Australia: Green bond market: an Australian focus

While the global green bond market has grown exponentially since the first corporate green bond was issued in 2013, Australia’s market in green bonds has taken a little longer to develop.

This is probably due in part to the positions adopted by the Federal government, particularly the Abbott government, in relation to a resistance in advancing clean energy. However, government policy aside, Australia has continued to move towards a green market, based on the development of the sector internationally over the last 3 to 6 years. This commitment, has in part been aided by key players such as the Clean Energy Finance Corporation (CEFC). Established as a ‘specialist clean energy financier’ by the last Labour Australian Government, the CEFC has now invested over $360 million across seven certified green bond issues, providing cornerstone underwriting as well as supporting a peer-to-peer ‘green’ lending platform.

Since 2015, Australian public and private institutions have issued over $4 billion in green bonds across at least 13 certified issues, the bulk of these coming in 2017. This compares with to the global market with over $21 billion of certified green bonds issued in 2017 alone.1

All four of Australia’s big banks have issued certified green bonds, as well state governments, property funds and a university. Australia’s green finance has been largely applied to what might be considered typical green projects including wind and solar projects, low carbon building projects and low carbon transport projects.

FIRST AUSTRALIAN GREEN BOND

NAB issued Australia’s first green bond in December 2014. Initially set to raise $150 million, NAB doubled the size of the issue, taking it to $300 million, to meet strong investor demand. The bond was certified by the Climate Bonds Initiative with proceeds to be applied to a number of wind and solar farms. Most recently NAB have launched an Australian residential mortgage backed bond with a green tranche, which have been certified by the Climate Bonds Initiative and in respect of which the CEFC made a $25 million cornerstone investment.

ANZ issued its first certified green bond in 2015. The $600 million bond issue was underwritten by the CEFC, but this was not required as the bond was oversubscribed in a strong indication by the market that it was ready and willing to finance clean energy projects. ANZ’s green bond proceeds are to be used to develop low carbon buildings and wind and solar projects. Following the initial green bond issues by NAB and ANZ, Westpac and the CBA both issued certified green bonds. Westpac issued three certified green bonds during the course of 2016 and 2017 including a 500 million dollar Euro denominated bond, while Westpac has committed funds to renewable energy projects, low carbon commercial property and rail transport. CBA issued its first certified green bond in March of 2017 with a value of $650 million, the proceeds of CBA’s issue were to be applied to a portfolio of renewable energy generation and emissions reductions projects. Each of the banks had their green bond issues certified by the Climate Bonds Initiative in accordance with the Climate Bond Standard.

BEYOND THE BANKS

In addition to the big four banks, both the Queensland and Victorian Treasury Corporations have issued certified green bonds. The Victorian Treasury was the first Australian state government to issue a green bond raising $300 million in July 2016. The issue was AAA rated and fully subscribed within 24 hours of its announcement with the funds to be used for a number of projects including LED traffic lights, renewable energy power stations, low carbon buildings and transport infrastructure. Queensland Treasury’s $750 million green bond issued in March 2017 offered a 3.0275% yield with AA+ and Aa1 credit ratings from Standard & Poor’s and Moody’s respectively. The proceeds are to be used to refinance state and local government contributions to a number of nominated projects including low carbon transport (in the form of light rail, new generation rolling stock and various cycle ways) and a solar farm development.

Monash University followed the lead of the Victorian Government when it raised over $200 million in a green bond issued in the US private placement market in 2016. Monash structured the bond such that investors had the choice between three different terms and in whether they wanted to invest in Australian or US dollars. The bond proceeds were to be applied to a portfolio of projects with the bulk of the funds going to a new environmentally friendly teaching and learning facility.

A key driver behind the Queensland government, Victorian government and Monash University green financing is the sustainability and emissions targets each organisation has. When issuing its green bond Monash stated that it was in the process of developing a sustainability plan which included a net zero emissions target. Monash later announced that it is targeting carbon neutrality by 2030. Both the Queensland and Victorian Governments have set targets of net zero emissions by 2050.

CORPORATE VENTURES

While Australian corporates have been slightly slower in the uptake of green bonds (in part explained by the need for the issuer to be of an appropriate credit-worthiness in order to issue a bond), Stockland, Investa Office Fund and FlexiGroup have all issued green bonds. Stockland issued an Australian corporate green bond into the Euro market in 2014 with the funds to be applied to green corporate and residential infrastructure, however the bond was not certified. Investa Office Fund raised approximately $200 million across two green bond issues to be used for low carbon commercial buildings, and had its bond certified by Climate Bonds Initiative. FlexiGroup, an Australian based leasing company issued a green certified asset backed security with a value of $50 million to be used to refinance rooftop solar projects. FlexiGroup’s issue was the first green asset backed security issue in Australia.

Notwithstanding this relatively slow take-up, we expect that Australian corporates will continue to access the green bond market in growing numbers to finance their own climate change initiatives, as climate change and related concerns become a bigger issue for communities, and corporates are held accountable for their environmental positions, even where the corporate is not legally obliged to comply with a specific environmental position (such as the development of low carbon buildings or the introduction of energy efficient production techniques).

What the above demonstrates is that despite the stagnation in Federal Government policy and the inability of our national leaders to agree on a clear path forward to address climate related issues, the green debt market is growing. This growth is in part spurred on by entities such as the CEFC, but also by the traditional banks recognising that there is a demand for finance of green assets, and a demand by investors to participate in green debt, and as we will discuss in future the growth of the green debt market beyond green bonds.

Footnote

1As reported by the Climate Bonds Initiative.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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