South Africa’s National Treasury Proposes Regulations for…

South Africa’s National Treasury is developing regulations to encourage financial instruments like catastrophe bonds and parametric insurance to address climate change. Senior economist Kolisang Molukanele highlighted the Treasury’s initiative following recent climate disasters. The country plans to establish a climate-change response fund and seek private investments while exploring additional green bonds for municipal projects.

South Africa’s National Treasury is actively considering regulations to promote the adoption of financial instruments aimed at combating climate change, such as catastrophe bonds and parametric insurance. During a recent gathering organized by the Presidential Climate Commission, Kolisang Molukanele, a senior economist at the Treasury, emphasized the importance of fostering a favorable investment climate. “We are looking at how best we can get investors into the room, how do we make investors more comfortable and confident,” he stated, underlining the Treasury’s commitment to exploring new financial mechanisms. This initiative is largely in response to a series of severe climate events, including an El Niño-induced drought this year, alongside catastrophic rains that resulted in over 400 fatalities and $2 billion in damage in 2022. In an effort to address these challenges, South Africa is moving towards establishing a climate-change response fund by March, with a focus on attracting private sector investments. The Treasury has initiated discussions with pension funds regarding the development of climate-related financial products. Catastrophe bonds are high-yield financial instruments that only provide payouts following natural disasters, while parametric insurance offers expedited disbursement when specific criteria are met, such as when annual rainfall falls below a predetermined threshold. “Parametric insurance could speed up the disbursement of relief to provinces,” explained Molukanele. Furthermore, the government is considering the issuance of additional green bonds at both national and municipal levels. Molukanele highlighted the necessity for municipalities to prepare more bankable projects to stimulate private investment in climate-resilient infrastructure such as stronger bridges and roads.

The topic of South Africa’s budding regulatory efforts for catastrophe bonds and parametric insurance emerges from the pressing need to enhance financial resilience against climate change. The loss of life and economic damage resulting from climate-related disasters in recent years underscores the urgency for innovative financial solutions. By diversifying funding mechanisms and encouraging private investment, the South African government is seeking to build a robust framework that can better withstand and respond to climatic adversities. The exploration of these financial instruments represents a strategic push to engage with a growing market for climate finance, supporting sustainable development in the region.

In summary, the National Treasury of South Africa is undertaking significant steps to establish a regulatory framework that supports catastrophe bonds and parametric insurance as tools for climate resilience. These efforts are informed by recent climate disasters and aim to attract private investment while enhancing the country’s response capabilities. By expanding into green bonds and promoting investable municipal projects, South Africa is positioning itself to better manage the financial risks associated with climate change.

Original Source: www.insurancejournal.com