Bonds go from green to social impact
Australia can seize the wave of demand for social impact finance, not just green assets, bankers say.
Companies increasingly recognize that in order to access a large pool of global capital, a business must be operated in a sustainable manner.
Green Debt has been negotiated for over a decade to finance assets with less environmental impact, but has evolved rapidly over the past year to include Indigenous and other social projects.
Businesses can use new forms of debt to meet net zero emissions goals or get a rebate to meet health and safety, diversity, human rights, or well-being goals.
Charles Davis, managing director for sustainable finance at Commonwealth Bank, told AAP that more and more clients want to link their sustainability strategies to finance.
“While green finance continues to be the dominant form of sustainable debt, sustainability-related loans and bonds have grown significantly over the past year,” he said.
Whether an organization is focused on reducing carbon emissions, increasing the diversity of its workforce, or supporting communities, sustainability loans and bonds can play a key role in helping them. to achieve their goals. “
He predicts that demand will not accelerate until 2022.
Banks develop products to meet demand as shareholders and customers scrutinize how businesses operate.
A green bond could be used for a “green” asset, such as a solar farm or buildings designed to reduce energy and water consumption.
A sustainable loan is intended for a business or a set of assets that have an element of environmental and social governance (ESG).
Social projects target improvements for a specific population or a particular problem such as education, affordable housing, food security or better health.
A sustainability loan can be used for any business or organizational operation, rather than for a specific asset.
Assessed against the sustainable development strategy and goals, for example having a certain percentage of indigenous workers on a set date, the client receives a discount if they meet the goal or pay a premium in case of failure.
There are also so-called green, social and sustainability instruments that do not require the borrower to commit to goals, although they must have a framework of something they are trying to achieve.
Globally, sustainable debt issuance jumped to US $ 3.2 trillion (AU $ 4.5 trillion) in the first half of 2021 as demand grows exponential.
It took 12 years for the first $ 1 trillion, another year to reach $ 2 trillion and just six months to reach $ 3 trillion, according to Bloomberg data.
The sale of Victorian Government Green Bonds in July raised $ 300 million from insurers, fund managers and investors with specific green or socially responsible investing mandates.
LED traffic lights, mini hydropower plants, low carbon buildings and a new renewable power plant will receive a share of the proceeds.
The Queensland Treasury Green Bonds support the Gold Coast light rail, cycle lanes, South East Queensland city rail network, electric tilt train rolling stock and solar projects.
Western Australia’s Prime Minister and Treasurer Mark McGowan released his state’s first ESG briefing in November to attract global investors.
He plans to sell bonds to fund programs to prevent biodiversity loss, find cleaner fuel sources and close the gap on indigenous disadvantage.
But similar sovereign bonds are not likely, despite a growing global appetite.
The federal debt manager, the Australian Office of Financial Management (AOFM), has no plans to issue new lines of Commonwealth bonds.
Treasurer Josh Frydenberg said the private sector is best positioned to assess and manage the risks it faces.