Q2 2024 Sustainable Finance Market Update
In this quarter’s Sustainable Finance Market Update, we cover trends in sustainable debt issuance globally and in the Australian-New Zealand markets, as well as insights from Westpac and Economist Impact’s Financing for Sustainability Report on the Asia-Pacific sustainable finance market.
Sustainable Debt Market Update
Global Observations
Global Issuance (US$bn)
Source for graphs and observations unless otherwise stated: BloombergNEF as at 30 June 2024. Chart includes retrospective labelling of bonds.
Global Sustainable Debt Issuance totalled US$807bn in 1H 2024, up 26% on 2H 2023 and remaining consistent with 1H 2023 (US$810bn). Global sustainable debt issuance volumes were driven by a surge in Sustainable Bond issuance after 2H 2023 (contributing 78% of total sustainable debt issuance in 1H 2024), carrying the weight for the softer Sustainable Loan market.
Sustainable Bond Issuance reached US$636bn in the six months to June with issuance driven by Sovereigns, Supranationals and Agencies (SSAs) raising US$319bn in sustainable bonds. According to ICMA’s Quarterly Report, as of 18 June 2024, Sustainable Bonds accounted for 12% of the overall bond market. Standout issuances include the Australian Government A$7bn Green Bond and Italian Government €9bn Green Bond. Green Bonds continue to be the label of choice for issuers, accounting for 59% of Sustainable Bond issuance and 46% of all Sustainable Debt issuance in 1H 2024, slightly down from 47% in 1H 2023. Sustainability-Linked Bonds however continue to drag, with issuance down 45% from 1H 2023 as investor scrutiny and greenwashing concerns remain front of mind for issuers.
Sustainable Loan Issuance maintained consistent volumes across 1H 2024 to 1H 2023 (US$171bn 1H 2024 to US$176bn 1H 2023) despite muted conditions across the broader market impacting volumes across all loan types. Sustainability-Linked Loans are now the third largest sustainable debt instrument by issuance volume of sustainable debt (representing 15% of the total sustainable debt market).
Australia-New Zealand Observations
Australia-New Zealand Issuance (US$bn)
Source for graphs and observations (unless otherwise stated): BloombergNEF as at 30 June 2024. Australia & New Zealand volumes based off issuer currency (AUD and NZD). Chart includes retrospective labelling of bonds.
Australia-New Zealand Sustainable Debt Issuance trends were consistent with the global market, with 1H 2024 sustainable debt issuance of US$26bn remaining in line with 1H 2023 issuance (US$27bn). This was driven by a flow of SSA issuers which continued to remain throughout 1H 2024.
Sustainable Bonds dominated Sustainable Debt issuance in Australia-New Zealand this year contributing 84% (US$22bn) of overall 1H 2024 sustainable debt issuance. Green Bonds have set record issuance volumes of US$11bn in 1H 2024 surpassing the previous high of US$8bn in 1H 2023. A spike in Sustainability Bonds, totalling US$8bn over 1H 2024, saw issuers commit to fund both social and environmental assets and/ or activities, including two benchmark issuances from South Australian Government Financing Authority (SAFA) and one from New South Wales Treasury Corporation (TCorp).
Sustainable Loans fell in 1H 2024 to US$4bn from US$8bn in 1H 2023, partially offsetting the increase in Sustainable Bonds. The decline in Sustainable Loans in Australia and New Zealand mirrors contractions in the broader APAC loan market with volumes, with APAC loans for 1H 2024 falling 37% from 1H 2023.
Notable Use of Proceeds & Sustainability-Linked Issuances
Use of Proceeds Issuance
Australian Office of Financial Management (AOFM) (Green Bond): The AOFM issued their inaugural 10-year A$7bn Green Treasury Bond. AOFM is a part of the Department of the Treasury and manages the Australian Government’s debt portfolio. The proceeds of the Green Bond will be allocated towards projects that drive Australia’s transition to net zero by 2050 and deliver significant environmental benefits, including lowering greenhouse gas emissions, increasing Australia’s renewable energy production and bolstering biodiversity conservation, restoration and adaptation. The bond issue was well supported by both domestic and offshore investors with approximately 35% allocated to offshore investors. 105 institutional investors were allocated bonds, of which 15 were new to AOFM syndicated deals. Westpac acted as Joint Lead Manager. Press release.
FleetPartners (Climate Bond): FleetPartners established a Green Bond Framework and issued the company’s inaugural A$75m Climate Bond within a wider A$400m ABS issuance. FleetPartners’ Climate Bond, which is certified by Climate Bonds Initiative, is consistent with FleetPartners’ sustainability purpose of “Empowering tomorrow’s destination, today", and commitment to help protect and provide for a sustainable environment for future generations. Proceeds from the Climate Bond will be used to finance/refinance eligible assets focusing on Clean Transportation and Low Carbon Transport, specifically battery electric vehicles. FleetPartners was the first fleet management organisation to be certified carbon neutral by both Climate Active in Australia and Toitū Envirocare in New Zealand, and the transaction marks the first1 Green EV ABS issue by a fleet management organisation to achieved certification by the Climate Bonds Initiative in the Australian bond market. Westpac acted as Joint Sustainability Coordinator, Joint Arranger and Joint Lead Manager. Press release.
1 Based on public information at time of publication
Aquila Clean Energy APAC and Far North Solar Farm (Green Loan): This is the first non-recourse, solar portfolio financing in New Zealand by foreign investors. Pukenui Solar Farm is the first of four initial solar projects in Aquila Clean Energy APAC and Far North Solar Farm’s joint development portfolio to reach construction start and utilise funds under the loan. The loan is structured to align with the APLMA Green Loan Principles (2023) under Westpac New Zealand’s Sustainable Lending Programme. Westpac acted as lender. Press release.
Sustainability-Linked Issuances
ISPT (Sustainability-Linked Loan): ISPT issued a A$1.5bn Sustainability-Linked syndicated term loan, bringing the total amount of SLLs issued by ISPT to A$5.75bn and solidifying its position as a market leader in the sustainable finance space amongst Australian real estate fund managers. The A$1.5bn facility is split evenly across 5- and 7-year tenors and is tied to ISPT’s existing sustainability performance targets which encompass metrics in greenhouse gas (GHG) emissions intensity, waste reduction, water consumption, and labour certification. Additionally, ISPT secured A$400m in bilateral SLL facilities. Westpac was joint MLAB and joint Sustainability Coordinator. Press release.
Inghams (Sustainability-Linked Loan): Inghams has converted its A$545m of debt facilities into a Sustainability-Linked Loan. The Sustainability-Linked Loan is governed by Inghams’ Sustainable Finance Framework, which expands Inghams’ capability to deliver the company’s commitment of ‘Always Good’ by linking the cost of borrowing to performance against a defined set of previously published 2030 sustainability performance targets. The Sustainability-Linked Loan incorporates three sustainability performance targets, which incentivise GHG emissions intensity, water intensity and landfill intensity reductions. Westpac was a lender. Press release.
Cromwell Property Group (Sustainability-Linked Loan): Cromwell Property Group completed the conversion of their A$1.2bn lending facility to a Green Sustainability-Linked Loan. The sustainability performance targets include reducing Scope 3 GHG emissions intensity to equal to, or less than, 30.16 kgCO2-e/m2 by 2028, reducing their gender pay gap to 12% by 2028 and targets to support Cromwell’s net zero Scope 1 and 2 GHG emissions by 2035 target. Cromwell aims to achieve their targets through a multi-purpose approach including encouraging tenants to switch to renewable energy and providing tenant support through waste stream signage and education to reduce their landfill waste. Cromwell’s gender diversity target forms part of its broader diversity commitments including maintaining pay parity across all roles and maintaining 40:40:20 gender targets across all leadership levels of the organisation. Press release.
Sustainable Finance Policy and Key Events
Sustainability Linked Bonds face vote of confidence after largest SLB issuer miss targets
Enel, the Italian energy giant, is set to face penalty rates on €11bn of its Sustainability-Linked Bonds after missing its 2023 Scope 1 GHG emissions reduction target. The 25bp penalty rate step-up will apply to 10 bonds, representing approximately a third of its Sustainability-Linked Bond issuance and would result in an additional €25m in annual interest expenses. This event was seen by some analysts as a vote of confidence in the ambition of Enel’s Sustainability-Linked Bond target, with the event described as a “watershed moment” for a developing SLB market that has faced scepticism about the materiality and ambition of its targets. Notably, since missing their targets Enel have returned to the Sustainability-Linked Bond market with a US$2bn triple-tranche Sustainability-Linked Bond in June 2024, which attracted an orderbook of US$5.6bn and tighter than average bond pricing, indicating that the missed target has not automatically deteriorated Enel’s investor relations.
ICMA releases the Guidance for Green Enabling Projects and Sustainability-Linked Loans Financing Bonds
In June, the International Capital Market Association (ICMA) published a new guidance document for Green Enabling Projects. These projects aren’t explicitly considered “green” but support the development and implementation of green initiatives and projects identifying the role that green enabling projects play in catalysing and scaling the transition to a low-carbon economy in line with the goals of the Paris Agreement. The document aims to provide clear criteria for such projects, addressing both induced and avoided emissions and emphasises the management of environmental and social risks.
Additionally, ICMA in partnership with the Loan Market Association (LMA) has launched the Sustainability-Linked Loans Financing Bond Guidelines (SLLBG) to promote integrity in the development of the Sustainability-Linked Loans Financing Bond (SLLB) market. The SLLBG define a dedicated bond instrument designed for issuers wishing to finance or refinance a portfolio of eligible Sustainability-Linked Loans aligned with the LMA’s Sustainability-Linked Loan Principles.
Transition Loan Principles expected to be finalised by November
The LMA and Asia Pacific Loan Market Association (APLMA) confirmed that a taskforce is developing formal use of proceeds Transition Loan Principles (TLP) to facilitate financing flows to climate-related transition activities. The first draft of the TLP is expected in August with an aim to be finalised by November. The TLP may act as a growth catalyst for the transition loan market and could potentially inform the development of a similar set of transition bond principles. Transition loans are used to finance projects and assets which are not ‘green’ in themselves but support the transition from a high to low carbon economy.
Australian Government publishes the Sustainable Finance Roadmap
Released in June, the Roadmap outlines a comprehensive plan to implement key sustainable finance reforms, including:
- Implementation of mandatory climate-related financial disclosure and the development of a sustainable finance taxonomy to standardise criteria for sustainable investments.
- Enhancing market supervision, addressing data and analytical challenges.
- Issuing Australian sovereign green bonds and increasing international engagement.
The roadmap aims to mobilise private capital investment towards sustainable projects and ensure a coordinated approach between the government, regulators, and industry.
Australian Sustainable Finance Taxonomy Public Consultation Paper Released
The Australian Sustainable Finance Institute (ASFI) released its first public consultation paper for the Australian Sustainable Finance Taxonomy. The overarching objective of public consultation is to test and obtain feedback on whether draft taxonomy products align with the core principles established by the Treasury for the Australian taxonomy: credibility, usability, interoperability and prioritisation for impact. This is one of two rounds of public consultation on the taxonomy’s initial development phase and this round is focused on the draft climate change mitigation criteria for the first three priority sectors under development including (1) electricity generation and supply, (2) minerals, mining and metals and (3) construction and the built environment.
BloombergNEF released its 2024 New Energy Outlook and the IEA released its World Energy Investment 2024 report
The IEA’s World Energy Investment 2024 report emphasises the urgent need for increased and sustained investment in clean energy technologies, noting that clean energy investment is currently outspending fossil fuel investments by 2:1. The IEA report mirrors the key findings from Bloomberg New Energy Finance’s New Energy Outlook 2024 Report, which states that a fully decarbonised global energy system by 2050 could come at a cost of US$215trn, approximately 19% more than an economics-driven scenario that would see global warming reach 2.6C above pre-industrial levels and the Paris Agreement targets missed.
Meet Our Sustainable Finance Team
Australia: Charlotte Plaisant Millecamps - Head of Sustainable Finance, Australia
New Zealand: Joanna Silver - Head of Sustainable Finance, New Zealand
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