Green bonds: ANZ joins the global rush

ANZ announced on Friday it would in the next two weeks issue its first green bond, joining NAB, Westpac and Stockland with a product that continues to storm global investment markets.

Chief executive of the Climate Bond Initiative Sean Kidney told The Fifth Estate in an interview earlier this year that the market was likely to top $100 billion by year’s end.

ANZ said its decision was specifically in response to demand from investors during its February roadshow, led by its group treasurer Rick Moscati.

It was also part of ANZ’s strategy to drive investments towards a lower carbon economy.

“We have developed the bond in response to investor demand and to deliver on our commitment to deploy capital for the transition to a lower-carbon economy. Importantly, the continued development of Australia’s green bond market should enable ANZ to increase funding allocated to green projects in the future,” Mr Moscati said.

“Proceeds will be used to finance a portfolio of existing ANZ loans that directly contribute to developing low carbon industries, technologies and practices. Specifically, the portfolio comprises loans to wind power and solar projects and Green Star rated commercial property buildings in Australia, New Zealand and parts of Asia,” the bank said in a media statement.

This might also in the future include investments such as geothermal power and fuel efficient transport.

The bond will be certified by the Climate Bonds Initiative with assurance provided by EY.

Director sustainable finance solutions in ANZ’s Global Loans business Katharine Tapley said, “We are pleased to be leveraging our position as a leading financer to the renewables and commercial buildings sectors to support the development of the green bond market. Likewise, our customers whose projects are included in the bond have been overwhelmingly supportive of this move.”

Ms Tapley told The Fifth Estate on Friday that that Mr Moscati’s investor roadshow turned up  “material inquiry”from investors.

Some had ESG (environmental social governance) mandates but even without such specific mandates, there was an appetite for diversity that investors like to bring to the portfolio, she said.

There was a “pipeline of demand”, she said, much of it European led, adding that Sean Kidney had been “instrumental” in building the market.

But the move was also consistent with ANZ’s sustainability objectives to work with clients to transition to a lower carbon economy.

“The objectives are very much two-fold,” she said.

The big drivers were major trends in technology for climate-friendly projects and practices such as solar energy, car battery storage and “highly efficient Green Star rated buildings”.

Ms Tapley, a lawyer by background, has been with the bank for 14 years and comes from roles  in commodities markets and structured short and long term debt across sectors including agriculture, natural resources and industrials.

Her current role focuses on solutions from a sustainability finance perspective.

She said she agreed with UN climate chief Christiana Figueres who addressed the Carbon Emissions Reduction conference in Melbourne recently and said the environment revolution was well under way (the third major revolution for humanity, after the industrial and technological and that there was no stopping it because it was led by technology).

“The next 12 months will see growth in the green bond market globally and I’d hope more corporate issuance from banks and possibly corporates, with the commercial property sector being an obvious candidate in the Australian market,”Ms Tapley, said.

“In terms of a broader piece around carbon investment, there seems to be plenty of activity being led by technology – for example, hydrogen fuel cells, rooftop solar and batteries in cars.”

“I absolutely agree with Christiana that this is a technology led revolution”.

“I describe it as a movement from the ‘people’. Government policy notwithstanding, people and companies are undertaking investment activities in the space.”

EY Climate Change and Sustainability Partner Dr Matthew Bell said the breadth of possible investments supported by green bonds is creating a need for the market to find a way to value the extra “ethical” value of green bonds.

“This means bond issuances can be valued against one another in terms of their green-ness, which in turn allows investors to not only generate a return, but to invest in green sectors that offer benefits such as lower greenhouse gas emissions and greater energy efficiency.

“In just a few years, green bonds have emerged from relative obscurity to become a rapidly growing asset class today,” Dr Bell said.

Dr Bell said issuers of green bonds have reported two main benefits over traditional bonds: attracting new investors and supporting issuer’s environmental, social and governance objectives.

“Demand for green bonds is growing, and new issuances are forecast to expand rapidly over the short term. But the market is still in an early stage of development, with innovation and regulation continuing to evolve.”

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