National Australia Bank today floored the competition by launching Australia’s first climate bond in the local market with a $150 million offering that includes cornerstone investor Clean Energy Finance Corporation taking a $75 million commitment.
The announcement signals this emerging asset class is starting to come of age, with huge interest from the capital markets, and now the property sector, gathering momentum.
In the wings is another green bond from one of the big four banks for between $200 million and $300 million expected to come to market early in the new year, which will be managed by Ernst & Young.
Only weeks ago, Stockland raised 300 million Euros in a green bond.
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And earlier this year Westpac and RBC Capital jointly managed another major green bond issued by the World Bank of $300 million.
The NAB on Thursday said the climate bond was the first bank-issued bond to be certified in compliance with international Climate Bonds Standards. This is a standard developed by the Climate Bonds Initiative, headed by Sean Kidney.
NAB said the bonds were “senior unsecured NAB corporate bonds, with proceeds ring-fenced for financing a portfolio of renewable energy assets, including wind farms and solar energy facilities in Victoria, South Australia, Tasmania, Western Australia, NSW and the ACT”.
Three of the projects are under construction and 14 are operational. All are project finance facilities originated and serviced by NAB.
NAB group executive for product and markets Antony Cahill said the climate bonds placed the bank at the forefront of product innovation and environmental financing.
“This provides investors the opportunity to invest in a bond with the same features of any senior, unsecured NAB bond – but with the additional benefit of being dedicated to financing climate change solutions,” he said.
“This deal reinforces NAB’s position as the largest debt financier of renewable energy in Australia, provides the sector with a new funding source, and highlights our market-leading environmental solutions credentials.
“The launch also demonstrates the key role debt markets play in supporting the growth of new markets and financing a low carbon economy, and raises the profile of the green bond asset class in Australia.
“NAB has been a leading advocate for impact investment and this offering is a significant Australian-issued environmental impact investing opportunity presented to the local market.”
NAB said it recognised “environmental challenges such as climate change, resource scarcity and natural capital loss and degradation are challenges that affect our economy and society”.
CEFC chief operating officer Meg McDonald said the corporation had bought into the investment to give a level of comfort to investors, “given that’s still an untested market in Australia”.
“This is the first time an Australian bank has offered an Australian denominated bond that is based on the performance of Australian renewable assets,” she said. ”That’s why it’s such a big first.
“It’s a way of them providing a private institutional investor with a certified green investable product with NAB-backed returns,” Ms McDonald told The Fifth Estate.
“We’ve agreed to be a cornerstone investor in the offering because when there is a new asset class it really usually takes a while for investors to get comfortable with the products.”
Perhaps not in this case. The market seems to be roaring.
UBS, which was co-manager of the Stockland green bond, said it was flooded with interest when its deal was announced. Stockland chief executive Mark Steinert said likewise.
Interest in this market had been “very strong”, Ms McDonald said.
“If you look at the growth of green bonds internationally it’s been very strong. We’re now seeing it come to the Australian market and seeing institutions interested.
“It’s clear when you look at the growth of climate and green bonds that markets are driving a lot of this activity.”
And therefore markets would drive the profitability and the economic returns, she said.
CEFC chief executive Oliver Yates said the bonds were driven by Australian and global institutional investors seeking investment products that could offer financial returns combined with environmental or societal benefits.
“These preferences are driving change, with institutional investors adopting mandates which support these initiatives,” he said.
“The issuance of climate bonds in the Australian market highlights how debt markets could support growth and innovation and expand the flows of financing necessary for moving to a low carbon economy.”
There were more reasons why this deal is important, however, Ms McDonald said, including that NAB had been part of the Climate Bonds Initiative, which would provide the certification.
CEFC had its own criteria to satisfy with the destination of its investment but that if there were any differences between its criteria and that of the CBI the latter would be prevail.
The renewable energy assets financed by the climate bond are expected to have an installed capacity of over 1.5 gigawatts of electricity in aggregate – the equivalent of an estimated 3.9 million tonnes of avoided greenhouse gas emissions, enough to power 730,000 average Australian households for a year.