Australia is seeking to join peers like France, Germany, and Italy in allocating capital towards environmental goals or climate-related projects with the launch of its first Treasury green bond this year, and a potential exchange-traded green Treasury bond in 2025.
Local fund managers said they are “encouraged” by this eagerly awaited move, which saw the Australian government publish a green bond framework in December 2023, outlining the basis for identifying, selecting, managing, and reporting on expenditures financed with green bonds, and the government’s key climate change and environmental priorities.
This framework, aligned with international standards, will ensure bond proceeds will be directed toward projects that genuinely contribute to sustainability objectives, according to Betashares’ Greg Liddell.
“For ethical and responsible investors, this will ensure capital is deployed to projects that align with their values, while also achieving an investment return,” the responsible investments director explained.
“This issuance of a Treasury green bond will allow ethical and responsible investors to add exposure to 10-year Australian Treasury bonds, while also ensuring the proceeds are used in ways that align with their values.”
Ahead of the bond issuance, a four-week investor roadshow is scheduled to commence in April 2024, with the government mandating Commonwealth Bank of Australia, Deutsche Bank, National Australia Bank, UBS AG Australia Branch, and Westpac Banking Corporation as joint lead managers.
The roadshow will include one-on-one meetings with investors, both in-person and virtual, across two teams who will travel across Australia (Sydney, Melbourne, and Brisbane) and then move overseas to Singapore, Japan, the UK (London) and wrap-up with a European leg (Paris, Frankfurt, Switzerland, and Milan).
The government confirmed there will be two weeks set aside for virtual meetings, to be offered to investors in North America and other locations, and to cover investors missed in the in-person meetings.
A syndicated transaction is expected to follow shortly after the conclusion of the roadshow.
According to Liddell, the issuance of the Treasury green bond will “create increased global interest in Australian dollar-denominated green bonds and encourage state governments and corporates to expand their own green bond programs”.
Already, various Australian states have issued their own green bonds, such as Victoria in July 2016, and more recently, Western Australia in June 2023.
However, Australia has held a perception of being a “climate laggard” due to its burgeoning mining and energy sectors, and the staggered issuance of this bond, compared to global peers, could prove challenging in terms of credibility, fund managers agree.
Last year, Tamar Hamlyn, portfolio manager at Ardea Investment Management, observed that although there’s every expectation the bond will perform well, given it’s the first one of its kind being issued, and there’s a backlog of demand, there remains some room for doubt.
Speaking on a Fidante podcast, Hamlyn elaborated: “There’s a very, very small probability, though, that a large group of international investors might look at this bond and say, ‘Look, we’re not satisfied with Australia’s climate credentials. We’re not satisfied with the enabled emissions from Australia’s resources exports’, and they might actually take a different view on this particular bond.
“That’s not necessarily the end of the world – international investors are one part of the investor pool that buys this bond – but it’s something people will be looking at very closely as issuance approaches.”
The inaugural sovereign green bond is likely to be issued in June 2024 and will mature in June 2034.
It will be issued by the Australian Office of Financial Management (AOFM) on behalf of the Australian government.
Meanwhile, a timeline has yet to be set on exchange-traded green Treasury bonds for retail investors, although the AOFM said they are expected to be available in 2025.
