The Commonwealth Bank of Australia has made a dramatic entrance to the certified climate bond market, raising $650 million to fund 12 domestic projects including energy efficient buildings, low-carbon transport and renewable energy.
The Climate Bonds Initiative-certified bond is one of the largest in Australia, with all major Australian banks now represented in the certified bond space.
Climate Bonds Initiative chief executive Sean Kidney said the bond was of global significance “as institutional investors and pension funds will take note of one of the world’s largest banks entering the climate bond market with a best practice example of market standards and issuance”.
“Active leadership from a major bank like Commonwealth Bank sends a strong signal that green bonds have an increasing role in funding new infrastructure, clean energy and helping nations finance their climate action plans,” he said.
Commonwealth Bank managing director debt markets Simon Ling said investor demand for green bonds and assets would fuel continued growth in the sector.
“We are really pleased with the positive response from local and international investors,” Mr Ling said.
“Increasing investor awareness and sophistication will fuel demand for climate bonds, and based on the strong pipeline for renewable and low-carbon projects we expect to see this growth increase in the next five years in the Australian market.”
The Clean Energy Finance Corporation came in as a cornerstone investor with a $100 million commitment, following its cornerstone investment in Flexigroup’s climate bond, announced on Tuesday.
CEFC debt markets lead Richard Lovell said the CBA bond set an important benchmark in the emerging Australian green bond market.
“Clean energy assets are attracting increasing investor support, including from major institutions such as the Commonwealth Bank,” Mr Lovell said.
“This is critical for the continued development of the clean energy sector, as it continues to prove its ability to deliver positive returns for investors at the same time as contributing to a reduction in Australia’s overall carbon emissions.”
He said most investors in the green bond market had socially responsible investment mandates, with green bonds providing an important option for what was a “substantial pool of capital” looking for an appropriate home.
“We see the further maturity of this market as an important contributor to the continued transformation of clean energy finance in Australia.”
The CBA Climate Bond will undergo annual independent review by EY to make sure it meets Climate Bonds Initiative standards until the bond matures in February 2022. The five-year transaction, offered in both fixed and floating rate tranches, provided investors with a return of 92 basis points above the relevant reference rates at the time of pricing. Commonwealth Bank acted as sole lead arranger for the transaction.
The Australian green bonds market has now grown to over $4 billion. Internationally there is also strong growth, with French railway operator SNCF Reseau this month raising €1 billion (AU$1.41b) for a green bond with a 17-year maturity. According to Bloomberg New Energy Finance, China’s GCL-Poly Energy Holdings is also set to issue a 1.75 billion yuan (AU$330 million) bond to finance the construction of eight solar farms.
And there’s more to come. Henry Shilling, senior vice president of Moody’s Investors Service, told the recent Climate Bonds 2017 Annual Conference in London that green bond issuance could reach over US$200 billion by the end of the year.