Green bonds reach new highs in Australia

Aussie green bonds are having a cracker of a year. So what are they again? 

Australian green bonds are on the rise. The Treasury Corporation of Victoria issued $2.5 billion in green and sustainability bonds in the last financial year, up from a $300 million offering in 2016.

When Victorian Premier Dan Andrews announced the Victorian government’s initial $300 million green bond program (now matured) in 2016 it was slated as a world first.

Now Bloomberg reports Australian green bond issuance is tracking towards its biggest year to-date.

With climate reform high on the agenda for the Albanese government, the green bond market in Australia is responding with $4.6 billion of green debt sold this year alone.

New South Wales Treasury reports it has $5.2 billion in circulation in its NSW sustainability bond program.

On the world stage, The Global Green Bond Market – Analysis by type of issuer, sector, by region, by country report states green bonds are a far more mature part of the market, representing an estimated market value of around $632.83 billion in 2021.

Bloomberg reports Europe alone needs an estimated 180 billion euros of additional investment each year to achieve 2030 emission targets set by the European Union in the 2015 Paris Agreement on climate change.

It is finance for a new and cleaner world, and it’s a segment of the market that, by all projections and historical data, is set to continue rising.

So what are green and sustainable bonds?

Green bonds are “bonds that are used to finance projects that have a positive environmental or climate benefit”, says managing director of the Treasury Corporation of Victoria (TCV), William Whitford.

Whitford said the green bonds are accredited with the Climate Bond Initiative and International Capital Markets Association’s respective Green Bond Standards and Sustainability Bond Principles.

“Sustainability bonds are used to finance a mix of green and social projects under principles set by the International Capital Markets Association (ICMA), whereas green bonds can be accredited by either the Climate Bond Initiative or ICMA but relate to green projects only,” he explained.

How long have they been in use to support green projects?

Green bonds were the brainchild of the World Bank when it launched the Strategic Framework for Development and Climate Change in 2008.

Since that time, the World Bank has issued the equivalent of around $26 billion Australian dollars in green bonds through over 200 bonds in 25 currencies.

However, green bonds have now become another type of bond to raise finance for sustainability and climate related projects.

Whitford said TCV first issued a green bond in 2016.

“[We then] followed [that with] our Sustainability Bond Program in 2021,” he said.

When asked if anyone can invest, he clarified:

“TCV does not have a retail investor offering. Wholesale or institutional investors can source these investments through the TCV dealer panel,” he said.

Why are green bonds growing so rapidly around the world and in Australia?

Whitford said green and sustainability bonds are growing due to an increased focus by investors seeking to invest in projects that derive a climate and, or, environmental benefit. 

“Global green initiatives such as the Paris Agreement on climate change and the United Nations (UN) Sustainable Development Goals have helped spur this expansion. 

“With an increased global focus on climate change in particular and a number of institutions having large ESG mandates, this is driving demand and hence corporates and governments are issuing these bonds to fund these related projects,” he said.

What is the size of the green bond market in Victoria?

Whitford said TCV’s Sustainability Bond Program currently has $4.3 billion “on issue”.  

“Our 2016 Green Bond was a $300 million that matured in July 2021,” he said.

“TCV’s Sustainability Bond is funding a range of social and green projects such as the Solar Victoria home and business subsidies for solar panels, batteries and Electric Vehicles.

“We also fund the Renewable Energy Zone program run by DELWP, to improve transmission capabilities of large scale renewable energy projects as well as the government’s investment in next generation train fleets,” he said. 

What are the growth projections of green bonds within the Victorian Treasury?

Whitford said TCV’s sustainability bond program at present will mature in 2035 with $4.3 billion on issue.

“This is expected to grow to over $6 to $7 billion as the bond line grows to full benchmark size in line with other bond maturities on issue by TCV,” he said.