New Rules of Sustainable Finance in South Africa signal a shift from green finance to trusted data

South Africa’s sustainable finance landscape is moving beyond green investment towards a broader question of trust. Key questions are: Can capital, data and technology be deployed responsibly and transparently? As regulators intensify scrutiny of ESG disclosures, beneficial ownership, AI, climate risk and data governance, credible, verified information is becoming an essential foundation for financial decision-making.

The regulatory environment and responsible investment in South Africa

The Who Owns Whom (WOW) report on finance trends in South Africa places this within the context of sustainable finance, which is underpinned by three interconnected components: green/environmental, social, and governance finance. Together, these core pillars provide a framework for evaluating sustainability-related risks, opportunities, and impacts in financial decision-making.

The WOW report is a must-read for all decision-makers, as it provides a clear overview of the regulatory environment governing all things social, environmental, governance and the finance behind it. The Paris Climate Accord made the world aware of extraordinary climate hazards and unusual destructive weather conditions happening now.

Most ESG initiatives and movements have been driven by national governments indeveloped Western countries and by international organisations such as the United Nations (UN). The UN, through initiatives such as the UN Global Compact, together with leading international financial institutions and investors, has been at the forefront of promoting responsible investment principles, with the Equator Principles and other global frameworks providing strong positions and guidance for sustainable and responsible finance. A valid criticism of the most vocal proponents has been that they have not led by example, and have flaunted their own recommendations on frugality through highly polluting, frequent and often private jet air travel.

Global ESG compliance pressure versus local realities

ESG-type international frameworks and regulations are increasingly enforced on businesses, setting ambitious standards that distract them from their main motive, which is profit-making and consequently minimising costs. Developing countries like South Africa face a dual challenge:

• Compliance costs that raise consumer prices

• Disproportionate responsibility, despite their emissions being minimal compared with those of developed nations.

This imbalance has sparked debate. Should developing economies be held to the same standards, or should transition pathways be adapted to local realities?

Data verification becoming an infrastructure issue

One of the key trends in sustainable finance is perhaps the shift of trusted data from an IT concern to a business and governance issue.

National Treasury has also recognised that fragmented and siloed data makes it difficult to access reliable information. Its MzansiXchange initiative is intended to facilitate secure data sharing and real-time cross-referenced verification to reduce fraud and improve efficiency.

While regulation is necessary to avoid costly and negative externalities of doing business, if not well managed, it can cause more harm than good in society.

Government officials and regulators need to weigh the considerable financial burden of onerous regulations and reporting against often debatable net benefits. Some countries, especially the US and political parties on the right, are notably pushing back as a result.

The South African Protection of Private Information (POPI) Act’s regulations are one example of the costly burden they impose on businesses when requirements are unclear or poorly implemented, creating compliance costs, administrative complexity and operational delays, and potentially exposing organisations to greater legal and reputational risk.

Global research indicates that regulatory intervention is the most significant driver of consistent ESG reporting, providing evidence that the intervention is working and creating a new context in which business and finance operate. This is illustrated by the progression of ESG finance in South Africa, as shown here.

Science-based methodologies should play a central role in determining the appropriate level of regulation, ensuring it is balanced against the needs of industrial, economic and social development

Regulation should be context-sensitive rather than universally applied, recognising that countries and communities face vastly different circumstances. There remain too many instances of severe and multiple deprivation in countries whose environmental impact is relatively small on a global scale, yet where communities bear significant social costs, including limited employment opportunities, inadequate livelihoods and the absence of a decent, living wage.

A resilient sector in a slow-growth economy

South Africa’s financial sector remains the leader among emerging markets for its sophisticated financial system. Its banks are well capitalised, its regulatory architecture is relatively advanced, and digital banking penetration is high.

For South African financial institutions, sustainable finance is no longer simply about directing capital towards greener projects. It increasingly depends on trustworthy data, transparent ownership, responsible AI and demonstrable regulatory compliance. WOW is one of the companies specialising in these areas. Institutions that align sustainability ambitions with credible information will be better positioned to manage risk, attract capital and build lasting stakeholder confidence.