Green Infrastructure Investment Opportunities - AUSTRALIA & NEW ZEALAND - Climate Bonds ...
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Green Infrastructure Investment Opportunities AUSTRALIA & NEW ZEALAND Sponsors
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.
Australia & New Zealand GIIO Report Climate Bonds Initiative 2
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.
Australia & New Zealand GIIO Report Climate Bonds Initiative 3
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.
Australia & New Zealand GIIO Report Climate Bonds Initiative 4
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
Australia & New Zealand GIIO Report Climate Bonds Initiative 5
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
Australia & New Zealand GIIO Report Climate Bonds Initiative 6
“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 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
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
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 11The 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 12Green 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 13You can also read
