South Africa Mulls Rules for Catastrophe Bonds, Climate Cover

South Africa’s National Treasury is exploring regulations to encourage the use of financial instruments to tackle climate change, including catastrophe bonds and parametric insurance.

“We are looking at how best we can get investors into the room, how do we make investors more comfortable and confident,” Kolisang Molukanele, a senior economist at the Treasury, said at a meeting convened by the Presidential Climate Commission on Friday. “We are keeping abreast of any new financial mechanism that could be used.”

The drive to take advantage of the instruments comes after a series of climate disasters — ranging from an El Niño-induced drought this year to torrential rains that killed more than 400 people and caused $2 billion of damage in 2022 — hit the country.

South Africa has announced plans to set up a climate-change response fund by March and is seeking private investment for that. Molukanele said the Treasury has held talks with pension companies about climate-related products.

Catastrophe bonds are high-yielding instruments that only pay out in the event of a natural disaster. Parametric insurance payouts are triggered when a pre-defined event occurs, such as annual rainfall failing to reach a minimum level.

“Parametric insurance could speed up the disbursement of relief to provinces,” he said.

The government is also exploring the issuance of more green bonds, both at a national and municipal level, Molukanele said. Municipalities need to prepare more bankable, or investable, projects to encourage private investment into climate-resilience projects such as more-durable bridges and roads, he said.