Australia has retained its position as the third largest issuer of Green bonds in the Asia Pacific region and has plenty of scope to expand supply, according to two locally focused reports released today from the Climate Bonds Initiative.
The Green Finance State of the Market Australia 2019 (SoTM) reported cumulative green and sustainable bond issuance in Australia of A$15.6bn (US$11.6bn) as of June 30 2019, behind Japan (US$91.5bn) and China (US$12.4bn) in Asia Pacific.
Globally, Australia lies 10th overall with a cumulative 35 deals from 15 issuers in Australian dollars following an upturn in issuance over recent years.
On a cumulative basis, low carbon buildings dominate green bond allocations with an approximate 43% share of the use of proceeds, followed by energy with 25%, low carbon transport at 24%, water at 6% and waste at 2%.
The market is characterised by large scale green bond issuance from the state governments of Victoria, New South Wales and Queensland, while the four major banks have all issued green bonds of A$500m or more and supported new issuers coming to market.
“The domestic green finance market is an example of international best practice with ongoing commitment from the banking sector acting as an underlying driver of both market growth and innovation,” SoTM noted.
Outside the banking/financials, property and retail sectors, green issuance from ASX-listed corporates remain a lagging indicator compared with the US and European markets, however.
Green Infrastructure Investment Opportunities Australia 2019 (GIIO) identifies a national pipeline of over 400 green infrastructure projects with investment potential and welcomes the formation of the Australian Sustainable Financial Initiative for providing further impetus to green and sustainable investment.
The ASFI will establish a roadmap in 2020 to recommend pathways, policies and frameworks to enable the financial sector, including banks, superannuation funds and insurance companies, to contribute to the transition to a more resilient and sustainable economy.
Australia trails other OECD countries in the use of renewable energy sources with a 21% share of national energy in 2018, though this was up from 17% in 2017 thanks to a doubling in annual investment, mainly in wind and solar, to A$20bn, the GIIO stated.
The GIIO expects solar and wind energy to continue having the greatest investment potential, while battery storage and pumped hydro will be the likely winners of the increasing focus on storage.
David Jenkins, head of sustainable finance at NAB, sees a lot more opportunities for sustainable financing across both bond and loan formats, including social, sustainability and green instruments, that will help transition Australia to a more sustainable and low carbon economy.
“The growth of sustainability-linked loans incentivise borrowers to materially improve their sustainability performance by linking incentives (and penalties) to meet predetermined sustainability targets, rather than use bonds/loans to finance finite green or social projects is another important development going forward,” he said.
This is especially important for borrowers looking to support the green to brown transition underway, especially in sectors not usually considered green such as industrials, metals and mining and shipping.
Jenkins also expects more offshore issuers to access the Australian Green market to take advantage of a deep and established, though still rapidly growing, investor base.
Responsible investments under management in Australia rose 13% last year to A$980bn, or 44% of the A$2.24trn total assets professionally managed in the country at year-end, according to the Responsible Investment Benchmark Report 2019 Australia.
The scale of buy-side interest Down Under was underlined by the huge A$2.0bn and A$1.5bn order books for this year’s respective A$400m five-year and A$300m six-year Green bond sales from Woolworths and QIC.
Source Nasdaq