Canberra’s ongoing climate and energy policy shenanigans have not stopped Australia emerging as “an example of world’s best practice” in developing a home-grown green bond market.
In a report on opportunities for green infrastructure bonds released earlier this week by the Climate Bonds Initiative (CBI), Australia was the second largest source of green bond issuance in the Asia Pacific region in the first half of 2018, with China the largest.
This amounts to $2.6 billion cumulative green bond issuance in Australia in the first half of 2018, up by 5.3 per cent since the same period last year.
Since Australia’s first green bond was issued in 2014, there has been strong commitment from the major banks, as well as green bond issuances from two state governments, property and tertiary sectors.
Despite a promising start for green bond markets in both Australia and New Zealand, the CBI warns that there is still a long way to go.
“Notwithstanding the positive directions, both nations are yet to effectively harness sufficient capital allocation to generate the volume of green infrastructure investment required to meet international mitigation and emissions commitments, whilst improving domestic climate adaptation and resilience,” CBI’s recently published Green Infrastructure Investment Opportunities Australia & New Zealand report states.
“There is an immediate and growing opportunity for institutional investors to become more active, to expand their participation in green infrastructure financing, building on the impressive foundation established so far,” it states.
The GIIO report has identified a promising pipeline of infrastructure projects – planned, underway and complete – that qualify for green bonds.
Huge opportunities in the built environment
Many of these projects are in the building sector, which is starting to take sustainability seriously, with the global sector recognised as “the largest potential to significantly reduce greenhouse gas emissions compared to other major emitting sectors”.
So far, the low carbon or green buildings that are eligible for green bonds are all Green Star (mostly 6-star rated) certified projects, according to CBI’s Climate Bonds Taxonomy.
Green building projects flagged in the report for potential green bond investment (refinancing, additional financing or new financing) include:
the $175 million New Horizons collaborative research centre at Monash University, Lendlease’s $500 million Commonwealth Bank office precinct in Sydney’s Darling Quarter, and Cbus Property’s $870 million 1 Williams Street office tower in Brisbane built for Queensland government employees.
Future opportunities for green building investments include green hospital buildings, particularly given the correlation found between green designs and reduced hospital stays. Green public buildings such as libraries and sporting facilities all present relatively unexplored possibilities, the report said.
Other green infrastructure opportunities
Other green infrastructure projects eligible for green bonds fall into three remaining categories: low carbon transport, renewable energy, and sustainable water management categories.
Although Australia has traditionally relied heavily on high-emissions, fossil fuel-powered transport, the focus is shifting to public transport and freight rail – with Victoria’s Labor government promising a $50 billion suburban train loop in Melbourne if re-elected in November.
Renewable energy projects, such as Snowy 2.0, also present massive opportunities for investors.
Only energy generation facilities above 50MW are eligible for green bonds. Solar energy, wind energy, bioenergy, hydropower, geothermal energy, marine energy or any other low or zero carbon emissions energy sources can qualify.
“The last two decades have been about making assets work harder. The future will be about making ‘green’ upgrades to existing assets and harnessing the capital required for the delivery of new smart resilient infrastructure. Infrastructure needs to be fit for purpose over long operating cycles in a carbon-constrained, climate impacted landscape,” the report states.
CBI also launched the Australia and New Zealand Green Finance Briefing this week. This report provides full analysis of green investment in both nations to date.