Green Infrastructure Investment Opportunities - AUSTRALIA & NEW ZEALAND - Climate Bonds ...

 
Green Infrastructure Investment Opportunities - AUSTRALIA & NEW ZEALAND - Climate Bonds ...
Green Infrastructure
Investment Opportunities
AUSTRALIA & NEW ZEALAND

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Green Infrastructure Investment Opportunities - AUSTRALIA & NEW ZEALAND - Climate Bonds ...
Green Infrastructure Investment
Opportunities, Australia & New Zealand
Contents                                        This report highlights green infrastructure investment
                                                opportunities in Australia and New Zealand
3 Executive
   summary                                      This report highlights green infrastructure
                                                investment opportunities in Australia and
                                                                                              superannuation funds and asset
                                                                                              managers and their global counterparts,

4 Green                                         New Zealand. It has been prepared to
                                                help meet the growing demand for green
                                                                                              potential issuers, infrastructure owners
                                                                                              and developers, as well as relevant
   infrastructure: an                           investment opportunities – including          Government ministries (Finance, Planning,

   opportunity for                              green bonds - as well as to support the
                                                two countries’ transition to a low-carbon
                                                                                              Energy, Transport, Environment). It is part
                                                                                              of a research series which commenced
   growth                                       economy. It aims to facilitate greater        with the Green Infrastructure Investment
                                                engagement on this topic between              Opportunities, Indonesia report in
5 Macroeconomic                                 project owners and developers, and            May 2018 and will investigate green

   outlook                                      institutional investors.                      infrastructure investment opportunities
                                                                                              around the world, initially focusing on the
                                                Green finance instruments and trends
6 Infrastructure                                are explored in the report, with sector-
                                                                                              Asia-Pacific region.

   financing                                    by-sector options presented. Green
                                                infrastructure investment opportunities
                                                                                              In developing this report, the Climate
                                                                                              Bonds Initiative consulted with key

8 Green finance                                 are also explored sector-by-sector, with
                                                projects presented in reference case
                                                                                              Government bodies, industry, the
                                                                                              financial sector, peak bodies, NGOs

13 Green standards                              studies and a sample green pipeline
                                                of opportunities. The sample pipeline
                                                                                              and think tanks – in partnership with
                                                                                              ANZ, Commonwealth Bank of Australia,

16 Green                                        is not exhaustive – rather a snap shot
                                                of the different types of opportunities
                                                                                              Macquarie Group, NAB, Westpac, the
                                                                                              Clean Energy Finance Corporation
   infrastructure                               available in the short and medium-term        (CEFC), IFM Investors, the Investor

   investment                                   future. A more comprehensive list of over
                                                400 green infrastructure investment
                                                                                              Group on Climate Change, the Principles
                                                                                              for Responsible Investment and RIAA.
   opportunities                                opportunities is available on the Climate     We would like to thank these partners
                                                Bonds Initiative website.                     along with the other organisations that
   17 Low-carbon                                The report is intended for a wide
                                                                                              contributed to the report: Australian

   transport                                    range of stakeholders in Australia
                                                                                              Water Association, Green Building Council
                                                                                              of Australia (GBCA), GRESB and New
                                                and New Zealand, including domestic
   21 Renewable                                                                               Zealand Green Building Council.

   energy
   24 Sustainable                               Climate Bonds Initiative
   water                                        The Climate Bonds Initiative is an            Climate Bonds Initiative screens green

   management                                   international investor-focused not-for-
                                                profit organisation working to mobilise the
                                                                                              finance instruments against its Climate
                                                                                              Bonds Taxonomy to determine alignment

   27 Green buildings                           USD100tn bond market for climate change
                                                solutions.
                                                                                              and uses sector specific criteria for
                                                                                              certification (see Annex 1).

32 Green investment                             It promotes investment in projects and
                                                assets needed for a rapid transition to a
                                                                                              Climate Bond Partners range from
                                                                                              investors representing USD14tn of AUM
   opportunities are                            low-carbon and climate resilient economy.     and the world’s leading investment banks

   growing                                      The mission focus is to help drive down
                                                the cost of capital for large-scale climate
                                                                                              to governments like Switzerland and
                                                                                              France and include major Australian and

33 Annexes                                      and infrastructure projects and to support
                                                governments seeking increased capital
                                                                                              New Zealand institutions such as ANZ,
                                                                                              Commonwealth Bank of Australia, NAB,

36 References                                   markets investment to meet climate goals.     CEFC, GBCA, Investor Group on Climate
                                                                                              Change and Westpac. The Climate Bonds
                                                The Climate Bonds Initiative carries out
                                                                                              Initiative is also the lead partner in the
                                                market analysis, policy research, market
                                                                                              Green Infrastructure Investment Coalition.
                                                development; advises governments and
                                                regulators; and administers a global green
                                                bond standard and certification scheme.

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Executive summary
Since the signing of the Paris Agreement            This report identifies over 400 projects and
there has been an increasing demand                 assets that could qualify for refinancing,            “Climate change is real. It’s
from institutional investors for investment         additional financing, or new financing in the         happening now. This is not
opportunities that address environmental            near- to long-term.                                   about talking about what we
challenges and support sustainable
                                                    The Climate Bonds Taxonomy1 was used to
                                                                                                          do in the future, but the action
development. Australia and New Zealand
                                                    identify eligible green projects under four           that we have the potential
are both characterised by small populations,                                                              to carry out as leaders in the
                                                    sectors. To narrow the scope and volume of
high GDP per capita and well-developed
                                                    projects the following filters were also applied:     business community and the
capital markets. Australia also benefits from
access to a AUD2.6tn national savings pool.                            Low carbon transport –
                                                                                                          international environment.”3
Both nations face challenges in adapting to
                                                                       mostly projects valued             New Zealand Prime Minister
                                                                       above AUD100m                      Jacinda Ardern
climate impacts and in meeting tightening
                                                                       (Australia) and NZD100m
international emissions targets. They also
                                                                       (New Zealand)
need to develop sustainable urbanisation
models and to address congestion. There                                Renewable energy -               Most Australian and all New Zealand green
is a mounting urgency for government                                   only renewable energy            bond issues to date have been Certified under
and industry to increase their emphasis                                generation facilities above      the Climate Bonds Standard reflecting strong
on policies and provision of low-carbon,                               50MW                             adherence to international best practice. The
sustainable and climate resilient ‘green’                                                               label of ‘green’ is, however, not widely applied
                                                                       Sustainable water
infrastructure. The brown to green                                                                      to infrastructure. The ‘green’ standards
                                                                       management – mostly
transition from emissions intensive brown                                                               that do exist are mostly voluntary and
                                                                       projects valued above
infrastructure to cleaner assets needs                                                                  administered by non-government bodies.
                                                                       AUD50m (Australia) and
to attract broad-based support and
                                                                       NZD50m (New Zealand)             There is an immediate and growing
considerable momentum in order to meet
                                                                                                        opportunity for institutional investors
the Paris goals.                                                       Low-carbon buildings -
                                                                                                        to become more active, to expand their
                                                                       Green Star certified projects
There is an infrastructure construction boom                                                            participation in green infrastructure
                                                                       - mostly 6-star rated
underway in Australia and New Zealand.                                                                  financing, building on the impressive
                                                                       projects
Although both nations have traditionally relied                                                         foundation established so far. Investing in
heavily on high-emission, fossil fuel-powered       The report has been prepared to help                green infrastructure will ultimately help the
transport – there is an increasing focus on (low-   meet the growing demand for ‘green’ and             governments to reach their climate targets,
carbon) public transport and freight rail. There    ESG investment opportunities – including            spur innovation, broaden the economic base,
is a boom in building small- to large-scale         green bonds - as well as to support both            reduce urban congestion and promote more
renewable energy capacity. Green building           nations’ respective transitions to a low-           sustainable economic and social well-being.
certifications have grown significantly, and        carbon economy. It aims to identify green
                                                                                                        The infrastructure pipeline found in this
resilient buildings are becoming mainstream.        investment projects with investment
                                                                                                        report is encouraging, but the scale of the
                                                    potential and explore how investors can gain
Almost half the projects included in                                                                    challenge requires far greater ambition. The
                                                    exposure to these using innovative green
Infrastructure Australia’s Infrastructure                                                               Asian Development Bank estimates the
                                                    finance instruments.
Priority List 2018 meet international investor                                                          climate-adjusted infrastructure investment
definitions of ‘green’, although they are           Internationally, growing interest in green          needs for Pacific region countries at 9.1% of
not always labelled as such. Similarly, just        finance has resulted in the development and         their GDP between 2016 and 2030.2 With
over 40% of New Zealand projects in the             growth of dedicated green financial products        Australia’s and New Zealand’s GDP totalling
Australia and New Zealand Infrastructure            including green bonds, green loans, social          USD1.5tn, this translates to approximately
Pipeline (ANZIP) could be considered ‘green’.       and sustainable bonds, green infrastructure         USD1.5tn by 2030. There is no time to rest
                                                    investment trusts and green index products,         on laurels - the scale and timeframe is such
Green infrastructure development presents
                                                    which complement opportunities in public            that far more needs to happen and quickly.
a range of attractive green investment
                                                    and private equity investments. Green bonds
opportunities. There is an increasing                                                                   Both nations have the potential and
                                                    have become a popular debt instrument for
number of low-carbon transport, renewable                                                               economic conditions to develop a well-
                                                    exposure to green assets and projects.
energy, sustainable water management                                                                    planned sequential pipeline of green
and green building projects in the pipeline.        A green bond market emerged in Australia            investment opportunities. Australia in
                                                    in 2014 and more recently in New Zealand.           particular is also uniquely placed with
                                                    Australia was the 2nd largest source of             superannuation funds and managers having
  “Our cities are the crucible                      issuance within the Asia Pacific region for         a global presence in infrastructure, debt
  of innovation, of enterprise –                    H1 2018 and 12th globally, outpacing green          financing and alternative assets. A robust
  it’s where so much of GDP is                      issuance from larger bond markets like Japan.       green market would see Australia poised
  created and it’s vital they have                  Australia has emerged as a best practice model      to become a significant source of capital
                                                    of early development with commitment                flows and expertise into the region as
  the right infrastructure.”4
                                                    from the major banks and asset managers,            ASEAN nations shift towards green
  Former Australian Prime                           providing a sound base for expansion, despite       finance to help meet their intertwined
  Minister Malcolm Turnbull                         the relatively minor supply of non-bank ASX         national-development, energy, emissions
                                                    100 green issuance to date.                         and climate goals.

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Green infrastructure: an opportunity for growth
International context                              Australia and New Zealand                         Zealand Infrastructure Pipeline19 (ANZIP) could
                                                                                                     be considered ‘green’. However, the budget
Globally, the green economy is growing. Since      Australia and New Zealand both face
                                                                                                     allocated to these seemingly ‘green’ projects,
the signing of the 2015 Paris Agreement            challenges in adapting to climate impacts
                                                                                                     in each country, is much less than that for all
there has been an increasing and publicly          and in meeting stricter international
                                                                                                     other projects.
expressed awareness among institutional            emissions targets. They also have challenges
investors, particularly from OECD nations and      in building sustainable urbanisation models       With an increasing urgency to respond to the
China, of the long-term risks climate change       and addressing congestion. Both Australia         challenges of climate change, governments,
poses to their ability to match assets with        and New Zealand have high urban based             the financial sector and industry all need
liabilities. This has led to growing demand        populations of about 90%16 .                      to increase their emphasis on policies and
for investment opportunities that address                                                            provision of low-carbon, sustainable and
                                                   A greater role by the financial sector and
environmental challenges and support                                                                 resilient green infrastructure. The transition
                                                   in particular private sector investment
sustainable development, resulting in the                                                            from polluting brown infrastructure to
                                                   is considered crucial to the successful
development and growth of dedicated green                                                            cleaner and greener assets needs to gain
                                                   implementation of policy responses related
financial products, including green bonds.                                                           momentum with widespread support.
                                                   to reducing carbon intensity, improving
The global green bond market has seen              capital allocation, bridging investment gaps,     Traditional high-carbon infrastructure
exponential growth, exceeding USD161bn             accelerating infrastructure provision and         investments still dominate in Australia, with
of issuance in 2017 up 85% from the year           embedding climate resilience.                     road, rail and ports being built to facilitate
before. Milestones5 have been set for annual                                                         fossil-fuel industries. Australia’s CO₂
                                                   Both countries have ambitious infrastructure
issuance of USD1tn in green bonds and loans                                                          emissions output on a per capita basis is one
                                                   and energy development plans. The
by 20206 and an Asian market of climate                                                              of the highest in the world20.
                                                   emphasis is on improved connectivity, more
related infrastructure in the trillions during
                                                   reliable service delivery, and enhanced           Having ratified the 2015 Paris Agreement,
the following decade, according to the Asian
                                                   productivity growth. The Australian 2017-18       Australia and New Zealand have committed
Development Bank7.
                                                   Federal Budget features an infrastructure         to making finance flows consistent with a
In Australia, despite a slow response by           spending program of AUD75bn from                  pathway towards low-carbon and climate
government, the financial sector is moving         2017-18 to 2026-27, including funding for         resilient development. The Australian
ahead8 . Australia’s major banks have led          critical airport, road, and rail infrastructure   government has, however, been criticised21
the way9 by adopting and promoting best            projects. Similarly, the Government of            for not making stronger emissions reductions
practice10 in green bond issuance and              New Zealand will focus on road, rail and          commitments. After the recent national
supporting smaller issuers. The world’s            water infrastructure as well as regional          elections, New Zealand has been pursuing
fourth-largest pool of retirement funds            development. It has allocated almost              more ambitious climate policies. It has
and other institutional investors have             NZD1.5bn to these in the 2018 budget17.           pledged to reach carbon neutrality by
demonstrated an appetite for alternative                                                             2050 and establish the mechanisms to
                                                   Although both nations have traditionally
assets and global presence in infrastructure11.                                                      phase out fossil fuels.
                                                   relied heavily on road and water transport
This creates a solid foundation to significantly
                                                   – using high-emission, fossil fuel-powered        Despite their different public approaches,
increase investments in green infrastructure
                                                   vehicles and vessels – there is an increasing     both governments have made infrastructure
and build a robust and supportive
                                                   focus on public transport and freight rail.       and sustainability commitments. They will
environment for green finance.
                                                   There is a boom in building small- to large-      require significant investment, both public
The same can be said for New Zealand. Green        scale renewable energy capacity. Green            and private, underpinned by innovative
finance concepts12 are taking hold and green       building certifications have significantly        finance models. Green finance can play a
debt13 and bond issuance14 is appearing15.         increased, and resilient buildings are            significantly larger role in the future.
                                                   becoming mainstream. The number of
Australia and New Zealand have the                                                                   The last two decades have been about
                                                   green infrastructure projects has risen in
potential to be global leaders in green                                                              making assets work harder. The future will
                                                   both countries.
infrastructure delivery as both governments                                                          be about making ‘green’ upgrades to
have the capacity and economic conditions          Almost half of the projects in Infrastructure     existing assets and harnessing the capital
to developing a well-planned sequential            Australia’s Infrastructure Priority List 201818   required for the delivery of new smart
pipeline of green investment opportunities.        meet international investor definitions of        resilient infrastructure. Infrastructure needs
The respective finance sectors are well            ‘green’, although they are not always labelled    to be fit for purpose over long operating
positioned to develop and subsequently             as ‘green’. Similarly, just over 40% of New       cycles in a carbon-constrained, climate-
export green finance expertise.                    Zealand projects in the Australia and New         impacted landscape.

  Nationally Determined Contribution under the Paris Agreement in terms of reduction commitments
  for annual national greenhouse gas emissions:
  Australia: 26–28% below 2005 levels by 2030                               New Zealand: 30% below 2005 levels by 2030
  Under the Paris Agreement, contributions must be updated regularly. The next update to Nationally
  Determined Contributions can be provided in 2020.

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Macroeconomic outlook
Australia
Australia’s real GDP growth is projected to
                                                                         Australia Country Facts                   New Zealand Country Facts
continue at around 3% in 2018 and 201922.
                                                                         Population: 25 million (2018)             Population: 4.8 million (2018)
Australia has experienced uninterrupted
                                                                         Population growth rate: 1.35% (2017)      Population growth rate: 0.97% (2017)
economic growth for 26 consecutive
                                                                         Urban population: 90%30                   Urban population: 86%33
years. Continued growth will be aided by
                                                                         Rate of urbanisation: 1.37% annual rate   Rate of urbanisation: 0.98% annual
an improving global outlook, strong public
                                                                         of change (2015-20 est.)31                rate of change (2015-20 est.)34
infrastructure investment, and improved
investor sentiment. Increased investment in                              GDP: USD1,323bn (2017) – 13th largest     GDP: USD206bn (2017)
housing is also anticipated to provide near-                             economy in the world                      Interest rate (cash rate): 1.75% (at end
term support to the economy, helping with                                Interest rate (cash rate): 1.5%           of 2017)
housing supply and pricing23. Publicly-funded                            (at end of 2017)                          Inflation rate: 1.5% (Q2 2018)
infrastructure development and private                                   Inflation rate: 2.1% (Q2 2018)            Government 10Y, M: 2.76%
sector spending on non-residential buildings                             Government 10Y, M: 2.65%                  (at July 1st, 2018)
will also be key drivers of investment activity                          (at July 1st, 2018)                       Balance of trade: -NZD113m (June 2018)
and employment over the coming years24.                                  Balance of trade: AUD1873m (June 2018)    Government debt to GDP: 22.2 %
                                                                         Government debt to GDP: 41.9 % (2017)32   (2017)35
The economy has adjusted to the recent
decline in mining-related investment thanks                              Moody’s rating: Aaa (stable)              Moody’s rating: Aaa (stable)
to an accommodative monetary policy, a                                   S&P rating: AAA (stable)                  S&P rating: AA (stable)
flexible labour market, stable rate of inflation,                        Fitch rating: AAA (stable)                Fitch rating: AA (stable)
and a lower exchange. Furthermore, non-
mining business investment has picked up
and is projected to continue with increasing
infrastructure development.
                                                        GDP for Australia and New Zealand (2008–2018)36
Public debt is expected to fall as a proportion                               1600                                                                     220
of GDP, which should support a positive
economic outlook. Government’s goal is to
                                                                                                                                                       200
reduce the annual deficit by around half of a                                 1400
percentage point of GDP per year over the
four-year budget horizon25 .
                                                                                                                                                       180

                                                                                                                                                                  New Zealand GDP (USD bn)
New Zealand                                                                   1200
                                                     Australia GDP (USD bn)

New Zealand’s real GDP growth is projected to                                                                                                          160
continue at 3% in 2018 and 201926 . Growth will
be aided by anticipated increases in interest                                 1000
                                                                                                                                                       140
rates, strong tax revenue and government
spending, particularly on infrastructure. With                                                                                         Australia
government debt expected to decline as a                                                                                               New Zealand
                                                                              800                                                                      120
share of GDP, additional spending should not
affect fiscal sustainability.                                  2008                     2010            2012       2014             2016             2018

Forecasts show surpluses in the operating
balance before gains and losses, reaching               Australia and New Zealand Government Bond 10Y (2008-2018)37
NZD7.3bn in 2021-22 or 2.1% of GDP, which
means that national net debt falls as a percentage                            7
of GDP to 19.1% in 2021-22. This would satisfy the                                                                                     Australia
government’s net debt target of 20% by 202227.                                6                                                        New Zealand
It would also address some of the concerns
raised by Fitch Ratings: while they affirmed
                                                                              5
New Zealand’s rating, the credit rating agency
cited high external debt burden and persistent
current-account deficits as an issue28.                                       4

All three ratings agencies found that New
Zealand’s ratings were supported by strong                                    3
                                                     % Interest rate

governance standards and prudent fiscal
management. An example is the goal to keep                                    2
future annual CPI inflation between 1-3% over
the medium term and to avoid unnecessary
                                                                              1
volatility in output, employment, the exchange
rate, and interest rates29.                                    2008                     2010            2012       2014             2016             2018

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Infrastructure financing
Globally, there is a high demonstrable           Major publicly-funded works spending trends,
need for infrastructure investments.             Australia, 2014-202059
Large tax cuts since the 1980s have                                 Metronet (WA)                                        NorthCornex (NSW)
led to considerable public-sector                              24   Snowy Hydro Expansion (NSW)                          Sydney Metro Northwest (NSW)
underinvestment in infrastructure. This
                                                                    Pacific Highway - Woolgoola to Balina (NSW)          WestConnex (NSW)
has resulted in a significant gap between
                                                                    Airport Link (WA)                                    NBN
public sources of infrastructure finance                       20   Melbourne Metro (VIC)
available and the levels of infrastructure
investment required by global economies                             Level Crossing Removals (VIC)
                                                                    Western Distributor (VIC)
to achieve their sustainable long-term
                                                               16   Cranbourne-Pakenham Rail (VIC)
economic growth potential37.
                                                                    Western Harbour Tunnel (NSW)
Currently about 1.5% (USD2tn) of                                    Sydney Metro and Southwest (NSW)
annual global GDP is invested in                               12   Badgerys Creek Airport (NSW)
infrastructure projects. However, an
                                                                    CBD and South East
additional 1.0% (USD1.5tn) of global GDP                            Light Rail (NSW)
needs to be invested annually to adequately                    8
meet infrastructure needs in transport,
energy, building, land protection and water
through 203038. Unlike other asset classes,                    4
                                                USD Billions

infrastructure investments present a unique
risk-return profile. They tend to be less
impacted by the business cycle and can
                                                               0
provide a hedge to changes in interest rate.
Infrastructure financing can provide long-                            2014        2015       2016         2017         2018         2019         2020
duration exposures of over 20 years.
                                                  increase competition and thus drive better             and an information portal for market
Financing infrastructure in                       value-for-money outcomes for government39.             intelligence and investment opportunities42.
Australia and New Zealand
                                                  With guidance from the government’s                    Infrastructure Partnerships Australia’s 2017
The Australian and New Zealand
                                                  Infrastructure and Project Financing Agency            Australian Infrastructure Investment Report showed
governments have used multiple funding
                                                  (IPFA), an active investor approach to future          a strong appetite for infrastructure opportunities,
mechanisms to finance infrastructure
                                                  infrastructure projects is planned. This will          from both local and international investors.
development. These include asset sales,
                                                  deliver a return on taxpayer investments and
debt, project financing, Public-Private
                                                  taps alternate funding40. It is anticipated that
Partnerships (PPP), federal grants, value
                                                  after 2019 public investment would decrease,
capture and concessional loans.
                                                  and other types of financing will facilitate             Use of Public Private
Australia
                                                  ongoing infrastructure development41.                    Partnerships
                                                  There are opportunities for domestic and                 Australia has adopted long-term PPP
While publicly-funded infrastructure
                                                  international investors to finance, construct,           infrastructure for the licensing of social
spending continues to increase in Australia,
                                                  own and refinance Australia’s transport,                 ventures, which transfer risk to the
the government is seeking to attract
                                                  utilities and social infrastructure. The                 private sector. However, there continues
further private investment in public sector
                                                  Department of Infrastructure, Regional                   to be limited long-term debt-financing
infrastructure projects. The public sector
                                                  Development and Cities and the Australian                available since the global financial
alone cannot meet the increased demand
                                                  Trade Commission (Austrade) is working to                crisis. In New Zealand, the government
for infrastructure over the next decade and
                                                  specifically attract foreign direct investment           continues to actively support a small,
fill the gaps in Australia’s infrastructure
                                                  (FDI) in Australian infrastructure, by                   but innovative and growing PPP
capability. There is also the potential to
                                                  functioning as a focal point for FDI inquiries           infrastructure market60.

Examples PPPs – Australia
  Project            Terms                     Procuring              Industry    Value             Consortium members included
                                               government                         (AUDm)

  Sydney Metro       20 years: operations,     NSW                    Transport   3,700             Northwest Rapid Transit consortium: MTR
  Northwest          trains and systems                                                             Corporation (Australia), John Holland, Leighton
                                                                                                    Contractors, UGL Rail Services, Plenary Group

  Gold Coast Light   15 years: design,         QLD                    Transport   Stage 1: 1,296    GoldLinQ consortium: McDonnell Dowell
  Rail (Stage 1      build, finance, operate                                      Stage 2: 420      Constructors, Bombardier Transportation, KDR Gold
  and Stage 2)       and maintain                                                                   Coast Pty Ltd (Keolis and Downer EDI), Plenary Group

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“Infrastructure is a key driver for growth,         in infrastructure investment. For example, IFM    The need for green
  employment, and better quality of life              Investors was established 28 years ago to         infrastructure is growing
  in emerging markets and developing                  manage infrastructure investments on behalf
                                                                                                        About 70% of global greenhouse gas emissions
  economies (EMDEs). But this comes                   of Australian industry superannuation funds. It
                                                                                                        come from infrastructure construction and
  at a cost. Approximately 70% of                     is owned by 27 major not-for-profit Australian
                                                                                                        operations such as power plants, buildings, and
  global greenhouse gas emissions come                pension funds and manages the retirement
                                                                                                        transport53. To overcome this global challenge
  from infrastructure construction and                savings of over 11 million Australians47. IFM
                                                                                                        and meet the goals of the Paris Agreement,
  operations such as power plants,                    Investors currently manage AUD48bn in
                                                                                                        the OECD believes about USD100tn in climate
  buildings, and transport. The Overseas              infrastructure in developed markets, with
                                                                                                        compatible infrastructure investment will be
  Development Institute estimates that                interests in 30 investments across Australia,
                                                                                                        needed between 2016 and 203054.
  over 720 million people could be pushed             North America and Europe48.
  back into extreme poverty by 2050 as                                                                  In Australia, infrastructure-related emissions
                                                      As the interest of Australian superannuation
  a result of climate impacts, while the                                                                account for more than half of the country’s
                                                      funds in infrastructure is growing, so too are
  World Health Organization projects that                                                               total greenhouse gas emissions: 35% from
                                                      innovations for investment. In order to close
  the number of deaths attributable to the                                                              the electricity sector and 18% from the
                                                      the infrastructure gap, innovative finance
  harmful effects of emissions from key                                                                 transport sector55. In New Zealand, energy
                                                      products are required along with enhanced
  infrastructure industries will rise from                                                              and transport contribute just over 30% of
                                                      planning and regulatory development.
  the current 150,000 per year to 250,000                                                               total greenhouse gas emissions56. To reduce
  by 2030. [...] Crucially, in EMDEs with                                                               these emissions, climate compatible, green
  disproportionate exposure to climate
                                                      New Zealand                                       infrastructure is required, including low-
  change impacts, low-carbon infrastructure           New Zealand has historically experienced an       carbon and less polluting assets which are
  can help prevent a climate-related reversal         underinvestment in infrastructure and there is    also climate resilient.
  of development gains.”61                            a great demand for brownfield and greenfield
                                                                                                        The Australian Infrastructure Plan (2016)
                                                      infrastructure development. The central and
  Deblina Saha, co-author of Private                                                                    emphasises that sustainability and resilience
                                                      local governments in New Zealand own over
  Participation in Low-Carbon Infrastructure                                                            should not be seen as fringe concepts, but as
                                                      NZD200bn of infrastructure assets and the
  Investment,62 The World Bank                                                                          good economic practice, and that sustainable
                                                      forecast is that infrastructure spend will be
                                                                                                        and resilient infrastructure can support
                                                      over NZD110bn by 202549.
                                                                                                        growth and a higher standard of living57. With
An investor survey43 showed that 70% of               The government understands that traditional       the onset of climate change, the capacity
participating investors would be highly likely to     infrastructure funding and PPPs are no longer     of infrastructure to operate through minor
invest in Australian infrastructure. The survey       adequate and is seeking innovative means          disruptions, and recover quickly from major
indicated that investors were attracted by the        of funding infrastructure. The New Zealand        disruptions, will be critical to supporting people
increased visibility of transactions and projects,    Trade and Enterprise agency is working            and businesses over the coming decades58.
specifically citing the Australia & New Zealand       on behalf of the government to connect
                                                                                                        There is an immediate and growing
Infrastructure Pipeline (ANZIP) as a useful tool.     investors with opportunities, including
                                                                                                        opportunity for investors to participate in green
                                                      infrastructure investment.
ANZIP is a joint initiative between the                                                                 infrastructure financing in Australia and New
Australian and New Zealand governments                The government has previously set up funds        Zealand. At the same time, investing in green
and independent think tank Infrastructure             that promote infrastructure development,          infrastructure will ultimately help the Australian
Partnerships Australia. It provides a detailed list   such as the Future Investment Fund                and New Zealand governments to reach their
of likely and confirmed infrastructure investment     established in 2012. It has provided almost       climate targets, spur innovation, broaden the
or major development opportunities and is             NZD5bn of new capital spending including          economic base, and promote more sustainable
aimed at investors and contractors44.                 NZD1bn for transport50.                           economic and social well-being.

There are many Australian infrastructure              In 2018, the government will launch two
assets which are currently held by local              further funds. The Provincial Growth Fund
and international funds. These range                  will have NZD3bn to invest over three years
                                                                                                          “There is increasing focus in
from regulated assets such as water and               in regional economic development, including         the infrastructure investment
sewerage utilities to distribution pipelines          regional infrastructure51.                          community on the opportunities
and transmission wires. They include user-                                                                that green investment brings.
                                                      The Green Investment Fund will focus more
fee assets like toll roads, airports, ports and
                                                      on promoting sustainable development,
                                                                                                          Across renewable energy,
railways, as well as commercial operations
                                                      specifically aimed at supporting the new            sustainable transport, green
like communications, power generation and                                                                 buildings and sustainable
                                                      government-wide mission to transition
energy providers45.
                                                      towards a net-zero-emissions economy by             communities; financial investors,
The government has a number of funds                  2050. This fund takes the new approach of           corporates and governments are
for infrastructure. For example, the Urban            co-investing alongside private capital. It aims     all looking for ways to facilitate
Congestion Fund (AUD1bn) established by               to stimulate the inflow of additional private       and participate in the transition
the Australian Federal Government to address          capital once it demonstrates the commercial
                                                                                                          to a low-carbon economy.”
urban congestion in cities by investing in            benefits of investing in green projects52. This
projects that remove bottlenecks, improve             model recognises that there is both the need        John Pickhaver, Co-Head
traffic safety and increase network efficiency        and demand for more low-carbon green                of Macquarie Capital,
for both commuter and freight mobility46.             infrastructure and less of the traditional,         Australia and New Zealand,
                                                      high-carbon infrastructure.
Australia’s superannuation funds are also active                                                          Macquarie Group

Australia & New Zealand GIIO Report Climate Bonds Initiative                                                                                            7
Green Infrastructure Investment Opportunities - AUSTRALIA & NEW ZEALAND - Climate Bonds ...
Green finance
Demand for sustainable
investments is increasing                             Key global sustainable finance initiatives also illustrate
Since the signing of the Paris Agreement
                                                      the growing popularity of green finance and investment in
demand has increased from institutional
                                                      sustainable development:
investors, particularly from OECD nations             • The Principles for Responsible                • The One Planet Sovereign Wealth
and China, for investment opportunities that            Investment: 2000 signatories from 67            Fund Working Group: comprising
address environmental challenges and support            countries, representing over 50%, or            six major sovereign wealth funds,
sustainable development. This has resulted              over USD80tn of global assets under             including the New Zealand
in the development and growth of dedicated              management (AUM).                               Superannuation Fund, who collectively
green financial products including green bonds,                                                         manage over USD3tn in assets66.
                                                      • The Principles for Sustainable
green loans, social and sustainable bonds,
                                                        Insurance: adopted by insurers                • Climate Action 100+ initiative: 289
green infrastructure investment trusts and
                                                        representing over 20% of the global             investors with nearly USD30tn AUM
green index products (see Annex 1 and 2 for
                                                        insurance market by premium volume              have signed on, including Australian
descriptions of debt and equity instruments).
                                                        and USD14tn in AUM.                             funds with more than AUD1tn under
Green bonds63 are currently the most developed                                                          management67 68.
                                                      • The Principles for Responsible Banking:
segment of thematic instruments, carrying
                                                        26 leading banks from 5 continents            • The UN Environment Finance Initiative
a great recognition from the investor base.
                                                        representing USD16tn in AUM65.                  (UNEP FI): 92% of the world’s 25
The ‘green’ label is a discovery mechanism
                                                                                                        largest banks are members - 120
that enables bond issuers, governments,               • The Equator Principles: commitment
                                                                                                        leading banks across the world.
investors and the financial markets to prioritise       from 94 financial institutions in 37
investments, which genuinely contribute to              countries, covering the majority              • The Investor Group on Climate
addressing climate change.                              of international project finance in             Change: represents Australian and New
                                                        developed and emerging markets.                 Zealand institutional investors with
The demand for ‘green’ instruments continues
                                                                                                        total funds under management of over
to rise. For example, the green bond market has       • The Climate Bonds Initiative partners
                                                                                                        AUD2tn69.
seen exponential growth - exceeding USD161bn            represent USD13tn AUM and USD70trn
of issuance in 2017, up from USD87bn in 2016.           AUM represented on its Standards Board.
This demand for green instruments comes from:

- Mainstream asset managers (e.g. Aviva,
                                                    Innovative financial instruments have been        investors with unique risk exposure to the
  BlackRock, State Street);
                                                    developed in order to mobilise capital markets    Australian energy market. Westpac has also
- Specialist ESG and green bond fund                to fund green infrastructure projects. Green      taken an innovative approach, by issuing
  managers (e.g. Amundi, Natixis/Mirova);           debt instruments include green bonds,             an AUD117.3m climate bond in 2018 to
                                                    securitisation and other structured finance,      Japanese retail investors, in the Uridashi
- Sovereign and municipal governments
                                                    commercial paper, bank credit facilities,         bond market, to support the bank’s funding
  (e.g. Chinese SOEs through their Belt and
                                                    retail bonds, secured and unsecured notes.        for climate change solutions.
  Road Initiative);
                                                    Institutional investors have invested in equity
- Supranationals, i.e. multi-lateral                funds, REITs, syndicated loans, and co-
  banks (e.g. World Bank, ADB, Asian                investment vehicles. For investors with limited
  Infrastructure Investment Bank); and              ability to manage their own green projects, a
                                                                                                        “Our goal is to make a positive
                                                    variety of corporate bonds, securitisation and      and lasting impact on the
- Retail investors (e.g. World Bank green                                                               lives of our customers, people,
                                                    syndicated loans are available.
  bonds and US municipality bonds).
                                                                                                        shareholders, communities,
                                                    In Australia and New Zealand, green
With investors increasingly looking for ways
                                                    bonds continue to be the primary means of
                                                                                                        and our environment – and our
to address ESG and climate change in their
                                                    gaining exposure to green finance. Financial        customers are telling us they want
investment processes, green bonds, along with                                                           to participate in the transition
                                                    institutions are increasingly entering the
other green financing tools, present a useful
                                                    market to refinance pools of existing eligible      to a low carbon economy. We’re
opportunity to meet environmental objectives
and deliver on their fixed income mandates.
                                                    assets. Green bond issuers – particularly           continually developing and
                                                    large banks and State Governments –                 offering innovative green finance
                                                    can also use green bonds as a signalling            tools that enable investors to back
Green finance instruments in                        mechanism around ‘green’ policy.
Australia and New Zealand                                                                               major renewable energy projects
This increasing demand and innovation of the
                                                    Innovative structures have emerged in               alongside NAB, and we find
market has seen the creation of new, ‘green’
                                                    the local green bond market to provide              new ways to support companies
                                                    a diversity of investment options. For              that deliver green infrastructure
investment products designed to appeal
                                                    example, National Australia Bank recently
to investors with different risk appetites.                                                             projects around the world.”
                                                    placed AUD200m of 10-year Low Carbon
There are growing opportunities to mobilise
private capital to support green infrastructure
                                                    Portfolio Notes, which are backed by a              Mike Baird, NAB Chief
by investing in debt, funds, equity-linked
                                                    portfolio of loans to Australian renewable          Customer Officer, Corporate
                                                    energy developers. The structure mimics             and Institutional Banking, NAB
products and listed companies.
                                                    a loan portfolio syndication and provides

Australia & New Zealand GIIO Report Climate Bonds Initiative                                                                                    8
Green Infrastructure Investment Opportunities - AUSTRALIA & NEW ZEALAND - Climate Bonds ...
Macquarie Group green loan                      Clean Energy Finance                                   “Westpac recognises
                                                  Corporation (CEFC)                                     that climate change is an
  In 2018, Macquarie Group issued a
  four-tranche GBP2bn loan facility that          The CEFC, established by the Australian
                                                                                                         economic issue as well as an
  includes GBP500m green tranches: a              Government, is an independent                          environmental issue, and banks
  3-year revolving facility and a 5-year term     entity investing in renewable energy,                  have an important role to play
  tranche. The green tranches will be used        energy efficiency and low emissions                    in assisting the Australian
  to support renewable energy projects            technologies. It has access to AUD10bn                 and New Zealand economies,
  initially and energy efficiency, waste          in capital. At 30 June 2018, the CEFC’s                transition to net zero emissions.
  management, green buildings and clean           portfolio stood at AUD5.3bn.                           Increasing green bonds, green
  transport projects in the future. The
                                                  The CEFC is required to target an                      loans and green underwriting
  green loan facility is one of the first such
  facilities issued under the Green Loan
                                                  average return of the five–year Australian             is a vital part of the mix, as is
  Principles of the Asia Pacific Loan Market
                                                  Government bond rate +3% to +4% per                    supporting new issuers to come
                                                  annum over the medium to long term                     to market.”
  Association (APLMA), which seek to
                                                  (or +1% per annum for investments
  establish a set of best practice guidelines
                                                  made via the AUD200m Clean Energy                      Lyn Cobley, Chief Executive,
  for green lending. The Macquarie Group
  Green Loan received considerable
                                                  Innovation Fund). The CEFC works to                    Westpac Institutional Bank.
                                                  catalyse or ‘crowd in’ additional private
  interest from Asian market investors.
                                                  sector investment in clean energy
                                                  projects. Portfolio leverage at 30 June 2018        FlexiGroup, an Australian retail lender,
  NAB RMBS                                        exceeded AUD1.80 from the private sector            issued its first loan receivables ABS with a
  In 2018, the NAB, through National              for each dollar committed by the CEFC.              green tranche in 2016. In 2018 it introduced
  RMBS Trust 2018-1, issued a AUD2bn                                                                  a subordinated green tranche, in addition
                                                  The CEFC directly finances large-scale
  RMBS in a multi-tranche issue that                                                                  to the usual senior green tranche seen in
                                                  projects, particularly in renewable energy,
  included a AUD300m green tranche,                                                                   previous deals.
                                                  and delivers finance for smaller-scale
  earmarked against AUD525m of prime
                                                  projects through aggregation programs               Non-financial corporates are also innovating.
  residential mortgages. The underlying
                                                  with established co-financiers. The CEFC            In 2017 Contact Energy, the New Zealand
  residential properties were assessed
                                                  is also a substantial investor in Australia’s       energy provider, had the majority of its
  against the Residential Building Criteria
                                                  emerging climate bonds market, and has              outstanding debt certified as ‘green’ when
  of the Climate Bonds Standard. The
                                                  invested in several large-scale equity              it created its Green Borrowing Programme.
  tranche was priced at 0.85% over the
                                                  funds targeting clean energy gains across           The unique feature is that the programme
  one-month BBSW and was close to
                                                  infrastructure, property and agriculture.           includes wholesale and retail bonds, private
  two times oversubscribed. Inclusion of
                                                  Through its Sustainable Cities Investment           placements, credit facilities, an export credit
  the green tranche increased demand
                                                  Program, the CEFC further encourages                line and commercial paper. Contact Energy
  and investor diversity, attracting
                                                  investment in renewable energy, energy              obtained programmatic certification under
  socially responsible funds as well as
                                                  efficiency and low emissions technologies           the Climate Bonds Standard. The certified
  mainstream investors from Australia70.
                                                  across the built environment.                       debt facilities are backed by a pool of
                                                                                                      geothermal energy assets64.

  “As a core investor in                         National and regional green bond guidance is being adopted across
  Australia’s green bond market,                 the world to support market growth
  we are seeing growing interest                    Regulation & official guidelines              Listing requirements
  from superannuation funds and
                                                    Private initiatives                           In the pipeline
  managers who want to deepen
  their exposure to sustainable
  assets. This is essential if we
  are to achieve our national
  emissions reduction goals in
  the infrastructure sector and
  beyond. We are confident
  an increasing focus from
  underlying investors, along
  with improved sophistication
  and understanding of fund
  managers, and increased
  diversity of supply, can attract
  more investor support for this
  critical investment class.”
  Ian Learmonth, CEO, CEFC

Australia & New Zealand GIIO Report Climate Bonds Initiative                                                                                            9
Green Infrastructure Investment Opportunities - AUSTRALIA & NEW ZEALAND - Climate Bonds ...
International best practices and                Global certification
domestic guidelines for green
instruments                                         No external review         CB Certified       Rating
The global green bond market is witnessing          100
exponential growth, benefitting both issuers
and investors. With the growth of the
market, best practices have been developed
                                                    80
at the international level to guide issuers,
maintain investor confidence and avoid the
risk of ‘greenwashing’. At the international
level, two main voluntary processes for green       60
issuance have emerged:

• the Green Bond Principles (GBPs),
                                                    40
  coordinated by the International Climate
  Markets Association (ICMA), and the Green
  Loan Principles (GLPs), developed by the
  Loan Market Association (LMA), provide            20
  process guidance around transparency on the
  use of proceeds, project selection process,
  management of proceeds and reporting72 73.        0
                                                %

• the Climate Bonds Standard &
                                                                     USA
                                                          Supranational
                                                                   China
                                                                  France
                                                               Germany
                                                           Netherlands
                                                                Sweden
                                                                   Spain
                                                                 Canada
                                                                   Japan
                                                                     Italy
                                                                 Mexico
                                                                    India
                                                                Norway
                                                               Australia
                                                                Belgium
                                                                       UK
                                                                   Brazil
                                                           South Korea
                                                               Denmark
                                                             China_HK
                                                                 Poland
                                                              Indonesia
                                                                 Austria
                                                           New Zealand
                                                           South Africa
  Certification Scheme, managed by the
  Climate Bonds Initiative and developed by
  a network of technical experts, with input
  from industry players and investors, builds
  on the GBPs and adds green asset criteria
  which are aligned with achieving the goals
  of the Paris Agreement.
                                                 Australia and New Zealand are important green bond issuers
At a regional level, the Association of
                                                 Cumulative issuance up to end H1 2018
Southeast Asian Nations (ASEAN) Capital
Markets Forum has provided green bond
guidelines for adoption throughout the
region while financial services regulators in
China and India have their own green bond
regulations. All are broadly consistent with
                                                                             China                              Japan USD6.8bn
international standards.
                                                                           USD59.1bn
Governments, regulators and stock
exchanges have started developing                                                                     South Korea USD3.0bn
guidelines and regulations. These generally                 India
                                                                                                      Taiwan USD804m
include guidance for issuance and disclosure              USD6.6bn
in line with the GBPs and are mostly aligned
with the Climate Bonds Taxonomy and                                                                    Vietnam USD27m
Standard (see Annex 1).
                                                                                                           Philippines USD226m

Green bond issuance in
Australia and New Zealand                           Malaysia USD979m

Australian issuance features a diverse              Singapore USD611m
range of bonds, with multiple deals from                                                      Indonesia USD1.9bn
the four biggest Australian banks, two state
governments (so far), a commercial property
fund, a leading university and several                        Top issuer
green ABS bonds. Most Australian and
                                                                                                                            Fiji USD49m
New Zealand green bond issues have been                       USD1-10bn
                                                                                                       Australia
certified under the Climate Bonds Standard,
commitment to ESG principles and                  Australian use of proceeds
sustainable investing as well as increased
awareness of climate impacts has become                               Renewable Energy               Low Carbon Transport           Waste
one of the drivers behind the current demand
                                                                      Low Carbon Buildings           Water
for quality green debt issuance. The latest
                                                               3.0
Responsible Investment Association of
Australasia (RIAA) report notes that funds                     2.5
raised through green bonds are financing
renewable energy assets, energy efficiency                     2.0
initiatives and low-carbon public transport.                   1.5
The following are examples of different types                  1.0

                                                AUD Billions
of issuers, instruments and sectors of green
bonds that have been issued in Australia and                   0.5
New Zealand. For more information, please
                                                               0
see our report Australia & New Zealand Green
financing country briefing (August 2018).                            2014           2015              2016              2017                 2018

  Australia                                                                    Australia

  Instrument: Use of proceeds bond                                             Instrument: Green senior and subordinated tranches in a
  Issuer: Westpac                                                              receivables ABS
  Issuer type: Commercial bank                                                 Issuer: Flexi ABS Trust 2018-1
  Amount: AUD500m                                                              Issuer type: Non-bank lender
  Date issued: May 2016                                                        Amount: AUD81.3m (total for green tranches)
  Maturity: 5 years                                                            Date issued: May 2018
  External review: CBI certified, verified by EY Asia Pacific                  Maturity: Multiple
  Use of proceeds: Wind, Low Carbon Buildings (Commercial)                     External review: CBI certified, verified by DNV GL
                                                                               Use of proceeds: Rooftop Solar PV and Solar Hot Water Loans

  Australia                                                                    Australia

  Instrument: Use of proceeds bond                                             Instrument: Use of proceeds bond
  Issuer: Queensland Treasury Corporation                                      Issuer: Investa Commercial Property Fund
  Issuer type: Government                                                      Issuer type: Property asset manager
  Amount: AUD750m                                                              Amount: AUD100m
  Date issued: March 2017                                                      Date issued: April 2017
  Maturity: 7 years                                                            Maturity: 10 years
  External review: CBI certified, verified by DNV GL                           External review: CBI certified, verified by EY Asia Pacific
  Use of proceeds: Solar, Low Carbon Transport                                 Use of proceeds: Low Carbon Buildings (Commercial)

  New Zealand                                                                  New Zealand

  Instrument: Use of proceeds bond                                             Instrument: Green borrowing programme
  Issuer: Auckland Council                                                     Issuer: Contact Energy Limited
  Issuer type: Municipality                                                    Issuer type: Non-financial corporate
  Amount: NZD200m                                                              Amount: NZD1.88bn
  Date issued: June 2018                                                       Date certified: August 2017
  Maturity: 5 years                                                            Maturity: Multiple tenors
  External review: CBI Certified, pre-issuance report by EY                    External review: CBI Certified, verified by EY Asia Pacific
  Use of proceeds: To refinance existing debt used to buy electric             Use of proceeds: The programme finances only geothermal
  trains and equipment as well as to help finance the purchase of              assets. Eligible projects must have an emission intensity
  more.                                                                        lower than 100gCO2e/kWh to be in line with Climate Bonds
                                                                               Geothermal Criteria.

Australia & New Zealand GIIO Report Climate Bonds Initiative                                                                                        11
The future role of                                 Achieving the Sustainable Development Goals
superannuation in Australia’s
infrastructure                                     In September 2015, 193 nations came              SDGs is in the range of USD2tn to 3tn per
                                                   together to support the United Nations’          year. The growth of the green bond market
Both the Australian and New Zealand
                                                   Sustainable Development Goals (SDGs)             provides an excellent foundation to raise
governments are developing policy
                                                   - a collection of 17 global goals with 169       capital for bridging this gap76.
interventions to further support their
                                                   targets addressing social and economic
green finance sectors including green                                                               In Australia, ANZ raised an EUR750m
                                                   development. Climate Bonds has
investment banks, carbon markets, green                                                             SDG Bond in the European market to fund
                                                   identified six SDGs where increased green
certification mechanisms and renewable                                                              loans related to 9 SDGs.77 NAB’s novel
                                                   investment and green bonds provide
energy incentives71.                                                                                SDG Green Bond combines SDG goals
                                                   direct benefits: SDG 6, 7, 9, 11, 13 and 15.74
                                                                                                    and Climate Bonds certification criteria as
Australia’s employment-based compulsory
                                                   For example, SDG 9 aims to build resilient       eligibility requirements.78 Green bonds and
superannuation contribution system has
                                                   infrastructure, promote inclusive and            SDG bonds are not separate streams. They
been an underlying driver of national savings.
                                                   sustainable industrialisation and foster         aim to finance many of the same assets,
Coupled with strong banks that are prepared
                                                   innovation75. Realising SDG 9 by 2030 will       and deliver economically, socially and
to be early movers and adhere to best
                                                   require significant resources, in both the       environmentally resilient societies.
practice in green bond issuance, Australia
                                                   developing and developed world context.
now has the foundations for green finance
                                                   It is estimated that the funding gap for
to expand into infrastructure projects. This
                                                   achieving all 17 of the United Nations’
patient retirement capital is willing and able
to make large-scale investments and can be
deployed to improve deal flow and scale up
corporate green bond issuance.
                                                   “The Australian and New Zealand green bond markets are
The large industry superannuation funds            representative of global best practice. The markets are underpinned
have led on infrastructure and clean energy        by a diversity of issuance and innovation in use of proceeds, a strong
investment since the mid 1990s. This is            commitment towards transparency, with high levels of international
partly a result of investment beliefs, a
                                                   certification. ANZ is working with investors to build confidence in
bias towards alternative investments and
the ability to make direct equity-based
                                                   market fundamentals and directions. The scale of green infrastructure
investments. Over time, equity investments         investments expected to be made in Australia, coupled with strong
have increased through a mix of wholly             investor demand, make the prospects for growth in green bonds bright.”
owned specialist managers, joint ventures
                                                   Christina Tonkin, Managing Director, Loans & Specialised Finance,
and other co-ownership models.
                                                   ANZ

  Specialist funds
  Key specialist funds in the infrastructure     and businesses which invest in renewable           Green Investment Fund
  financing space include Australia’s            energy, energy efficiency and low emissions
                                                                                                    As part of a wider suite being spearheaded
  Clean Energy Innovation Fund and IFM’s         technologies. The fund’s investments are
                                                                                                    by the new government, the Green
  Australian Infrastructure Fund. In New         recognised as potentially carrying a higher
                                                                                                    Investment Fund will be established to
  Zealand, the Green Investment Fund will        risk profile, given the start-up nature of the
                                                                                                    make investments in New Zealand that
  provide a boost to green infrastructure        investee companies and technologies.
                                                                                                    reduce greenhouse gas emissions and
  funding when it becomes operational at
                                                                                                    provide a financial return. The fund will
  the end of 2018.                               IFM Australian                                     receive a NZD100m capital injection
                                                 Infrastructure Fund                                from the government and will operate
  Clean Energy Innovation Fund                   Australia’s largest infrastructure fund, the       independently, supporting the nation’s
  The CEFC operates the Clean Energy             AUD12bn IFM Australian Infrastructure              transition towards a net-zero-emissions
  Innovation Fund, the largest dedicated         Fund is collaborating with CEFC to reduce          economy by 2050. It will work with
  Australian investor of its kind. It was        carbon emissions. The CEFC is investing            businesses, infrastructure owners and
  created in 2016 as a specialist financier      AUD150m into the fund, which will be               investors to bring forward emissions
  to invest AUD200m in early-stage               used to target emissions reduction and             reduction projects and draw in private
  clean energy companies. The fund               energy efficiency initiatives across some of       investment for these projects. The fund
  targets technologies and businesses            the nation’s largest infrastructure assets,        will co-invest alongside private capital. It
  that have passed beyond the research           including ports, airports and electricity          is anticipated that once it demonstrates
  and development stage and which can            infrastructure79. This initiative supports         investment and commercial success then
  benefit from early stage seed or growth        IFM investors’ commitment to work                  other private investment will follow.
  capital to help them progress to the next      with asset management teams to deliver
  stage of their development. It draws on        sustainable ESG outcomes that benefit the
  CEFC finance to primarily provide equity       communities they serve, the environment
  finance to innovative clean energy projects    and superannuation member returns.

Australia & New Zealand GIIO Report Climate Bonds Initiative                                                                                       12
Green standards
A large segment of institutional
                                                   ISCA Infrastructure Sustainability Rating        The ISCA is a member-based, not-for-
investors has shown support to address
                                                   Scheme is a third-party rating system for        profit peak body. It administers a third-
climate change. However, when it comes
                                                   evaluating sustainability across the planning,   party rating program, provides training
to environmental criteria, investors
                                                   design, construction and operation of all        and knowledge sharing and creates a
currently have too few tools to ensure
                                                   phases of infrastructure programs, projects,     community of practice around sustainable
that their investments are making a
                                                   networks and assets in Australia and New         infrastructure83.
significant impact. Having common
                                                   Zealand.
definitions of ‘green’ across global
markets, allows investors, potential
issuers and policy makers to identify
                                                   Green Star is an internationally-                community-wide - helping to improve
green assets and attract investment
                                                   recognised rating system for the design,         environmental sustainability, boosting
more easily.
                                                   construction and operation of buildings,         productivity, creating jobs and improving
In Australia and New Zealand there are             fit-out and communities. To rate a building      the health and well-being of place for
a number of bodies that have developed             or a fit-outs overall environmental impact,      people, and results in money savings.
definitions and standards for green assets         Green Star rating tools award points
                                                                                                    Green Star was launched by the Green
and infrastructure projects:                       across nine categories: Energy, Water,
                                                                                                    Building Council of Australia in 2003
                                                   Materials, Indoor Environment Quality
• The Infrastructure Sustainability Council                                                         and remains Australia’s only national
                                                   (IEQ), Transport, Land Use & Ecology,
  of Australia’s (ISCA’s) Infrastructure                                                            and voluntary rating system for buildings
                                                   Management, Emissions, and Innovation.
  Sustainability Rating Scheme                                                                      and communities. New Zealand now
  covers all infrastructure types in Australia     This helps to support stakeholders in            has similar tools for design, construction
  and New Zealand80.                               the property and construction sectors to         and operation of buildings, fit-out and
                                                   design, construct and operate projects in a      communities. These tools were adapted
• The Green Star certification,
                                                   more sustainable, efficient and productive       for New Zealand. In both countries, Green
  administered by the Australian Green
                                                   way, and provides tenants with a trusted         Star can be used as a proxy for Climate
  Buildings Council and the New Zealand
                                                   mark of independent verification to              Bonds Certification84.
  Green Buildings Council, and the National
                                                   support decision making. It has benefits
  Australian Building Environmental Rating
  System (NABERS) and NABERS New
  Zealand cover buildings. New Zealand also        NABERS is a national rating system               the building or tenancy has considerable
  has Homestar, an independent national            that measures the environmental                  scope for improvement. Ideally it helps
  rating tool that measures the health,            performance of buildings, tenancies and          property owners, managers and tenants to
  warmth and efficiency of houses81.               homes assessing energy efficiency, water         improve their sustainability performance,
                                                   usage, waste management and indoor               reaping financial benefits and building
• For renewable energy generation facilities,
                                                   environment quality of a building or             their reputation.
  guidance on development in Australia
                                                   tenancy and its impact on the environment.
  and New Zealand can be sought from                                                                In Australia it is run by a government
                                                   This is done by using measured and
  local standards, regulation and industry                                                          authority. In New Zealand the Energy
                                                   verified performance information, such
  associations.                                                                                     Efficiency Conservation Authority has the
                                                   as utility bills, and converting them into
                                                                                                    license for NABERSNZ in New Zealand.
• The Climate Bonds Taxonomy is used to            an easy to understand star rating scale
                                                                                                    The NZGBC administer NABERSNZ, which
  identify green projects and assets which         from one to six stars. For example, a 6-star
                                                                                                    in New Zealand is primarily focused on a
  are aligned with achieving the goals of the      rating demonstrates market-leading
                                                                                                    building’s energy performancee85.
  Paris Agreement. This excludes fossil fuel       performance, while a 1-star rating means
  power generation, internal combustion
  engine personal vehicles and new roads
  and infrastructure that facilitate their
  movement, and freight rail that is primarily   Climate Bonds Taxonomy and                         • Uses best practices for internal controls,
  used for fossil fuel transportation.           the Climate Bonds Standard &                         tracking, reporting and external review.

In 2017, a survey by the Investor Group
                                                 Certification Scheme                               • Finances assets consistent with achieving
on Climate Change of Australian and              The Climate Bonds Taxonomy features eight            the goals of the Paris Climate Agreement.
New Zealand investors - with funds               climate-aligned sectors (see Annex 1). The
                                                                                                    The certification of eligible projects and
representing over AUD328bn in AUM -              purpose of the Taxonomy is to encourage
                                                                                                    assets requires independent verification
found that for setting strategy and              common broad ‘green’ definitions across
                                                                                                    of the assets’ climate credentials against
pursuing low-carbon investment, over             global markets in a way that supports the
                                                                                                    the Climate Bonds Standard and relevant
half of all participants in the Australian       growth of a cohesive green bond market.
                                                                                                    Sector Criteria. The Criteria provide eligibility
survey indicated that they were using
                                                 The Climate Bonds Standard & Certification         conditions or thresholds which must be met
their own methodology for defining
                                                 Scheme is used to provide a Fairtrade-like         for assets to be in line with a rapid trajectory
green investments, followed by the Low
                                                 labelling scheme for bonds and other debt          towards a 2050 zero-carbon future. The
Carbon Investment (LCI) Registry (24%)
                                                 instruments. Certification means that the deal:    criteria are developed based on climate
standards and the Climate Bonds Initiative
                                                                                                    science by technical expert groups with input
standard at 11%82.                               • Is fully aligned with the Green Bond
                                                                                                    from industry.
                                                   Principles or the Green Loan Principles.

Australia & New Zealand GIIO Report Climate Bonds Initiative                                                                                      13
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