Australia is set to launch its inaugural green bond offering this Thursday, stepping into the realm of sustainable debt as global sovereign issuances aim to reduce the cost difference between traditional and eco-friendly investments.
The Australian government plans to raise approximately A$7 billion ($4.6 billion) through green bonds with a maturity date in June 2034. This initiative will kick off following a series of promotional roadshows across Australia, Asia, and Europe, with plans to introduce additional maturities in the future.
This move places Australia among numerous sovereign nations leveraging the green finance market to access funding at potentially lower costs, thanks to the greenium—a premium for holding green debt. Despite a significant rise in the yield of Australia’s benchmark 10-year note over the past year, the appeal of greeniums is beginning to wane as sovereigns accounted for 40% of a record $187.7 billion in green bond issuances last quarter.
According to Martin Whetton, Head of Markets Strategy at Westpac Banking Corp., the discernible greenium in new issuances, such as New Zealand’s 10-year green bond, is minimal, with countries like the UK, Canada, and Germany experiencing only modest premiums. Whetton suggests that the Australian issuance might follow this trend, given the widespread existing exposure to its sovereign debt, potentially valuing the greenium at a mere 0.5 basis points.
The funds from these green bonds are earmarked for accelerating the transition to renewable energy sources, including hydro and marine energy projects. However, some investors might be wary due to Australia's status as one of the highest per-capita carbon emitters globally and its criticized emission reduction strategies.
Nonetheless, investor interest could be swayed by further details regarding the allocation of the bond proceeds, with the bond’s structure aligning with international standards likely to bolster its appeal, as noted by Philip McNicholas, a sovereign strategist at Robeco in Asia.
