Australia
Green finance country briefing

New ZealandAugust 2018

Total green bond issuance: Australia AUD8.3bn (USD6.3bn), New Zealand NZD2.1bn (USD1.5bn)
2018 issuance in Q1 and Q2: Australia AUD2.6bn (USD1.95bn), New Zealand NZD200m (USD136m)
Growth expected particularly from green RMBS in Australia and renewable energy in New Zealand

Green bond markets growing under different policies
Australian entities* were early issuers of green bonds – the first in
the Asia-Pacific region – and have been important players eversince. The Australian green bond market has been driven by thebanking and real estate sectors since the first deals in 2014.

Australia and New Zealand are important players in
the Asia-Pacific region

New Zealand issuers entered the market in 2017 with a Certified
Climate Bonds programme. Australia and New Zealand areleaders in best practice and Certification under the Climate
Bonds Standard.
Australia and New Zealand are characterised by small populations,high GDP per capita and well-developed capital markets. Australia
also benefits from a AUD2.6tn superannuation market. While bondmarkets, particularly corporate bond markets, remain small in bothcountries, their green bond markets are growing.
In terms of climate policy, New Zealand and Australia are in contrast.
Little progress has been made in Australia since the government
signed the Paris Agreement in 2015. Competing narratives aroundemissions reduction and energy issues have hindered green
investment, particularly in the energy sector. New Zealand, on theother hand, has committed to carbon neutrality by 2050 and islooking at mechanisms to phase out fossil fuels.
However, policy is not the whole picture. Despite an unfavourable
policy backdrop, Australian banks, sub-sovereigns and corporate
issuers have been global and regional leaders in the green bondmarket. Australia was the second largest cumulative source of
issuance within the Asia-Pacific region in H1 2018 and 12th in theworld, outpacing even large bond markets like Japan.
Australia has also emerged as a best practice model of market
development with commitment from the major banks, a diversity ofissuers and high levels of certification, which requires ongoing impact
reporting. Such features are key to investor confidence anddemonstrate leadership to new markets.

Note: Figures show cumulative issuance up to 30 June 2018

Australia and New Zealand are global leaders incertification under the Climate Bonds Standard

The nascent New Zealand market has shown encouraging signs of
implementing best practice from the start. Neither nation has time torest on their laurels – if climate targets are going to be met, scale,market depth and increased corporate participation is required.

Australia
The first Australian entities* to issue green bonds were Stockland
and NAB in 2014. They became two of only a handful of corporations
worldwide to have issued green bonds and set the tone for themarket. While still small in absolute terms, the market has continued
to innovate and lead in the green bond space.

* Methodology: This report covers issuance from entities with Australia as
their country of risk. AUD Green Bonds were introduced to the Australianmarket by development banks before 2014 but are not included in this report.

Australia and New Zealand Briefing Climate Bonds Initiative – August 2018

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AUSTRALIA AND NEW ZEALAND BRIEFING
Financial institutions have driven market growth, with the four
major banks – NAB, ANZ, Westpac and CBA having issued Certified
Climate Bonds. The importance of these banks cannot be
understated. Between them, they account for approximately 27% of
the market capitalisation of the ASX1001, and hold about threequarters of the AUD4.6tn in assets held by Australian deposit-taking
institutions.2 Their role in providing finance for a low carbon
transition through green bonds, green loans and underwriting is
pivotal. As green underwriters the banking sector is a source of vital
support for other new issuers advising on the green issuanceprocess, market conditions and investor appetite.
The role of sub-sovereigns is becomingly increasingly important.
The first local government green bonds from Treasury Corp ofVictoria (TCV) (2016) and Queensland Treasury Corp (QTC) (2017)
were raised to finance a range of transport, water, buildings andenergy projects. Both states have provided new impetus to themarket and are building on the foundations laid by the banks. Early
government entry into developing domestic green markets provides
other potential issuers with proof of concept. By adopting global
best practice on certification and disclosure, both Queensland andVictoria are reinforcing a high benchmark for other issuers to follow.

Banks and sub-sovereign issuers are driving theAustralian green bond market

Proceeds are financing energy, transport, buildings

100% of issuance has received an external review with 85%
Certified Climate Bonds, demonstrating market best practice.
Internationally, Australia is a leader in certification under the Climate
Bonds Standard with 12% of global certified volume, making it thethird largest source of certified issuance after China and USA.
Renewable energy dominates use of proceeds but transport
projects are attracting increasing green bond funding. Energy
projects primarily comprise wind and solar developments such as
the Sunshine Coast Solar Farm (QTC bond). Recent growth in windand solar projects may be collateral for future bank green bonds.

53% of issuance is AUD-denominatedGreen buildings projects have been a consistent part of the market
due to the strength of the NABERS and Green Star certification
schemes. Transport is a growing proportion of the allocation mix due
primarily to the two sub-sovereign bonds (95% of the first QTC bond
was allocated to transport projects).
It’s not just corporate and sub-sovereign bonds. FlexiGroup,
through Flexi ABS Trust 2016-1 issued a AUD50m tranche as part ofa wider securitisation deal, earmarking the green tranche proceeds
on loan receivables from residential rooftop solar PV systems. The
non-bank lender returned to market with two further deals in 2017and 2018, including the first subordinated green ABS tranche in the
Flexi ABS Trust 2018-1 transaction.
Leadership has also emerged from the tertiary sector with Monash
University marking a world first with their 2016 AUD218m green
bond in the US private placement market. Westpac has also issued
offshore: Uridashi bonds for Japanese retail investors.

Medium term bonds dominate but longer tenors
are becoming more common in Australian

In 2018, NAB initiated a global first with its Low Carbon Shared
Portfolio Notes which give investors access to a portfolio of eightloans originated by NAB under its Certified Climate Bonds
programme and secured on existing wind and large-scale solar
projects in Australia. As part of a GBP2bn loan facility, Macquarie
Group issued two tranches totalling GBP500m to support renewableenergy projects initially and a wider range of green projects in the
future. The growing diversity of products appeals to a range ofinvestor types and is an indication of a maturing market.
53% of Australian bonds are denominated in AUD while the rest
are issued in EUR, GBP and USD. Large offshore deals included NAB’s
2018 USD750m deal – the largest Australian green bond to date andthe Westpac’s EUR500m bond in late 2017.
Australia and New Zealand Briefing Climate Bonds Initiative – August 2018

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AUSTRALIA AND NEW ZEALAND BRIEFING
Longer tenors are emerging across the Australian bond market
due, in part, to the 2016 issuance of the first 30-year Australian
government bond in recent times.3 It attracted widespread interest
from investors across the world and opened the door for longerdated domestic issuance. The green bond market has been no
exception with some long tenor bonds like Monash University (25years) and an average tenor of almost 9 years.

future debt and was certified under the Geothermal Criteria of
the Climate Bonds Standard. Eligible debt under the Programmecurrently amounts to NZD1.8bn (USD1.4m).

A range of other social and environmental products abound. While
not covered by this report, they demonstrate the strength in demand
for a range of ESG-based fixed income investment products such as
the NAB Social Bond (Gender Equality) and their ground-breaking
SDG Green Bonds, ANZ’s SDG Bond, Newpin Social Impact Bond andthe Australian Catholic University Sustainability bond.

New Zealand
New Zealand is a relatively recent entrant to the green bond market
with the first instrument issued in 2017 by Contact Energy. The Cityof Auckland followed in mid-2018, raising market awareness andbringing total issuance to USD1.5bn.

Certifying an entire programme provides flexibility to Contact
Energy as it allows it to refinance and raise new debt at any time,using a variety of debt instruments such as public and private
placement bonds, retail bonds, term credit facilities, an export
credit line and a commercial paper programme.
The City of Auckland broke new ground in 2018, becoming thesecond green bond issuer in New Zealand with its NZD200m deal
in June. The bond will finance electric trains and related
infrastructure.
The Auckland bond was also notable for its inaugural listing on
the NZX, a pointer to future green secondary market possibilities
if local issuance volumes grow.

More on Australia and New Zealand
The Green Infrastructure Investment Opportunities Australia &New Zealand report identifies a pipeline of green projects inboth countries and provides references cases.

A world first “Green Borrowing Programme” was launched bypower utility Contact Energy in late 2017 to fund its geothermal
power generation assets. The programme includes existing andGreen bond issuers to date
Country

IssuerIssuedamount 1
AUD 600m

First issuedate
Jun 2015

External
review 2
Certified

Use of proceeds summary

Australia

ANZ Bank
Commonwealth Bank ofAustralia
FlexiGroup (via ABS entities)

AUD 650m

Mar 2017

Certified<1%

AUD 181m

Apr 2016

Certified

Energy (wind), buildings,
transport
Energy (solar)

Investa (2 property funds)

AUD 250m

Apr 2017

Certified

Buildings

8%

Macquarie Group (loans)

AUD 880m

Jun 2018

SPO

4%

Monash University

AUD 284m

Dec 2016

Certified

Energy, waste management,
buildings, transport
Energy (solar), buildings

NAB and 2 related entities

AUD 2.5bn

Dec 2014

Certified

Queensland Treasury Corp.

AUD 750m

Mar 2017

Stockland Trust Management

AUD 461m

Treasury Corp Victoria
Westpac Banking Corp

Energy (solar, wind), buildings

GB as % of
all bonds 3
1%

N/A

N/A
2%

Certified

Energy (solar, wind, marine),transport, buildings
Energy (solar), transport

Nov 2014

SPO

Buildings

26%

AUD 300m

Jul 2016

Certified1%

AUD 1.5bn

Jun 2016

Certified

New Zealand Contact Energy (programme)4

NZD 1.8bn

May 2013

Certified

Energy (solar, wind), buildings,
transport, water
Energy (solar, wind), transport,
buildings
Energy (geothermal)

N/A

Auckland Council

NZD 200m

Jun 2018

Certified

Transport

3%

1%

1%

Notes: 1. Issued amount reflects AUD or NZD equivalent regardless of currency of issue. 2. “Certified” denotes a green bond which has been Certified under
the Climate Bonds Standard and sector specific criteria. More information on certified bonds is available on the Climate Bonds Initiative website. 3. Amounts
are calculated as a percentage of total debt for the issuer listed on Thomson Reuters EIKON. In some cases, this information is not available or not listed, e.g.
private placements and loans in the case of Contact Energy and Monash University. 4. Certified in 2017, the programme includes existing and future debt.

Five talking points for future issuance
Climate-aligned issuance indicates opportunities inthe energy and transport sectors
The Climate Bonds Initiative identifies potential green bond issuersby surveying current bond issuers across the world and determining
which of them derive a significant proportion of their business fromgreen activities. The results are summarised in our annual Global
State of the Market report.

This year’s research has identified potential issuers in the rail
sector in Australia including Reliance Rail and Aurizon Network.
As their debt is refinanced, it could be relabelled as green toincrease its visibility and discoverability for domestic andinternational investors with an ESG mandate or interest.
In New Zealand, potential issuers were identified in the energy
sector due to the high proportion of energy generated fromrenewables. These include Meridian Energy and Mercury NZ.

Australia and New Zealand Briefing Climate Bonds Initiative – August 20183

AUSTRALIA AND NEW ZEALAND BRIEFING
Could green RMBS unlock scale for the Australianresidential property market?
The RMBS market in Australia showed record growth with a total
issuance of AUD33.5bn in the 2016/17 financial year, up 45% on
2015/16. This compares to AUD10.6bn in debt issued by nonfinancial corporates in the same period.3 Given building codes inmost states, there is huge potential for green loans to be aggregatedinto RMBS deals. The NRMBS 2018-1 green tranche (NAB) is secured
on residential mortgages which meet Climate Bonds criteria.
The Climate Bonds Criteria for Low Carbon Buildings in Australia use
Australian building codes and energy ratings certification schemes asproxies for Certification. This provides a streamlined process topackage potential loans and pave the way for growth in green RMBS.

The Climate Bonds Initiative has convened expert groups inwater, agriculture and climate resilience to develop best practicefor future investment in these sectors.
Can green bonds help in Australia’s recycling crisis?
Australia has long had high recycling rates – just over 50% ofhousehold waste is recycled – but until recently most of this was
being exported to China for processing. In July 2018, China
announced that the import of waste will be banned, throwing
local councils into turmoil as they seek alternative options toprocess material locally. While it may be a short-term crisis, inthe longer term, there will need to be large investment in theindustry, much of which could be financed by green bonds.
Australia’s superannuation fund market will underpin
growing demand for green bonds

How can green bonds help in Australia’s drought?
The need for climate-resilient water infrastructure is in the spotlightas Australia’s eastern states suffer one of the worst droughts inhistory. Climate modelling predicts that climate change will result ina long-term reduction in rainfall in SE and SW Australia.4 Greenbonds can be used as a tool for federal or state governments to raisefinance to introduce water saving and management measures as
was done by South Africa’s City of Cape Town in 2017.
It is important that the definitions are clear. While short-term funds
for drought relief are important now, green bonds should financeinfrastructure and systems that increase long-term resilience.

The superannuation market stands at approximately AUD2.6tn
with about 25% of it invested in fixed income.5 This is lower
compared to Canada (40%), UK (45%) and South Korea (95%).
Simultaneously, many Australian funds are seeking more ESG
based investment opportunities providing ongoing demand 6 forgreen issuance. As funds respond to the Task Force on Climaterelated Disclosures and climate risk issues7, institutional pressure
will grow on local companies to reflect the brown to green
transition in their business plans and capex decisions driving
further green issuance from the ASX100 and ASX200.

Conclusions and next steps
Green bond markets across the world have grown in different ways.
In the US and much of Europe, the market kicked off in the absenceof policy or regulatory measures and has been spurred on bymarket infrastructure such as green bond funds and green index
listings. In China and India, the market was stimulated from the top
down – guidelines were put in place by regulators which thenencouraged issuers to enter the market. Closer to home, SE Asia
has seen multiple national policy decisions from Hong Kong to
Malaysia to Indonesia to promote green finance. The ASEAN Green
Bond Standards are another indicator of regional direction.
In Australia and New Zealand, green bond markets have emerged
without any formal market infrastructure or policy support due tothe active role of key issuers. Both countries will require a muchlarger pipeline of green projects and investment if they are to meettheir Paris targets. This will ultimately rely on more substantive
policy support for green projects and green finance.

In Australia, the current politics around energy pricing andsupply has led to discussions about reinvestment in aging coalplants rather than renewable energy. So, in some sectors there
is a long way to go, but there are encouraging signs too:••

In Australia, building code legislation applicable tohousebuilding in New South Wales, Tasmania and Victoria
has resulted in all new houses in those states qualifying for
certification under the Climate Bonds Standard.
In New Zealand, carbon neutrality targets are facilitating
new renewable energy projects. The NZX has also outlinedthat its future support for the green bond market may
include green bond listing segments, ETFs and guidelines.8

The local market has developed with banks and other issuers
leading by example in formulating global best practice.
Additional market infrastructure and policy support would be apositive signal to issuers and investors and spur further growth.

Endnotes: 1. https://www.asx100list.com/; 2. https://financialservices.royalcommission.gov.au/publications/Documents/some -features-of-the-australian-bankingindustry-background-paper-1.pdf; 3. https://afma.com.au/data/afmr/2017%20AUSTRALIAN%20FINANCIAL%20MARKETS% -20REPORT.pdf; 4.
https://www.ipcc.ch/pdf/assessment-report/ar5/wg2/WGIIAR5-Chap25_FINAL.pdf; 5. http://www.elri.com.au/wp-content/uploads/The-Australian-Corporate-BondMarket-Discussion-Paper.pdf; 6. https://responsibleinvestment.org/wp-content/uploads/2018/07/Media-Release-launch-of-Benchmarking-Impact-2018-FINAL.pdf; 7.
https://www.apra.gov.au/media-centre/speeches/australias-new-horizon-climate-change-challenges-and-prudential-risk; https://www.apra.gov.au/mediacentre/speeches/weight-money-business-case-climate-risk-resilience; https://asic.gov.au/about-asic/media-centre/speeches/climate-change/; 8.
https://www.nzx.com/services/listing-on-nzx-markets/debt/green-bonds

Sponsors© Published by Climate Bonds Initiative, August 2018www.climatebonds.net

Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Anyreference to a financial organisation or debt instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The
Climate Bonds Initiative accepts no responsibility for content on external websites. The Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits orotherwise of any debt instrument or investment product and no information within this communication should be taken as such, nor should any information in this communication
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instrument. It does not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws. A decision to invest in anything issolely yours. The Climate Bonds Initiative accepts no liability of any kind, for any investment an individual or organisation makes, nor for any investment made by third parties onbehalf of an individual or organisation, based in whole or in part on any information contained within this, or any other Climate Bonds Initiative public communication.

Australia and New Zealand Briefing Climate Bonds Initiative – August 20184