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 industry insights such as updates to the Green Star Performance for building sustainability and ASFI’s progress on the Australian Sustainable Finance Taxonomy.
Global Observations
Global Issuance (US$bn)
Source for graphs and observations unless otherwise stated: BloombergNEF as at 30 September 2024. Chart includes retrospective labelling of bonds and exclude private transactions.
Global Sustainable Debt Issuance totalled US$1,187bn in YTD-24 compared to the pcp of US$1,114bn, an increase of 6.5%. Sustainable Bond issuance continues to dominate the total sustainable debt issuance, making up over US$860bn (77%) in pcp-23 vs US$942 (79%) in YTD-24.
Sustainable Bond Issuance saw strong increases in Green Bonds, Sustainability Bonds and novel Transition Bonds in YTD-24 compared to the pcp in 2023. In the period YTD-24, Green Bonds made up US$549bn (+8% vs pcp), Sustainability Bonds US$204bn (+25% vs pcp) and Transition Bonds US$18.26bn (x8 vs pcp). According to ICMA’s Quarterly Report (Q4-24), as of 23 September 2024, Sustainable Bonds accounted for 10% of the overall bond market. Standout issuances in the quarter include the European Investment Bank’s €5bn green bond, US$4bn green bond and KfW’s €3bn green bond. Green bonds continue to be the label of choice for issuers, making up 58% of sustainable bond issuance both in YTD-24 and the pcp in 2023. Sustainability-Linked Bonds continued to drag, with total issuance falling materially to US$32bn in YTD-24 (3% of sustainable bond issuance from 7% in pcp), as investor scrutiny and greenwashing concerns remain front of mind for issuers. Standout issuance for this quarter include a €826 million SLB issued by Carrefour and a €775 million SLB issued by the Czech Republic.
Sustainable Loan Issuance decreased marginally in YTD-24 to US$244bn) (-3.5% to pcp). Of the US$244bn in YTD-24, US$164bn (67%) was made up by Sustainability Linked Loans, still the loan instrument of choice for Corporates. SLLs grew 6% to US$164 bn compared to US155bn pcp, with the decline most notable in Green Loan issuances, US$73bn in YTD-24 (-19% to pcp). Standout issuances during this quarter include CyrusOne’s US$9.7bn sustainability-linked loan as well as HP’s US$5bn sustainability-linked loan.
Australia-New Zealand Observations
Australia-New Zealand Issuance (US$bn)
Source for graphs and observations (unless otherwise stated): BloombergNEF as at 30 September 2024. Australia & New Zealand volumes based off issuer currency (AUD and NZD). Chart includes retrospective labelling of bonds. Chart excludes private loan market transactions.
Australia-New Zealand Sustainable Debt Issuance fell slightly in the period YTD-24 US$35bn compared to the pcp of US$38bn in 2023. Sustainable bond issuance continues to dominate the sustainable debt issuance, contributing up to 84% in YTD-24 compared to 66% in the pcp of 2023.
Australian – New Zealand Sustainable Bonds grew rapidly in YTD-24, increasing by US$4bn or 17% compared to the pcp of 2023. Sustainable bonds was largely made up of green bonds (US$15bn or 50% of sustainable bond issuance) and sustainability bonds (US$12bn or 41% of sustainable bond issuance).
Australian- New Zealand Sustainable Loans in the public domain fell sharply in YTD-24, falling to US$6bn in YTD-24 compared to the pcp of US$13bn. The fall in sustainable loans mirrors contractions in the broader APAC loan market of all types. To note, the chart excludes some key transactions in the private loan market with undisclosed amounts.
Notable Sustainable Issuances in Australia and New Zealand
Green, Social, Sustainability, Transition Issuance
Top Energy has converted all its lending facilities into Green Loans, following the success of reinjecting carbon emissions from the Ngāwhā geothermal power stations. Westpac NZ sole Sustainability Coordinator.
Mirvac issued its inaugural Green Bond under its Sustainable Finance Framework. Certified by the Climate Bonds Initiative and with assurance from EY, the A$400m bond will be used to finance and refinance low carbon buildings. Westpac Joint Lead Manager for the issuance and Sole Sustainability Coordinator for the Sustainable Finance Framework.
NBN issued a A$1.75 domestic green bond. This was the largest Australian bond issuance executed to date for the company. The proceeds from the issuance are fully allocated to eligible green projects undertaken as part of NBN’s commitment to energy efficiency. Westpac Joint Lead Manager.
The South Australian Financing Authority (SAFA)’s Sustainability Bond Framework continues to deliver strong funding outcomes for the State while providing investors clarity on the Government’s overarching sustainability journey. The new A$2bn May-2029 transaction drew A$4.8bn in orders, in part an acknowledgement of SAFA’s comprehensive approach to sustainability. Westpac Joint Lead Manager.
Sustainability-Linked Issuances
Pāmu Farms of New Zealand has entered into its second series of sustainability-linked loans with lenders. The targets within the sustainability-linked loan focus on reducing all scopes of net greenhouse gas emissions, reducing methane emissions from livestock, improving animal welfare through dairy beef, and increasing gender diversity. Westpac NZ was a Sustainability Coordinator.
Flinders Port Holdings (FPH) established its inaugural Sustainability-Linked Loan and Framework, tackling sustainability issues that are relevant and material to both FPH and the wider maritime-port sector. SLLs includes FPH’s commitments to reduce absolute Scope 1 and 2 emissions; accelerate Scope 3 initiatives; increase gender diversity across several measures and achieve Tier 2 accreditation with Mental Health First Aid over the course of the SLL. Westpac was Joint Sustainability Coordinator for FPH’s Framework and SLLs.
Ramsay Health Care: In August 2024, Ramsay Health Care successfully amended and extended the KPIs and targets relating to its A$1.7bn of Sustainability-Linked Loans which represents 56% of Ramsay Health Care’s funding in Australia and the UK. KPIs include emissions reduction, expansion of renewable energy initiatives, mental health training, and supplier sustainability performance. Key changes from previous structure include the integration of UK-based acquisition Elysium, inclusion of an additional 3 years of targets and the introduction of a Sustainability Deed Poll allowing for all financing to get access to the sustainability-linked structure over time.
Sustainable Finance Policy and Key Events
ASFI Taxonomy - Public Consultation Feedback
The Australian Sustainable Finance Institute (ASFI) recently concluded its first public consultation on the Australian sustainable finance taxonomy. Feedback highlighted the need for clearer guidelines on renewable energy integration and transitional technologies in the electricity sector, sustainable mining practices, and enhanced criteria for energy efficiency in the buildings sector. Respondents also called for a more detailed approach to accounting for induced and avoided emissions and stressed the importance of addressing social risks to ensure environmental benefits do not compromise social equity. The next round of public consultation, scheduled for November 2024, will focus on climate change mitigation criteria for transport, manufacturing and industry, and agriculture and land. Stakeholders can provide their feedback through the ASFI website.
Green Star Performance v2: Elevating Building Sustainability
The Green Building Council of Australia launched Green Star Performance v2 in July 2024, an updated sustainability rating tool for existing buildings. Key Differences between Green Star Performance v1 and v2:
- Scope: v2 focuses on portfolios, not just single buildings.
- Digital Integration: v2 offers a better digital platform, aligning with NABERS for easier ESG reporting.
- Sustainability Metrics: v2 includes health, resilience, social impact, and circular economy principles.
- Climate Positive Pathway: v2 sets targets for climate positivity by 2040, with leading buildings by 2030.
- Global Alignment: v2 aligns with frameworks like the UN SDGs and TCFD.
This version provides greater alignment with global frameworks, enhancing transparency in sustainability reporting. The updated tool supports the issuance of green bonds and other sustainable financing by providing a more robust framework for demonstrating performance. Notably, the property sector accounts for approximately 10% of the total global sustainable finance market, highlighting the importance of such tools in driving sustainable investment. GBCA Website.
EuGBS Set to Take Effect December 2024
The EU Green Bond Standard (EuGBS), which aims to enhance transparency in the European green bond market, will take effect on 21 December 2024. This voluntary standard requires alignment with the EU taxonomy, providing a clearer picture of the environmental impact of investments. While the complexity may deter some issuers, the official “European Green Bond” label can attract more investment and provide a competitive edge. Investor demand and increased reporting under other EU regulations will influence the standard’s adoption. European Commission.
ASFI releases its fourth annual Progress Tracker on the implementation of the Australian Sustainable Finance Roadmap
The report highlights some key areas of progress over the past year, including the establishment of Australia’s mandatory climate-related disclosure regime, progression of Australia’s Sustainable Finance Taxonomy and the issuance of the Australian Government’s inaugural green bond. Priority areas identified include accelerating household electrification and energy efficiency, integrating nature-related factors into financial decision-making, better utilisation of climate disclosures into financial reporting and more equitable partnerships with First Nations communities. ASFI website.
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