ICPF green portfolio and loan could point the way to market evolution
Investa Commercial Property Fund (ICPF) has closed a A$170 million (US$122.3 million) green loan having tagged its entire asset portfolio against the Climate Bonds Initiative (CBI) low-carbon-building criteria emission thresholds. The facility is bilateral with ANZ, but the borrower says green loans should be able to find new liquidity and pave the way for more downline green-bond issuance.
The ICPF portfolio comprises 15 investments and A$5.1 billion in assets under management. The CBI criteria the fund has benchmarked its assets against require portfolio assets to perform in the top 15 per cent of buildings in their city for carbon intensity.
Taking a portfolio approach rather than tagging specific assets as suitable for green issuance gives ICPF significant scope to issue further labelled green debt. Jason Leong, ICPF’s Sydney-based fund manager, explains: “The entire portfolio has been tagged against the criteria in order to maximise flexibility in issuing future green debt and clarification of use of proceeds from debt funding. Technically this does mean an increasing portion of ICPF debt could be certified in the future.”
The fund is not making firm commitments in this respect, though. Leong tells KangaNews there is no target for green debt as a proportion of the overall book – only that it is “open to pursuing green-debt opportunities in the future”. Neither, the fund says, was there a pricing benefit to signing a labelled green loan.
The entire portfolio has been tagged against the criteria in order to maximise flexibility in issuing future green debt and clarification of use of proceeds from debt funding. Technically this does mean an increasing portion of ICPF debt could be certified in the future.
The purpose of certifying bank debt for the borrower is twofold. First, says Nina James, general manager, corporate sustainability at Investa Property Group (Investa) in Sydney: “The benefits for Investa are certainly about industry leadership and demonstrating our full commitment to a net-zero transition. Pursuing green debt is very much about aligning our values and business practices.”
The other potential benefit is incremental liquidity. James says having a green debt portfolio gives ICPF “the ability to tap into new green-loan financiers”, and the company expects other banks to follow ANZ’s lead by making funds available specifically for green labelled debt in Australia.
Ivan Gorridge, Investa’s Sydney-based chief financial officer, explains: “Investa aims to prompt and support the development of financial innovation that helps the transition to a lower-carbon economy. While this transaction is a bilateral, we know there is increasing appetite among banks for the finance of ‘green’ assets – take the demand for finance of grid-scale renewables, for instance.”
The growth of the Australian green-bond market is adding fuel to banks’ desire to identify and lend to green assets. Gorridge continues: “Some banks simply want to demonstrate their green credentials to stakeholders, while others incorporate green bonds into their own treasury programmes and therefore need to write green loans to underpin their own issue of green bonds. The green loan, which limits use of proceeds to green purposes, helps with each of those aims.”
Gorrdige says Investa “strongly expects” other banks will follow ANZ, to the benefit of the company and other businesses with green assets.
Some banks simply want to demonstrate their green credentials to stakeholders, while others incorporate green bonds into their own treasury programmes and therefore need to write green loans to underpin their own issue of green bonds. The green loan, which limits use of proceeds to green purposes, helps with each of those aims.
The ICPF loan is Australia’s first green use of proceeds loan. In December last year, Adelaide Airport closed a A$50 million sustainability performance loan – also with ANZ as the lender – that offers the borrower a pricing incentive to meet sustainability performance targets measured by Sustainalytics.
Katharine Tapley, head of sustainable finance at ANZ in Sydney, explains that a key difference between the two facilities is that Adelaide Airport’s is a general corporate purposes loan tied to corporate sustainability performance, while ICPF’s requires proceeds to be used to fund verified green assets.
“[The ICPF loan] is the first time an Australian borrower has executed this kind of labelled and certified green loan,” Tapley confirms. “It is also the first borrower to have done both a labelled and certified green bond and a green loan. It expanded its existing green-bond framework to cover green loans to do this, which will also give it the ability to fund the entire ICPF business via the green bond and loan market going forward.”
James confirms that the same process applies to asset approval for green loans as it does for bonds, and says the CBI certification programme for commercial buildings is “clear and simple to use”.
This enabled ICPF to take the next step from its existing position as the pioneer of corporate issuance in the Australian green-bond market. Investa Office Fund was the first such issuer, printing A$150 million of seven-year green bonds in March 2017. These notes were later bought back in the course of a takeover transaction.
ICPF has also printed a green bond: A$100 million of 10-year notes priced in April 2017. Leong confirms that the fund is open to returning to this market in future.
investing with impact Yearbook 2018
KangaNews's latest supplement focusing on sustainability in the Australian fixed-income market.