Long-term sustainability vision drives TCorp’s report and market return
As a growing group of borrowers become seasoned issuers in the green, social and sustainability (GSS) bond market, participants’ attention is increasingly turning to ongoing reporting on use of proceeds and sustainable assets. New South Wales Treasury Corporation (TCorp) took a lead position on reporting in October and followed a few weeks later with a second GSS bond.
KangaNews spoke with Fiona Trigona, Sydney-based head of funding and balance sheet at TCorp, about the strategy behind the annual report and the evolving GSS bond space in Australia.
TCorp to provide liquidity for its latest GSS bond
New South Wales Treasury Corporation (TCorp) says it will provide liquidity in its latest green, social and sustainability (GSS) bond and believes growing liquidity in the asset class is its next evolutionary phase. TCorp’s A$1.8 billion (US$1.2billion) sustainability bond is the issuer’s second foray into the GSS bond space, following a A$1.8 billion green bond last year.
Our coverage of the GSS bond market has tended to focus on issuance, though issuers often say follow-on reporting is equally important. How important is the annual report in the context of an ongoing GSS issuance programme?
In recent years, investors have become more sophisticated with their ESG [environmental, social and governance] and SRI [socially responsible investment] mandates and are asking more detailed questions. They expect to see issuers periodically report on the impact of their investments – that is, what outcomes are being delivered by the projects earmarked to the GSS bond.
How did you settle on the format of the report and the specific content? In particular, are investor expectations reasonably uniform when it comes to ongoing reporting or did TCorp find itself trying to respond to investor demand for reporting in various formats and in line with various standards?
We also thought it was important to highlight what the NSW government is doing in sustainability, provide context on the rise of green bonds here and overseas, and show our strong governance structure.
The move to sustainability-bond issuance from green bonds involves the inclusion of social as well as climate-related investments. Will any changes to reporting be required to account for the social side of the asset pool?
How did investors receive the debut sustainability report on your latest deal roadshow?
Specific feedback depended on where investors are sitting on the ESG spectrum. Impact reporting was crucial for most investors, particularly those with specific ESG mandates. The level of detail required by the ESG-focused investors included understanding the state and government agencies’ strategies in incorporating climate-change risk in their decision-making processes.
To what extent did global standards give guidance for TCorp when it was developing its annual report – for instance around reporting of carbon offset and emissions reduction?
Would a specific national reporting or measurement standard be helpful or is Australia better off following emerging global norms?
Given we issue to a global investor base, global norms are more easily understood by a wider range of investors. But this does not preclude us looking at domestic standards as we acknowledge that some of our assets may be unique.
Producing a detailed annual report is presumably another cost item. Will issuers continue to bear all the associated costs of labelled GSS issuance?
This year, our issuance programme is A$13.3 billion [US$9 billion] – much larger than recent years, where it’s been an average of around A$5 billion a year. Having a larger funding task means we need to find other ways to source new money, and we believe the ESG space is a way we can achieve diversity thanks to the growing demand for these bonds.
What is the potential scale of sustainability-bond funding you think you could do as a proportion of your overall funding?
Some issuers believe GSS bonds could reduce liquidity in the mainstream curve. What is TCorp’s view?
Have you had any feedback from investors around key state assets being ringfenced for sustainability bonds, leaving vanilla bond investors with the ‘brown’ assets?
Currently there are eight green and two social assets earmarked against our two GSS bonds, so I would say that the majority of the state’s key assets are still being funded by our vanilla bonds.
While a large percentage of projects funded by the state could relate to green or social, investors expect impact reporting to be done on projects linked to specific GSS bonds.
Does the shift to issuing sustainability bonds mean there will be no further green-bond issuance by TCorp given the flexibility in eligible assets afforded by the former?