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

“We are looking at how best to attract investors, make them more comfortable and more confident,” Kolisang Molukanele, a senior economist at the Treasury, said at a meeting called Friday by the Presidential Climate Commission. “We are keeping abreast of any new financial mechanisms that may be used. »

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

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South Africa has announced plans to create a climate change response fund by March and is seeking private investment for this purpose. Molukanele said Treasury had held discussions with pension funds on climate-related products.

Catastrophe bonds are high-yielding instruments that are only repaid in the event of a natural disaster. Parametric insurance payments are triggered when a predefined event occurs, such as annual precipitation not reaching a minimum level.

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

The government is also exploring the possibility of issuing more green bonds, both at the national and municipal levels, Molukanele said. Municipalities need to prepare more bankable or investable projects to encourage private investment in climate resilience projects such as more sustainable bridges and roads, he said.

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