transition, and is of particular relevance to a carbon-intensive economy such as South Africa, in helping us achieve the national commitment to the Paris Agreement, and the associated goal of being net zero by 2050 within the context of our nationally determined contributions (NDC’s).
What is a Sustainability-Linked Bond?
The Transition Debt Securities will take the form of either Sustainability Use of Proceeds Debt Securities or Sustainability-Linked Debt Securities. Debt Securities such as bonds are fixed income investments where borrowers (usually governments or large corporations) issue bonds in order to gain access to capital, which is used to fund operations, investments or projects.
The bond specifies its maturity date (the date on which bond holders will be repaid the principal of the loan) as well as the interest to be paid (which may be fixed or variable). Once issued, most bonds may be traded. Bonds issued in terms of JSE regulations may be traded on the JSE Debt Market.
Sustainability-Linked securities do not require a ring-fencing of the use of proceeds. Hence, allows the issuer flexibility on how it chooses to use the proceeds of a capital raise, as long as it meets the agreed goals and targets that it has set related to its sustainability objectives. These are forward-looking in nature and are also referred to as performance-linked securities. The issuer will need to report annually on its performance against its targets, and the cost of capital is linked to the achievement of these targets with a “step-up” or “step-down” element.
The JSE’s Sustainability Segment currently lists Sustainability Use of Proceeds Debt Securities, which require issuers to disclose in which sustainability assets they will invest the proceeds.
What does it do?
Sustainability-Linked Bonds are designed to provide capital at a lower cost to issuers in exchange for meeting a sustainability target.
The bonds provide Bond Issuers with access to the capital needed to fund the business in general as well as to meet the targets. The societal benefits and disclosure requirements associated with Sustainability-Linked Bonds tend to result in improved market perceptions of Bond Issuers.
For investors, Sustainability-Linked Bonds provide an opportunity to support socially responsible investing and to meet client mandates, along with the additional benefits associated with investing in highly regulated instruments with a strong emphasis on transparency.
Who is it for?
Bonds are generally issued by governments, government agencies, and relatively large private corporations (since the bonds are typically backed by the Issuer’s balance sheet). The JSE provides prospective Issuers with easy access to a deep capital pool in a well-regulated, robust market environment.
Investors benefit from easy access to globally-recognised socially responsible investment options, a high level of transparency and exposure to an increasingly important component of economic activity. Sustainability-Linked Bonds are appropriate for consideration by institutional, professional and individual investors.
What are the requirements?
During the listing process, the issuer can apply to have the issuance labeled as a Sustainability-Linked Bond. JSE Issuer Regulation will assess whether the application complies with the Sustainability-Linked Bond Standard. The criteria for the Sustainability Segment are based on the following principles:
Sustainability Linked Standards:
The listing of Sustainability-Linked debt securities (new issuance or framework) are granted subject to compliance with the Debt Listings Requirements and provided the debt securities are issued in accordance with the sustainability-linked standards as supported by a complete review report.
Provide an external review: Applicant issuers must appoint an independent external reviewer with reference to the guidelines on external reviews.
How to access Sustainability-Linked Bonds?
Investors may trade in Sustainability-Linked Bonds the same way as any other security.
Prospective Issuers must be registered clients of a JSE member.