National Treasury defines sustainable finance as financial models, services, products, markets, and ethical practices that deliver resilience and long-term value in each economic, environmental, and social aspect, contributing to sustainable development goals and climate resilience. This constitutes an effort to align financial flows and products to a sustainable development pathway that considers the implications of economic development for society and the environment.
The Financial Sector Conduct Authority’s Sustainable Finance Programme of Work, which began in 2023, aims to align South Africa’s financial sector with global environmental, social, and governance (ESG) standards and national climate commitments. It focuses on taxonomy, disclosure, reporting and assurance, market development, active ownership, and financial education.
The FSCA sees its role as ensuring the availability of credible and consistent information in the South African financial market. Sustainable finance products in the financial services space include green bonds or socially responsible investment funds and are designed to support ESG objectives.
Critical to the integration and adoption of sustainable finance products is effective ESG reporting, through the disclosure of non-financial parameters affecting company operations.
The FSCA’s most recent (2025) Sustainable Finance Updated Report provides some clarity on the state of play for sustainable finance in South Africa, including challenges, goals and future plans.
Challenges to sustainable finance
Some of the challenges facing sustainable finance are greenwashing and limited consumer knowledge.
Greenwashing refers to a misleading marketing strategy where financial products are presented as environmentally friendly, but do not have this kind of effect as marketed. This can involve claims about a product’s environmental impact, exaggerations about a company’s sustainability efforts or failure to disclose a lack of delivery on key performance indicators under a particular sustainable finance instrument.
Limited consumer knowledge is another concern because consumers may struggle to understand and differentiate sustainable finance products from standard ones. This is partially because of the absence of globally accepted definitions for terms such as “’sustainable finance” and “ESG finance”.
Green Finance Taxonomy
Financial services regulators have an important role to play in prioritising ESG and responding to risks and challenges to ESG implementation. This includes setting standards, aligning defined terms with global best practice and embedding reporting frameworks.
To that end and given the uncertainty around the kind of language to commonly use when considering sustainable finance products, National Treasury launched South Africa’s Green Finance Taxonomy (GFT) in 2022. This serves as a classification or catalogue that defines a minimum set of assets, projects, and sectors that are eligible to be defined as “green” or environmentally friendly.
In 2023, the Presidential Climate Commission cited barriers in accessing and mobilising climate finance and recommended the adoption of the GFT.
The FSCA has taken steps to support the GFT and has engaged with stakeholders to seek views on its formal adoption. The FSCA is in the process of conducting a GFT adoption pilot involving 11 financial institutions, aimed at enhancing clarity when selecting green investments, reducing financial risk, and supporting the regulatory oversight of green financial instruments. The intention is to finalise this process within the year, after which the FSCA will consider implementing the recommendations provided through stakeholder engagements.
Important developments
In 2023, several key developments were introduced relating to corporate governance and corporate disclosure guidance. These included updated recommendations on sustainability and resilience to help companies manage climate-related and other sustainability risks and opportunities.
The updated G20/OECD Principles of Corporate Governance also aim to support various investors by promoting stewardship codes and the disclosure of conflicts of interest by advisory services such as proxy advisors and ESG index providers.
In June 2023, the International Sustainability Standards Board’s inaugural standards IFRS S1 and IFRS S2 were published.
The ISSB Standards seek to create a universal framework for disclosing the effects of climate-related risks and opportunities on a company’s prospects.
IFRS S1 sets out disclosure requirements designed to allow companies to communicate with investors about the sustainability-related risks and opportunities they encounter over the short, medium, and long term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1.
The ISSB Standards are important because they create a global baseline for corporate sustainability reporting.
The FSCA has commissioned research in 2024/25 to inform the development of climate disclosure requirements for retirements, collective investment schemes and large, listed corporates. It is noted that retirement funds have undertaken limited climate-related reporting, while collective investment schemes show greater progress on climate disclosures. Large, listed companies have the strongest record of reporting practices.
The FSCA intends to introduce mandatory corporate sustainability disclosure requirements in South Africa, which will be aligned with the ISSB Standards as the emerging global baseline.
However, the FSCA noted in its 2025 Sustainable Finance Updated Report that listed corporates reference the Global Reporting Initiative (GRI) Standards in their disclosures. The FSCA does not view adoption of the ISSB Standards as preventing or limiting entities from also disclosing in line with the GRI Standards, particularly given the anticipated integration of these two frameworks in the coming years.
Disclosure to retail investors
Retail investor disclosures have also become an area of focus for the FSCA. Retail customers face specific challenges in respect of sustainable finance because of inconsistent abilities to evaluate sustainable finance products, heightened by lack of standardisation in disclosures and reporting. This may result in consumers being easily misled by sustainability claims.
In its Sustainable Finance Updated Report, the FSCA outlines examples of regulatory requirements that promote transparency, accuracy, and fairness as a basis for improving retail disclosures. These include section 3 of the Collective Investment Schemes Control Act, section 16(2)(a) of the Financial Advisory and Intermediary Services Act, and the Conduct Standard for Banks. Very broadly, these pieces of legislation prescribe disclosure requirements to investors (in the case of CISCA), the requirement that clients should be able to make informed decisions, and financial products should be suitable (in the case of the FAIS Act), and advertising of financial products being clear, fair, and not misleading (in the case of the Conduct Standard for Banks).
The FSCA has stated that it intends to issue a guidance note during 2025 that will outline how existing legal provisions relating to accuracy and appropriateness of information should be applied from a sustainable finance perspective.
The FSCA has also indicated that it may introduce a labelling regime for sustainable investment products that would improve comparability and reduce the risks of greenwashing in the retail investor context.
Conclusion
As the FSCA continues its work on sustainable finance initiatives, it remains to be seen how these developments will affect sustainable finance more broadly. Certainty concerning the adoption of formal corporate and retail disclosure requirements may provide stakeholders in the financial sector with insight into how they may develop their compliance frameworks to align with such requirements.
There also seems to be a global interest in sustainable finance development and this will be closely observed, particularly by financial institutions that have global operations or seek to align themselves to global standards.
This article was written by Gabi Richards-Smith, who is a partner at Webber Wentzel, Mateen Memon, an associate, and Darren Smith, a candidate attorney.
Disclaimer: The views expressed in this article are those of the writers and are not necessarily shared by Moonstone Information Refinery or its sister companies.
