TCorp aims to make it easy for investors with sustainable finance delivery updates

New South Wales Treasury Corporation (TCorp) and its partner agencies in the New South Wales (NSW) government have ensured that the state’s sustainability bond programme is run to standards considered to be higher than most. This means how we administer our asset pool, what is admitted to and how assets exit the pool go above minimum standards – we want to set ourselves apart in the sustainable debt market.

Let me illustrate. On maturity of a bond, portions of assets attached to the bond leave the pool permanently and are not re-invested. There is a strict two-year look-back period – how far back we can reach into the past for eligible projects – along with restrictions on look-forward windows.

While our framework permits us to finance new expenditure, we only consider projects where money has already been expended. This helps de-risk the programme.

Having high, robust standards as well as rigorous governance is vital in a competitive marketplace. It allows us to differentiate ourselves and enables investors to report to their members and clients.

The NSW sustainability bond programme’s asset pool is skewed toward green assets, driven by transport assets that are large in dollar terms. In recent years, though, there has been an increased focus on social assets, particularly housing and schools – however, these assets are smaller in comparison. The programme has nonetheless evolved and as at 30 June 2024 the total value of bonds on issue under it was A$11.9 billion (see chart).

From our investor liaison, we are aware that there is a desire for larger, more liquid bond lines. TCorp has therefore elected to showcase these social assets as part of sustainability bonds rather than issuing smaller, more bespoke socially labelled bonds.

Sustainability initiatives were also at the heart of the recent NSW budget, in which the government projected A$6.1 billion (US$4.1 billion) in further social housing investment over four years, including the funding of 8,400 new social homes and additional funds to the Aboriginal Housing Office to support capital maintenance.

The A$183 million Aboriginal Housing Stimulus 2022 programme – a new social asset – was added to the NSW sustainability bond programme asset pool last year, expanding its focus on affordable housing.

Transport represents a significant amount of the government’s A$119 billion, four-year infrastructure initiative and we are currently exploring adding further assets to the programme pool this financial year. Engaging with government agencies to identify eligible assets is vital to driving growth in the programme.

As the NSW government continues to embed sustainability practices across its activities, it will enable TCorp to remain a material market player in sustainable issuance. Over the years, we have diversified the investor base of the programme and attracted orders from funds that are restricted to investments in sustainable products.

Issuance using the sustainability bond programme has pivoted over the past year and a half. The seasoning that has occurred since its inception in 2018 is now making it more closely mirror how we execute our core funding activities off the benchmark bond programme.

All issuance formats – syndication, reverse enquiry and tender – are now used for sustainability bonds, ultimately providing additional opportunities for investors to access the programme. TCorp intends to maintain an environmental, social and governance (ESG) curve and will primarily focus on a smaller number of bond lines outstanding. These will grow over time, while TCorp will periodically add new lines as existing bonds shorten and ultimately mature.

Use of proceeds bonds continues to dominate labelled issuance but a wider array of frameworks is now being used around the world. TCorp continually monitors market developments to assess the potential suitability and relevance of these options for the NSW sustainability bond programme. 

So far, I would characterise this as an evolution, But this is not to say that something revolutionary will not come to the fore.

Meanwhile, in March 2024 we welcomed the NSW’s government’s launch of the of the sustainable finance website (click here). This is the ultimate destination for bond investors and a platform for the NSW sustainability bond programme, providing an extensive and valuable resource in the Australian market. 

A constant theme from investors and other market participants is that the level of data and information they receive at sovereign level has been adequate but is a more difficult task at the subsovereign level. The NSW government realised it needed to bridge this gap, given ESG scoring is increasingly occurring at whole-of-state level.

The NSW sustainable finance website has a myriad of resources, including policy, progress toward net zero, the sustainability bond programme and data packs – everything bond investors and analysts need to make an informed assessment of the state. 

This resource is vital in an era in which there is significant focus on sustainable finance and also growing competition in the sustainable issuance segment across the Australian government sector.

This is just one element reflecting the level of partnership across the NSW government family, which underpins the NSW sustainability bond programme and aids its ongoing growth and development (see box).