On the logic of melding climate bonds, sustainable finance and the real world

Is there still anyone out there who thinks that a greener world will be less prosperous?

According to Catherine Bremner the new head honcho at ANZ for climate bonds and other “sustainable finance solutions” there is an emerging cornucopia of development opportunities both needed and desired in the Asia Pacific region that slide right into the climate action sleeve.

Think the need for exponential renewable and distributed energy, major battery storage development, water infrastructure, transport and so on.

The bank is keen to be part of that story and to partner with the giants of technology such as GE and Philips who are positioning to take advantage of this unfolding revolution, Bremner tells us in a candid interview that proves, if you need it, that that susty world is no longer niche but mainstream.

Big on Bremner’s agenda are sustainable buildings. We first came across Bremner at a Property Institute of Australia conference a few years ago so it’s no surprise she has an affinity for the sector. At the time Bremner was a chief operating officer at Low Carbon Australia, and as soon as this young woman took to the stage, she captivated attention with a narrative about sustainable property that was firmly embedded in economic and rational fundamentals.

Bremner says the way the green building industry has evolved is a perfect fit with the needs of climate bond investors. She loves the way the green building movement has evolved with a high degree of transparency on ratings with loads of publicly available supporting documentation.

NABERS which is government backed and Green Star with open and transparent format mean they are both well respected in the market, she says.

That’s always a great comfort to investors who want to verify their green and climate bonds aren’t ending up in greenwash (our words).

What’s also exciting to discover in our interview with Bremner is how fast climate bonds are evolving – not just in terms of the sectors they are entering, and there are plenty of those. But in the type of finance they offer.

The first iteration was as a pure investment play, with the bonds used to re-finance a project when the project is up and running and past its risky development phase.

Bremner says the opportunity now is to perhaps join with a development bank to underpin the viability of a projects. Of course this also gives investors first dibs at a suitable product.

According to the global view the sector is now at about US$600 billion, with low-carbon transport accounting for 70 per cent of the “climate bond universe”, clean energy 20 per cent and the balance made up of buildings, industry, agriculture and forestry, waste and pollution or water, according to Forbes.

This week Seattle-based Sound Transit issued more than US$900 million in green bonds to “improve the bus and train system, with a goal of cutting down on carbon emissions” an article in Atlantic City Lab says.

The publication quoted Heike Reichelt, head of investor relations and new products at the World Bank which raised $8.5 billion for climate change projects since 2008 who pointed to the way financiers were starting to learn about products usually outside their patch.

“I have a finance background—I’m not a climate expert. But I’ve learned so much working on green bonds and we see a similar process with many of the bond portfolio managers we meet,” Reichelt said.

“Finance people are talking about hybrid cars and greenhouse gas emission reductions, and how different baselines in different countries matter in measuring them. Those are topics that they didn’t talk or ask about before. It’s just becoming an additional aspect they look at when they invest.”

There was a nagging feeling during the interview with Bremner that was initially hard to pin down. It was along the lines that this is bigger than it looks. Obvious, of course, but there was a loose thread that needed connecting to a bigger idea somewhere.

This quote, above, nails it. What climate bonds have done and what the ANZ’s commitment to the sector is demonstrating, is just how far the universe of climate bonds has penetrated into the mindset and strategies of bankers.

What’s happening is a melding between the behemoth of the finance industry, which most people know is the real machine that runs the world (not politics) with the world of climate change and sustainability.

This means bankers and rocket scientist-financiers are for the first time (professionally speaking) having to step outside the formulas and algorithms that determine their allocation of investment, using their regular lens of economic behaviour, and having to factor in the natural world and its impact on our planet and us: cause and effect, action and reaction, finance and impact.

So those uber smart people, the analysts the investors that surround them, the agencies that transmit their products and the borrowers and developers who create the churn of profit might need to start talking to each other in a new language.

They’ll also need to listen: to the rhythm of the climate – the cracking of the glaciers, the renting of dry earth, the howling of cyclones – and understand how their actions can accelerate or calm all these things.