Funds to support Queensland's ESG goals

Grant Bush, deputy chief executive and managing director, funding and markets, at Queensland Treasury Corporation (QTC) in Brisbane, discusses the state’s debt profile, infrastructure spending, ESG initiatives and exposure to natural disasters.

Queensland’s mid-year budget review in December 2019 emphasised infrastructure spending. Are investors comfortable with the concept of productive new debt?

The government has committed to A$51.8 billion (US$34.9 billion) in capital spending over four years, including significant investments in health and education. More than half of this is expected to be funded from net operating cash flows.

We haven’t heard concerns from investors about capital spending contributing to debt. They appear comfortable with the state borrowing to fund infrastructure and the benefits of these projects – for example, the A$5.4 billion Cross River Rail.

Does QTC plan to further extend the tenor of its debt profile, given rates are set to be lower for longer?

Our strategy for some time has been to smooth and extend our maturity profile. This is primarily to manage our refinancing risk rather than to take a view on rates.

The low-rate environment and the Commonwealth government’s extension of its yield curve have increased investor demand for longer-dated bonds. This supports our strategy.

QTC has issued two green-bond lines. Both have been well supported. What dialogue does QTC have with investors about its green bonds and the state’s sustainability initiatives?

Our conversations with investors have evolved. Initially, they were primarily about the programme and asset pool. More recently, they have been about broader environmental, social and governance (ESG) initiatives, particularly as environmental issues have become more topical for many, regardless of whether they have a specific ESG mandate.

This has been a great opportunity to explain the transition taking place in the state and the government’s commitments, which include achieving 50 per cent renewable energy by 2030 and net zero emissions by 2050.

Could you share a little about Queensland’s climate-change commitments and its plans to transition to a low-carbon economy?

The Queensland government is committed to playing its part in the global effort to address climate change and support Australia’s participation in the Paris Agreement.

It has also independently signed the international Under2 Memorandum of Understanding, a coalition of subnational governments committed to reducing emissions to net zero by 2050.

The government has many initiatives linked to two overarching strategies: The Queensland Climate Transition Strategy and The Queensland Climate Adaptation Strategy.

The Powering Queensland Plan, which supports the transition to a cleaner energy sector, is linked to the transition strategy. The state’s new publicly owned clean-energy company, CleanCo, has been established under this plan. CleanCo owns and operates assets. It will build and invest in other projects as well, supporting Queensland’s renewables sector and its commitment to 50 per cent renewable energy by 2030. Funding for green hydrogen projects across the state will help develop an emerging renewable resource industry.

The A$500 million Land Restoration Fund supports farmers, traditional owners and other landowners putting in place sustainable land-use practices that deliver improved yields, diversify income streams, create jobs and protect Queensland’s unique environment. Its first round of A$100 million in funding is focused on improving outcomes in Great Barrier Reef catchment zones and protect vital habitat for threatened species, including koalas.

The Climate Adaptation Strategy outlines how the state will prepare for the current and future effects of a changing climate.

Are investors asking about exposure to natural disasters and, if so, what are they focusing on?

Yes, investors do ask, particularly when these events occur. Generally, investors are aware of Queensland’s long history of effectively managing natural disasters, including cyclones, floods, droughts and bushfires. They are also aware that the state’s diverse economic base and solid financial position reduce the chance of any one climate event disrupting economic output and impairing fiscal capacity.

We have also been successful in explaining the Federal-State Disaster Recovery Funding Arrangements through our investor engagement. Investors typically have a good understanding of how the federal government reimburses up to 75 per cent of eligible disaster-related recovery funding.