Time for Australian sustainable finance to step up to the plate
Clearer policy direction, the development and implementation of a local taxonomy and mandatory climate reporting, and the impending inevitability of energy transition seem set to turbo charge the Australian sustainable finance market. Speakers at the KangaNews Sustainable Debt Summit in Sydney on 19 March discussed the economic and market impact of this inflection point.
“The EU Green Bond Standard is relevant because it requires alignment of use of proceeds with a taxonomy. This introduces comparability, horizontally across jurisdictions, which will result in fair competition and an efficient market. It is only when everyone shares the same set of definitions that the investment chain will be effective.”
“The key thing I have seen in my work with regard to climate change is the effect on Antarctic krill, which is the main food source for humpback whales. If we reduce sea ice due to warming oceans, we reduce the earth’s ability to reflect the heat out and we also reduce homes for Antarctic krill. This means our recovering humpback whale populations might dwindle.”
“Recent government initiatives and the release of the Australian government’s sustainable finance strategy consultation paper offer clarity on the overarching vision for the future direction of the sustainable finance market. The strategy outlines 12 priorities, including the development of the Australian sustainable finance taxonomy, the issuance of Australian sovereign green bonds and establishing a framework for sustainability-related financial disclosures.”
“We started with a lot of projects that we thought would fit neatly into the green-bond pool. But as we delved into each of them, the project pool became smaller and smaller. It is a challenge to retrofit a green-bond programme to existing projects because these were not designed with a green bond in mind.”
“The biggest challenge in compiling our first sustainability report was coming up with meaningful KPIs. The assets in our sustainability pool are largely under construction – they are the future investments that will shift emissions. Working out how to report on these while they are in transition or under construction was a challenge.”
“The inclusion of scope-three emissions in the mandatory climate reporting regime is generating considerable discussion. While scope three has a clear role for large entities, the regime also captures ‘relatively small’ entities. A simplified disclosure regime for these smaller entities – perhaps one that allows them to report on fewer than the 15 scope-three categories proposed – will be important.”
“The good news is that global sustainable debt issuance was close to US$1 trillion in 2023 with about two-thirds in green finance – we have an ecosystem that is up and running. But we need to get to at least US$2 trillion per annum, so there is clearly a long way to go. Transition finance will be an important component.”
“When setting KPIs in newer projects, we have the luxury of taking the time to design and build in scope. This makes it much easier to discern what is achievable from the get-go. Setting targets for assets that are already in operation is far trickier – this is a very real challenge we face in our older assets.”
“One of the challenges from our SLL was lack of data, specifically for one of our KPIs on general waste. We thought everything was audited and that it was neat and tidy. But when we started unravelling how many tonnes of waste we have, we visited our nearby Campbell sites – at which point we realised the full extent of data leakage and of the information we weren’t capturing.”
“We do a lot of research to determine the impact of the digital economy on Australia. This shows that digital technologies have the potential to reduce Australia’s emissions by 9-23 per cent across industries and that the financial benefit of digitisation is expected to be more than A$56 billion per annum by 2030. It also means NBN has a significant role to play in facilitating this within our region.”
“From a private equity perspective, the thing that can hold up investors the most is tension between growth and emissions reduction. Something we learned from participating in our first SLL was how to think about the overlap of achieving sustainability targets while continuing to invest in and deliver focused business growth.”
“There is clearly a shift towards demand for renewable energy but, unsurprisingly, there is little demand for an overall increase in energy costs. The hybrid power stations we are building for miners are underpinned by 15-plus year mine lives and power purchase agreements, which support the amortisation of costs over time.”
“A large amount of APA’s earnings are from gas transportation. However, our opportunity is to support the energy transition right across our chosen markets. We are therefore focused on the decarbonisation of our own business but also our customers’ businesses and supporting customers such as miners to deliver on their objectives.”
“Funding large battery assets was a niche market to start with, led in Australia primarily by the CEFC. Although bank lenders have ventured into the space, energy storage is still not a mainstream asset class: some banks and other investors are still less comfortable with it than they are with wind and solar.”
“If we continue on our current trajectory of continual decline in nature, and the likely collapse or partial collapse of important key ecosystems, analysis by World Bank suggests that we are looking at sacrificing about 2.3 per cent of global GDP by the year 2030. This would cost about US$2.7 trillion, although the impacts will be felt unevenly. Developing countries, which have the highest dependencies on natural resources, will feel the impacts much more acutely.”
“Companies and economic institutions need to consider nature risk and incorporate it fully into their decision-making if we are to have a sustainable interaction with nature.”
“The Australian economy has a significant export base driven by the resources and agricultural sectors – and these are not covered by any other taxonomies in the world. It is important to identify sustainable opportunities in these areas at a time when the supply of many of the critical minerals Australia is endowed with needs to increase exponentially.”
“Australia will lead the world in developing a taxonomy for the resources sector, and this brings great responsibility. If we step back from the design of the taxonomy to more strategic considerations, we need to consider key target outcomes, the routes the pathways will take us on and what transition looks like.”
“The technology we need to take carbon out of major economic activity is often either not yet visible or not yet scaleable. We need a fair amount of risk taking over the next five years and we need to encourage a lot of innovation to boot. The taxonomy will play an important role to guide us to what an appropriate transition looks like.”
“In some cases, we hold significant positions in companies. What we are now trying to do is influence in a positive way – for instance by encouraging certain investments to disclose more on their climate strategies and transition goals so others can have the opportunity to take better informed investment decisions. We view climate as a systemic risk but we also believe it is an investment opportunity.”
“Slowly but surely – but, ultimately, inevitably – having more information and more data that is consistent and comparable across the board will make life easier for investors and banks to evaluate opportunities, risks and transition readiness. It will also make it easier for corporates to tell their stories.”
“Investors can start to understand, from their existing bond portfolios, where they are already financing nature – for example the many state government or supranational labelled bond projects that are nature related. If a corporate bond investor examines the footprint of their portfolio, they too will see supply chain opportunities that have biodiversity and nature exposure.”
“Nature plays out in a unique way in different locations. Organisations, starting with financial institutions, need to work through the challenging issue of locating their assets and calculating their footprint. As a very important part of the process, they need to speak to the local community about the value of nature.”
“There are rules about creating debt instruments by which organisations can borrow money to invest in sustainability strategies. But the concept of considering materiality and the ambition of nature is relatively new. Boards are asking what the equivalent of carbon emissions reduction in nature is.”
