SYDNEY: Investors are welcoming Australia’s plans to build a sovereign green bond curve following its debut issuance this week, even as questions mount over the nation’s effort to cut carbon emissions.
Australia will price about A$7bil in green bonds maturing June 2034 today, as markets face a deluge of deals to finance projects that provide environmental benefits.
The government intends follow-on sales at different maturities, following peers including Germany and France in building out a green yield curve.
The issuance adds to a record US$294bil worth of green bonds sold globally by governments and corporates this year, an increase of 12% over the same period in 2023, according to data compiled by Bloomberg.
Sovereigns are tapping sustainable-finance markets in a bid for cheaper funding costs through the so-called greenium, or premium to hold green debt.
Investors are keen to see further maturities in sustainable debt being available.
A strong bond framework and issuing follow-up tenors are some of the reasons BNP Paribas Asset Management has a favorable view on Australia’s first green bond, said Malika Takhtayeva, sustainable fixed-income lead in London.
“We want to see this building a curve” when assessing an issuer, she said in an interview. “In some cases we’ve seen sovereigns issuing just one green bond and that’s it. This is basically marketing.”
Despite the surge, green bonds are more illiquid than their conventional peers as most investors hold bonds to maturity, according to Ardea Investment Management.
The new issuance is a welcome start, said Laura Ryan, head of research in Sydney in an interview, as the firm seeks to deepen green market liquidity so they eventually mirror more conventional debt.
Still, some investors may be hesitant to buy the bond given Australia remains among the highest per-capita carbon emitters in the world and intends to develop new natural gas fields to meet its net-zero target.
Australia’s emission reduction policies and national targets are “insufficient” in meeting its Paris Agreement obligations, according to Climate Action Tracker.
While BNP Paribas is awaiting more details on how the bond’s proceeds will be managed and allocated, Australia prohibiting its use on projects where fossil fuels may be involved is a positive, Takhtayeva said.
Buying the debt also aids investors involved in a UN-backed engagement programme to help Australia realign its emissions reductions targets with its Paris obligations, she said.
Australia has “already received quite a lot of interest” for its green bond, added Takhtayeva. “They will definitely get more attention from the European green investors.” — Bloomberg