Global standards and harmonisation

Global efforts are underway to create a common language and standards for sustainable finance, with the EU taxonomy perhaps the biggest development in this space so far. Australian market participants recognise the value of harmonisation but also say it has finite boundaries.

SWISS Will the EU taxonomy report be helpful in addressing issues around reporting and verification?

CHO The interesting part of the EU taxonomy is that it is much more prescriptive as to what the benchmarks for sustainability will be in a variety of sectors.

However, all the parameters used are EU scenarios that focus on the EU economy. While they are useful benchmarks it is important to note this point when assessing direct applications in the rest of the world.

At the International Capital Market Association (ICMA) green-bond principle and the Loan Market Association level, where there is voluntary standard setting, there are a lot of considerations around what it means when different jurisdictions are coming up with different regulatory factors for sustainability. What has been set strictly in one region does not necessarily apply to the rest of the world.

GANDOLFO We receive a lot of questions around different standards we use. There are many standards and initiatives across many markets. However, fundamentally the ICMA and Climate Bonds Initiative standards are the key reference points for green bonds and loans. There is sometimes a misconception that there may be too many. There are key reference points and others that are less important.

More than 30 countries’ central banks are involved in the Network for Greening the Financial System (NGFS). They are actively talking to each other to look at harmonisation for green and sustainable finance. Just recently, the Bank for International Settlements joined this group so it will be interesting to see where this goes.

It is good to have some harmonisation, but local context is very important as well. If you look at the several hundred pages of recently released draft EU sustainable-finance taxonomy documents, it is very EU-centric. What works there is not necessarily appropriate in another markets.

JOSH GOLDING

IT WOULD BE BEST FOR AUSTRALIA TO HARMONISE WITH THE REST OF THE WORLD TO THE GREATEST EXTENT POSSIBLE. WE OPERATE WITHIN GLOBAL FUNDING MARKETS AND THE MORE WE CAN KEEP OUR PRACTISES CONSISTENT WITH THE REST OF THE WORLD THE EASIER IT WILL BE FOR FUTURE TRANSACTIONS.

JOSH GOLDING ADELAIDE AIRPORT

GOLDING My view is that it would be best for Australia to harmonise with the rest of the world to the greatest extent possible. We operate within global funding markets and the more we can keep our practices consistent with the rest of the world the easier it will be for future transactions.

LARKIN While harmonisation is useful we are all used to the fact that the Australian bond market is different from the euro market, the 144A market and so on. If you are raising money in a particular place it is the rules of that location that ultimately apply. I don’t think a lack of harmonisation should necessarily stop issuers from accessing markets for sustainable financing.

BRADBURN All markets rely on trust and harmonisation is a proxy for this, but it is not the only way. We need to play a part. Sydney Airport and Adelaide Airport have done an excellent job in starting this process but the more consistent we are in Australia the better. Ideally there would be harmonisation with Europe, and if that happened there is no reason why it could not even involve them adopting some of our standards.

MOMDJIAN Harmonisation is good but it is equally important to define best practice. Standards develop a baseline level of trust, but we want to know how we can structure sustainable-financing products to develop a deeper level of trust.

It was very important to ensure that our sustainability-linked loan (SLL) was as ‘dark green’ as possible. This involved partnering with many lenders, including a financial disincentive in the event of deterioration in sustainability performance, basing the SLL off a holistic performance measure, having performance assessed by an independent third party and ensuring alignment to the sustainability-linked loan principles (SLLPs) to name a few.

GANDOLFO The SLLPs and further efforts around guidance for the market will be very healthy, combined with more progressive transparency over time. More transactions mean more reference points – which should drive market growth.