New South Wales Treasury Corporation (TCorp), which issued a A$1.8 billion (US$1.3 billion) green bond in November 2018, provides a perfect case study. The TCorp deal includes funding for public-transport projects, and investors are happy to ascribe positive environmental value to developments that should reduce car usage.

But coal-fired power still generates much of the electricity that powers trains in New South Wales (NSW). This is beyond the scope of the green-bond issuing entity or even its wider remit. Investors say this is where opacity around the greenness of assets creates a stumbling block.

Matthew Moore, head of ethical investments at Uniting Financial Services, tells KangaNews: “We were encouraged to see TCorp issue in green-bond format. However, one of the challenges is to assess the energy source for the electrification of the network and how much of it is coming from renewables.”

Nikko Asset Management’s head of credit, John Sorrell, says looking at first-order relationships – in TCorp’s case, the fact that green-bond proceeds are financing railways – tends to be straightforward. In this case, railways have a social and environmental advantage over private transport. “But the next stage can start to get problematic,” Sorrell continues. “Our conclusion is that it is possible to exclude too much and create a negative impact as a result. At the end of the day, we should be encouraging the development of railways and other forms of public transport.”

Bill Hartnett, head of responsible investment at Local Government Super, agrees that investors should not let the perfect be the enemy of the good. “There is considerable debate around funding the electricity network in Australia,” he says. “But, in my view, railways will generally tick the approval box for most climate-aligned mandates.”

Adding issuer motivations to the mix makes investor uncertainty around impact measurement as a holistic assessment even more apparent, Aberdeen Standard Investments’ head of Australian fixed income, Nick Bishop, tells KangaNews.

He explains: “NSW doesn’t have massive solar capacity and it isn’t being as proactive as the Victorian state government in this respect. Where funds from green and nongreen bonds issued by TCorp are comingled to the extent that it becomes challenging to trace the physical spend of the investment dollar, we become a bit more cynical – because it feels increasingly that the issuance could be at least in part a marketing ploy.”