KULUPPUARACHCHI We are starting to see client interest in the space pick up as spreads have somewhat stabilised at the beginning of Q3. During the first part of the year, it was hard to tell what the spread pickup for ESG bonds was in secondary as bid-offer spreads were elevated and underlying credit factors were at the forefront.

One theme we are starting to see in particular is interest in sustainability-linked bonds (SLBs). There is demand for SLBs as investors like the target- or KPI-based nature of these bonds. We have seen SLBs trading tighter to corresponding non-SLBs on corporate credit curves.

The sector is still in its infancy and the advent of a larger subset of green bonds and SLBs, and establishment of a bond ETF in the sector, will greatly aid investors’ appetite for the asset class. Our trading desk has been a net buyer of the sector and is a strong advocate for more issuance in the space.

JAMPALA The labelled bond sector globally has increased tenfold in the last five years and is now a circa US$3 trillion market, the bulk of which is green bonds. Currently, 20-25 per cent of this market is within the Asia-Pacific region. I expect this volume to increase materially in the coming years. Over the last three decades, 50 per cent of climate disasters have been in the APAC region, so there is an increasing focus on ESG.

There is an amount of ‘socium’, or social premium, at which these bonds trade to non-ESG ones. The socium is a couple of basis points, typically. There are two big impediments to defining the socium and having greater liquidity around it: perceptions of greenwashing and the lack of comparability of ESG metrics, ratings and the underlying investment approaches of firms to allow investors to draw a line between competing material.

RUSCHPLER We have two products in addition to the regular bonds we issue: green and blue bonds, and themed bonds – which includes our gender and health bonds. Demand for green bonds far outstrips supply and they trade a little tighter versus the rest of our curve because of this scarcity. We see it quite clearly on secondary broker sheets where we have one outstanding green-bond line.

This does not mean we do not see any flows in the secondary market. We do, but these flows are picked up by dealers and easily recycled into other investors with appetite for the green bond and the framework behind it.

We have more themed bonds outstanding and they seem to trade more in line with our regular curve. We have issued gender bonds more frequently of late and there are benefits when we come to the primary market to issue these. There is initial momentum from investors attracted to the label, for instance.

The themed bonds perform in the secondary market in line with the rest of our curve. While there are a couple of buy-and-hold investors for these labelled bonds in Japan, the majority trade them in line with the regular bonds we have issued.

REID Our standard is specifically the SDG [UN Sustainable Development Goals] format. They align well with ANZ’s purpose. We believe we received a pricing benefit in the euro primary market of about 5 basis points on our last couple of SDG deals.

They have also performed better in secondary and, for similar reasons, we note the deals have held together better in primary – investors are more likely to stay with us in SDG format.

We have one domestic SDG bond outstanding. This was a really important trade and it was very well received but it is not clear that we got a pricing benefit. We can see the SDG market developing in euros: it is far ahead of other markets when it comes to ESG, though we understand the gap is closing somewhat.

We have built our SDG outstandings to the point where we have become constrained on the asset side. But this issuance is doing what we hoped it would do: driving behaviour in the business to look for more of these assets.

Treasury has now passed on a pricing benefit to the businesses with eligible assets. From an asset perspective, it means the framework is doing what it is supposed to do, which is drive behaviour at the deepest level.