Green Bonds Australia
Green bonds are basically issued to provide financial support for specific projects that are particularly beneficial to the environment. The standardized definitions for green bonds are still in a developmental phase. Therefore, classifications may vary amongst issuers depending on individual sustainability frameworks. Investors and issuers have tended to assess a green bond’s credibility based on voluntary guidelines developed by international non-profit organizations. The International Capital Market Association’s ‘green bond principles’ are built broadly on four main criteria, such as:
• The funds raised through green bond issuance should have a clear pathway for environmental benefits.
• The issuer should disclose the project evaluation and selection process.
• The issuer should provide a transparent and visible way for investors to track the allocation of funds, including how the funds are being used on the project.
• The issuer should publish annual reports and highlight all the relevant aspects of the issuance purpose.
The main purpose of the green bond principle is to take control of "greenwashing," which means misrepresenting the bonds as greener than they really are.
The Australian green bond market size is comparably smaller than the total fixed-income issuance. As per the Australian government report, approximately $13 billion of green bonds were issued in the first half of 2023.
Australian green bonds are issued by the following:
• Australian state treasury corporations
• Major Australian banks
• ‘Kangaroo issuers’ are non-resident organizations that issue bonds denominated in Australian dollars.
The share of green bonds issued in the domestic market has been high and largely driven by issuance by state treasury corporations and kangaroo issuers. The green bonds are primarily issued by financial corporations in offshore markets. The Australian government has a plan to launch sovereign green bond issuance in the middle of 2024.
It has been observed in the international markets that green bonds can attract investors at lower yields than their non-green bonds, which indicates that the investors are willing to pay a higher price for green securities, a so-called ‘Greenium’. A comparable study has been conducted in the secondary market for green and non-green bonds issued by AAA-rated kangaroo issuers. The data outcome concluded that there was some evidence of a small Greenium for AAA-rated kangaroo bonds.
The green bond markets are less liquid compared to their conventional counterparts, which implies that their tradability is lower on secondary markets.
(Graphic Source – Company Reports)
Frequently Asked Questions (F.A.Q)
What is green bond in Australia?
Bonds are basically debt instruments. When the word green implies a bond, it defines a special category of bonds that an institution issues for the purpose of financing projects that contribute positively towards environmental development.
What are the disadvantages of green bonds?
The credibility of the issuer of this kind of bond is a question mark. The issuer of the bond uses the proceeds to finance projects that might harm the environment. There is a lack of ratings and rating guidelines.
Who is the issuer of a green bond?
Australian green bonds are issued by the following:
• Australian state treasury corporations.
• Major Australian banks.
• ‘Kangaroo issuers’ are non-resident organizations that issue bonds denominated in Australian dollars.
What is the difference between green bond and conventional bond?
There is a marginal difference between the green bond and the conventional bond. Green bond proceeds are used for environmental purposes, whereas non-green bond proceeds are not.
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