FINANCE: Green bonds and other sustainable finance vehicles are still booming amid the pandemic. In fact they’re seen as lower risk than traditional investments. It’s no surprise then that Australian property companies are getting on board.
Global green bond issuance passed the $1 trillion-mark last week and Australian property giant Lendlease is not missing out on this fast-accelerating market, with its first $500 million green bond oversubscribed.
Proceeds from the seven-year fixed rate green bond will be funnelled into eligible green building projects in the developer’s global portfolio of 22 major urbanisation projects, which includes Sydney’s Barangaroo, the UK’s International Quarter London, Singapore’s Paya Lebar Quarter and Chicago’s Southbank.
To fit the criteria, projects need to leverage market-leading mechanisms for lowering carbon emissions, reducing the environmental impact of materials and delivering health and wellbeing benefits.
According to the property company, the bond is the largest green bond issued by an Australian non-financial corporate.
The bond will pay a coupon of 3.40 per cent.
The bond will help the company meet its emissions reduction targets of net zero (for scope 1 and 2 emissions) by 2025 and “absolute zero carbon”, which includes the supply chain, by 2040.
Green bond market booming amid pandemic
The announcement follows the news from research company BloombergNEF that the bond market – which finances sustainable projects such as wind farms and wastewater treatment plants – had shot past $1 trillion issued despite the disruption to financial markets caused by Covid.
In 2020 alone, more than $200 billion worth of green bonds have been issued so far.
“For much of this year, green bond issuance has lagged behind 2019. But the bumper month in September, with more than $50 billion issued, offers hope of a possible boom in the last quarter of the year,” said Mallory Rutigliano, a sustainable finance analyst at BNEF.
Bertrand Roucher is portfolio manager at Mirova, an investment manager dedicated to responsible investment. He said that it wasn’t surprising that the green bond market passed $1 trillion in issuance.
“In our opinion, the covid19 crisis has delayed the timing at which the threshold would be reached but it couldn’t derail the target per se.”
He also said that while he expects the green bond market to keep growing over the next few years, by around 2028-2029 he expects the rate of growth to slow down.
“Why so? Because once a lot of players have adapted their business models to the ESG transition and funded the transformation through green bonds, there will be less need for issuing in this space.”
He said that better ratings and a sounder framework have helped drive this “niche area into a fully-fledged market in its own right.”
Major milestones spell change for sustainable finance
Speaking at a Climate Bonds Initiative webinar releasing a new report on green loans last week, cofounder and CEO Sean Kidney said that investors can “see very clearly globally that change is coming”.
Mr Kidney spoke of a couple of milestones that signal a real shift in thinking on sustainable finance.
One is that Exxon’s market capitalisation was recently eclipsed by NextEra, a renewable energy company in the US.
“Exxon was once the king of the castle when it comes to the SMP 100, and it’s no longer in the SMP 100, it got knocked out about a month ago.”
Other key milestones are the new EU target of 55 per cent reduction from 1990s level by2030 (it already had a net zero target for 2050) and China’s 2060 target for net zero energy intensity.
Mr Kidney said China had passed a peak emissions target by 2030 “and there’s no way China will miss these targets – it doesn’t make an announcement about targets unless it will meet them.”
He said the green bond and green loan markets are now treated as lower risk than traditional investments.
“We now have this idea that you are able to get returns while also seeing your money do good,” he said.
“This is a significant shift. Who would have thought that five years ago?”