Roundtable discussion: Women in Sustainable Finance

The sustainable-finance sector has grown exponentially in the past decade. As part of the Women in Sustainable Finance initiative, Westpac Institutional Bank and KangaNews brought together Australian and global experts to discuss the market in 2020 and beyond.

  • Debbie Connelly Head of Corporate and Institutional Origination and Distribution WESTPAC INSTITUTIONAL BANK
  • Daniela Jaramillo Senior Responsible Investment Adviser HESTA
  • Johanna Köb Head of Responsible Investment ZURICH INSURANCE
  • Sophia Li Treasurer AGL ENERGY
  • Eliza Mathews Director, Sustainable Finance WESTPAC INSTITUTIONAL BANK
  • Fiona Trigona Head of Funding and Balance Sheet NEW SOUTH WALES TREASURY CORPORATION
  • Kate Turner Responsible Investment Specialist FIRST SENTIER INVESTORS
  • Michael Chen Head of Sustainable Finance WESTPAC INSTITUTIONAL BANK
  • Laurence Davison Head of Content and Editor KANGANEWS

Davison Why is sustainable finance so important in today’s market and economic environment? What does it do that cannot already be done by normal markets?

CONNELLY Business has a crucial, and perhaps also a moral, role to play in combating climate change. What makes sustainable finance stand out is that it allows business to operationalise sustainability strategy and seek associated financing to support it. I have been working in financial markets for more than 30 years and I am surprised by the pace of growth in the sustainable-finance market in Australia, not to mention in Europe.

We are all wrestling with how to meet the goals set by the Paris Agreement, the UN Sustainable Development Goals and, of course, our own aspirations. Westpac is committed to supporting this ongoing development and we are focused on understanding how best to facilitate these goals for our customers.

I am proud of Westpac’s achievements in this area, particularly with customers in the bond and loan markets. For example, we recently structured a green-loan transaction for Local Government Super in a first for the superannuation sector. Westpac is also playing a part in the Australian Sustainable Finance Initiative (ASFI) and the Principles for Responsible Banking.

However, we all know there is an incredible amount of work still to do to decarbonise the economy and meet all these goals. The types of discussions like the one we are having today allow us to elevate this topic, to bring more options to what already exists and to discuss what we need to develop.

Chen How have the events of the past six months influenced the evolution of the sustainable-finance market?

TURNER Environmental, social and governance (ESG) issues have not disappeared due to the pandemic. They have remained front and centre, and topics such as climate change continue to be headline news.

It is not always helpful to divide ESG into its three component parts. But to the extent we are prepared to do so, there have been further developments in the market in recent times.

In particular, investors have been starting to take more stock of social issues because of the pandemic. It has exacerbated issues around workplace rights, health and safety, and mental health. Issues that we were already thinking about, such as modern slavery, have also worsened during the crisis.

If there was not as much focus on these social issues before, they have really come into focus over the last six months. This is great to see.

“Business has a crucial, and perhaps also a moral, role to play in combating climate change. What makes sustainable finance stand out is that it allows business to operationalise sustainability strategy and seek associated financing to support it.”

KÖB We have also seen a lot of research around ESG data and sustainable finance in these tumultuous times. I think this has driven home three points.

The first is the nature of responsible investors: they have taken a more long-term view and been more loyal to their asset managers. In the crisis, dedicated mandates for sustainable-investment products have proved to have more stamina. Turnover has been lower and they held better through the trough.

Second, sustainability has gained even more attention and sustainability funds are among the few to have shown inflows during this time.

Finally, research conducted by Zurich Insurance in partnership with the World Economic Forum has highlighted how deeply interconnected sustainability topics are. The pandemic is linked to biodiversity, climate change, risk preparedness and governance.

JARAMILLO The pandemic has brought to the surface the need to think at a system level. As asset owners, we call ourselves ‘universal owners’ – this means we cannot diversify away from risk by not being exposed to certain sectors as we will always have exposure to the whole economy.

It is not necessarily just about how prepared companies were with their workforce or their health and safety practises. I think the common thread across companies that have done well through this period is that they were ready for system-level disruption and were considering all the E, S and G factors as well as everything within them.

MATHEWS COVID-19 has elevated the importance of social finance and the social-bond market has grown significantly in response.

I have been impressed by some of the government positions taken in Europe and Canada, where COVID-19 response was used as leverage to encourage improved sustainability performance. This includes the French government requiring Air France to work towards becoming the world’s most environmentally friendly airline in order to qualify for bailouts. This association of finance and sustainability is very powerful.

KÖB This is true. The pandemic could have pushed climate change off the radar. But we know it is the even bigger crisis on the horizon. To keep economies afloat, governments are willing to spend rescue packages of a size one could consider to be the next generation’s money. If we are doing this it is absolutely necessary to invest in a more sustainable recovery.

Saving jobs and investing in climate-change adaptation and mitigation do not have to contradict each other. It is encouraging to hear so many voices advocating for this.

It also seems that some lessons from the financial crisis have been learned. Today, a lot of governments in Europe are signalling to companies that they need to plan carefully. For example, paying out dividends now and then asking for a bailout later is not going to work. This is a way of privatising returns and socialising costs.

Companies have also been made aware that help might come with sustainability strings attached. This is an encouraging move – but not yet universally applied.

“The pandemic has brought to the surface the need to think at a system level. As asset owners, we call ourselves ‘universal owners’ – this means we cannot diversify away from risk by not being exposed to certain sectors as we will always have exposure to the whole economy.”

Davison In the financial-crisis era there was a lot of talk early on about a more equitable recovery, but the situation reverted to previous norms pretty quickly. Can we be confident that this mindset will be maintained as we move beyond the immediate stages of COVID-19?

KÖB I hope so – but it is probably too early to judge given the space between the event happening, the talk of a reaction to it and then the actual action. I am heartened by the calibre of people advocating for a sustainable recovery – such as the secretary general of the UN.

It is fair to say there is very wide global diversity in how governments have acted. The discussion seems to have progressed in Europe but it is not consistent even within the EU. Poland, for example, has been quick to ask that the European emissions trading system should be paused so it can focus on jobs and the economy. There are still voices in both camps.

Zurich Insurance has come out strongly in support of a sustainable recovery and is supporting this position across a range of initiatives. We are part of the Net Zero Asset Owner Alliance (NZAOA), which involves pledging fully to decarbonise our portfolios by 2050. Together, the members of this alliance have also written a position paper outlining routes to a sustainable recovery.

The economic crisis and climate change are not two different things. We need to find a way of marrying the responses because the idea that profit and people, the real economy and the financial market, and the environment and society are all neatly separated is simply not true. We do not live in a vacuum.

Labelled issuance trajectory

Sustainability has been a watchword in 2020 but issuance of green, social and sustainability (GSS) bonds has fallen in Australia. Market participants are much more optimistic about the future path of deal flow, though.

CHEN Has the pandemic shifted issuer thinking around sustainability financing?

TRIGONA New South Wales Treasury Corporation (TCorp)’s funding task has increased materially. As an example, we have issued more than A$10 billion (US$7.2 billion) since March as we fund the government’s stimulus response to COVID-19.

As one would expect, these measures also comprise a large portion of funding relating to social outcomes. We have been working closely with the New South Wales (NSW) Sustainability Committee and meeting regularly with our asset-identification group to identify projects that could qualify for our asset pool. TCorp is focused on ensuring assets added to the pool can be accurately reported and will be accepted by our investor base.

We have a debt maturity next year and we are keen to start engaging with investors in what we intend to be a transparent and open dialogue about the appetite for a sustainability-linked or a transition bond.


Chen Is what we have heard about the focus on all components of ESG and the performance of these assets through the crisis translating into capital allocations and investment decisions?

JARAMILLO Things do not move that quickly – but we are thinking and trying to make decisions at the system level.

We have recently announced a target to be net-zero carbon by 2050. When we were thinking about this, we recognised it would be easy to do it by allocating capital to a low-carbon portfolio but this would not really achieve any change at the system level because emitters would still be doing what they do. This would mean the rest of the economy continues to suffer; it is very unlikely we will be able to meet net-zero by 2050 unless the whole economy is decarbonised.

Therefore, we are focused on achieving our target through prioritising active ownership. We decided to work with emitters to identify the right strategies to decarbonise the system, not just our portfolio.

LI AGL Energy is Australia’s largest greenhouse-gas emitter and we do not shy away from this. The point about the system and achieving a holistic transition is key. For us, this is about managing and bringing investors along on the journey of transition.

Equity investors and bondholders acknowledge that this will be a long journey. We will not be leaving coal in the immediate future because we also have to make sure we can supply affordable and reliable power to Australia – where the majority of the grid is coal-powered.

It is great to hear these thoughts on approaches to capital allocation. AGL is in a unique position to make a huge impact towards decarbonisation.

Chen Are there any other thoughts on how market evolution has been affected by the events of the past six months?

TURNER For people in this group – and others who are already focused on ESG – COVID-19 has not really changed thinking. Instead it has reaffirmed the importance of this type of investing and of system-level thinking.

At First Sentier Investors we are having the conversation around what sustainable investing looks like in a post-COVID-19 world – and the answer is that it is all the more important.

MATHEWS These comments really resonate. Through my time working in sustainable finance, there have always been cynics asking what would happen to this market if we were to hit another crisis and an assumption that the focus on climate change would take a back seat.

As we make our way through this crisis, the ongoing focus we have seen from corporates on sustainability strategy has been impressive, and growth of investment flows into ESG and SRI [socially responsible investment] funds management has been at a record high. This should allay any concerns regarding the strategic importance of sustainability.

“Governments find it much easier to find social assets by virtue of what they do – they are always financing social outcomes. It is much more difficult for the corporate sector to align with a social bond.”


Jaramillo The Australian market seems to need more certainty in this area. Does the EU taxonomy help address this limbo and give clarity around exactly what qualifies as green and social, or what qualifies for a transition instrument?

KÖB I think it really does help, in particular with two elements. First is the government and regulatory angle, and second is the market angle.

On the market angle, there has always been a discussion around what is ‘green enough’ for a green bond and the taxonomy gives us all a vocabulary to address this.

When we set up our first green-bond mandate at Zurich Insurance, in 2013, the entire green-bond market amounted to less than US$10 billion and our mandate had an investment target of US$1 billion. What came from this was a lot of internal discussions around what is green enough to qualify as a green bond for us. Impact reporting has really helped in these conversations because it adds facts and figures.

Investors need much more information to assess transition technology, because it is quite complex. For example, look at gas as a transition energy source. For how long is it acceptable to use gas instead of coal before transitioning fully to renewable energy? Depending on a country’s starting point it may take 15-20 years before the base-load issue is fixed.

Nowadays, a lot of green-bond issuers will provide us with good reporting on CO2 avoided as an impact KPI, which we can aggregate. We invest around the globe, and having these numbers allows us to compare and contrast across jurisdictions and technologies.

It’s a great learning exercise for both sides. If an energy provider gives us numbers that are vastly different from a similar company in another jurisdiction we can go to them and ask why.

The deepest impact we are seeing – in tonnes of CO2 avoided per US$1 million invested – is in the supranational sector, because a lot of its projects are in renewable energy in Asia and also in Australia. This does not mean we would stop investing in renewable energy in Europe and the US: we have money there and we need to deploy it.

In the regulatory space, we have been talking for a long time about the ‘purity requirement’ of green bonds. This is because we see two types of investors. Some are very sophisticated and take a deep dive into the technologies so they can measure their depth of impact – which can be much higher in the transition space.

Then there are those that want to make sure they invest best-in-class, so will prefer assets that are already green. This tends to split along the lines of retail and institutional – where retail wants to be as green as possible today and institutional investors have a longer-term horizon.

Debate ensued in the marketplace on whether transition means making something brown ‘less brown’ or whether it should be reserved for brown-to-green transition.

There is a climate-transition working group under the Green Bond Principles and it has done a lot of market research. It asked the market whether we need separate transition instruments for assets that go from brown to less brown, and the answer that came back was a resounding “no”. Transition could take 30 years, but it should aim at Paris-alignment no matter the starting point.

The EU has gone forward with its taxonomy and there are now several in different parts of the world. We worked closely with Brussels from the beginning of this process. We said we have been digging into the topic for a while, but what would really be useful is to have regulators working with scientists to produce an evidence- and science-based definition for the thresholds of appropriate standards.

Having a dictionary out there on what is ‘green enough’ and where transition starts makes it much easier for investors to make a call on where their investments stand. It also allows for deeper engagement with issuers, where discussions can be had on exactly where they are regarding transition and what their trajectory is.

“Use of proceeds versus the overall issuer strategy is an ongoing discussion but I think there is a role for labelled product in bonds and loans. From an investor perspective, these instruments are relatively straightforward and allow funds to flow, at scale, into assets consistent with the Paris Agreement.”

Chen Does this align with what is happening in the Australian market?

TURNER Locally we have ASFI, which was set up specifically to answer these questions. Transition in Europe will take a different form from transition in Australia, because of the nature of the markets.

Hopefully we will be able to move beyond seeing climate change as a black-and-white issue. I agree institutional investors are prepared to see it this way, but retail investors less so.

If we don’t consider transition at all it could potentially leave us immediately excluding a company like AGL, and therefore we could be missing an opportunity to make a real difference.

JARAMILLO I would add that we are trying to identify indicators that show whether a company is on the right trajectory. We don’t want to reinvent the wheel, though, so this can be something like a carbon target.

We are part of the Transition Pathway Initiative, which is trying to assess specific things such as targets and governance. We want to identify the right indicators to show a transition. When it comes to ESG, I think we are past the time where just having a diversity or climate-change policy is enough – we need to see targets that are focused on outcomes, and if possible real-world outcomes.

Mathews If we are measuring impact by metrics such as tonnes of CO2 saved per US$1 million invested, does this not put transition automatically to the back and favour companies that are already green? How can we reward companies that are making a genuine transition?

KÖB On the contrary: real change from a browner starting point tends to create larger marginal impact.

As I mentioned earlier in this discussion, we are a founding member of the NZAOA. This means thinking about how we can decarbonise our portfolio without making it a divestment exercise. We want to make sure the economy shifts, not just the portfolio.

Some European utility companies are large emitters. Some of these have already made very fundamental changes to their energy mix and started to change their production. The absolute change in emissions is astronomical. Some have managed to bring carbon emissions down by around 20 per cent in only a few years, which can amount to tens of millions of tonnes of CO2.

What next for sustainable finance?

Economies and markets are clearly at an inflection point in 2020. The year ahead could set the stage for a radically reshaped future.

CHEN The past few months have been tumultuous. Where will the market go in the next 12 months?

TRIGONA New South Wales Treasury Corporation (TCorp) sees an opportunity for GSS [green, social and sustainability] issuance to play a larger role in our overall funding mix going forward. This is not only due to our larger issuance programme but also measures the government has taken in response to COVID-19 that we may be able to incorporate into our asset pool.

We suspect this will also be the case for other types of public-sector issuers, which should be supportive of the sector. We are encouraged by the growth of the wider GSS sector and the interest the investor base has shown in TCorp GSS-branded bonds. I see this becoming a mainstream form of issuance.

KÖB I like to dream big and I think, at the end of the day, sustainable finance will be the mainstream form of finance. All bonds will tell us where their proceeds go and social factors will be properly priced in. These exercises will not be undertaken on the side – they will be normal. I don’t think this will happen in the next 12 months but the progress being made in this direction will continue.


Chen Social-bond issuance has seen huge growth globally in the last couple of months and it has been interesting to observe the kinds of issuers coming to market, especially as many are using proceeds to fund COVID-19-related projects. How can we encourage more corporate issuance in this space?

TRIGONA The social aspects we have incorporated into our sustainability-bond programme are a transport-access programme and a schools programme. These both facilitate access to essential services.

The transport-access programme provides access to railway stations and ferry wharves for people with mobility issues. The schools programme updates school infrastructure and builds new schools. There is more than A$500 million (US$357.9 million) of assets in these programmes.

A lot of work happens in the background to have these approved for inclusion in the sustainability-bond asset pool. We know now, with the projects that have been announced recently, that a lot more could come into the programme. But it all depends on the reporting and what investors expect to see.

Guidelines are being updated all the time and particularly so with the issuance we have seen this year related to COVID-19. We think we are getting to the point where we can incorporate more assets in our programme, hopefully over the next few months.

Water assets, such as those for water sustainability and wastewater management, are very important and could potentially be incorporated. We are not just targeting one area – all the funding the state does to meet its objectives is being considered, including a number of green and social assets.

Our target is to come to the market with a transaction incorporating some of these COVID-19-related assets as well as other social assets before the end of the year.

MATHEWS The need has arisen from COVID-19 to broaden the Social Bond Principles (SBP) to cover a more general population so these assets can comply. I am hopeful this will have far-reaching impact on the variety of social-bond issuers.

I have had trouble in the past identifying social assets for the private sector because it needs to be doing things that make profit. If the sole purpose of the SBP is to meet the needs of under-served populations, which likely means goods or services being provided at lower-than-market prices, it becomes very difficult for the private sector to identify good social assets.

This broadening of the SBP could have a long-lasting impact in that it allows access to companies with these objectives and with strong social angles. This could apply to universities, health-sector companies and even wider – it is certainly a good development.

TRIGONA It certainly is. Governments find it much easier to find social assets by virtue of what they do – they are always financing social outcomes. It is much more difficult for the corporate sector to align with a social bond.

“Capital has started to move and it is changing allocations, but this is within a certain bandwidth and at the margin. The core problem can only be fixed by fully pricing in externalities. This has to be addressed at a higher – regulatory – level, though.”

Chen Can the market do anything to encourage issuance of sustainable-finance structures, particularly on the corporate side?

TURNER It would be good to see more products. A lot of funds out there are looking for green bonds but there are fewer looking for social or transition bonds. This would give issuers more confidence. It is a bit chicken and egg, but it would be good to see.

KÖB The question for corporates especially is how many of them fund social projects and, then, why they are doing so. Is the target of the project they are financing really social development?

This question comes back ultimately to our societal structure – and markets are not necessarily going to change this. They may make what is already there more visible, though, and can focus discussions on what is working and what is not.

We are very careful when assessing the impact of social bonds. We would not just accept anything that has a social ‘side effect’ and is repackaged as a social bond.

On the government side, social bonds reinforce the need to measure some of the impacts that are happening. From a public management point of view, this in turn could encourage analysis of which programmes are being effectively deployed and which are not.

What social and green bonds have both been good at is making the use of proceeds more visible, educating market participants and leading the sector on a journey to start internalising externalities.

There is a certain distance we can go with this voluntary approach, but we cannot fundamentally change systemic decisions on what is priced and what is not. Take climate change as an example. Capital has started to move and it is changing allocations, but this is within a certain bandwidth and at the margin. The core problem can only be fixed by fully pricing in externalities. This has to be addressed at a higher – regulatory – level, though.

MATHEWS In some ways this is what the sustainability-linked loan market is trying to do. It is still a pretty blunt instrument but it works by encouraging companies to improve their sustainability performance by linking it to cost of capital. This is perhaps a band-aid approach until we get some mainstream capital-allocation guidance, or ESG is more broadly incorporated into credit assessments.

The sustainability-linked tool is an important one, though. If it can be accepted in the bond market it could have a similar impact to what we have seen in the loan market.

KÖB Fundamentally it comes back to the societal contract and the role we give businesses to start with. There are different systems out there, from those that are more purely capitalist to more social-economic societies.

If we are in the mindset of thinking businesses are there purely to make money while governments and charities take care of the social side, that is difficult to change.

Measuring social impact is also more difficult. We set targets based on “people benefited”, but once we go into the details there is a lot of variation and disagreement. It is a more complex topic, which can make it more complicated for investors. Of course it is inherently difficult to define mathematically what is and what is not social benefit.

We are becoming more aware of it, though – and the ‘S’ component of ESG is certainly becoming better understood.

“If companies are not performing their social responsibilities well, it is detrimental to their social license to operate and for their broader business success. As an investor these things are very concerning if they are not being managed well.”

TURNER There are reputational, legal, and potentially financial consequences if we are investing in companies that are not managing their social issues well.

Knowing what is happening in your supply chain and making sure there is no modern slavery there, having good worker health and wellbeing, managing community relations well – these are corporate responsibilities. But it is not necessarily easy to craft a social bond around them.

If companies are not performing their social responsibilities well, though, it is detrimental to their social license to operate and for their broader business success. As an investor, these things are very concerning if they are not being managed well.

KÖB Especially during COVID-19, social ratings have moved into the spotlight. The pandemic has highlighted the materiality of social factors and studies have shown pricing and performance differences for companies with better social ratings. The pandemic has also highlighted that when social topics are mismanaged they can cause a lot of reputational damage, which also translates into valuation.

JARAMILLO This concept is really about understanding how social factors are key value drivers. Societal expectations are changing but I don’t think many boards have their heads around how their reputation can be affected to the point where they can actually lose their social license. Perhaps when this happens it will be a bit easier to put a price on it.

Chen We have spoken about capital markets not being able fully to solve these issues but that they can play a role in highlighting them, and also how ESG is evolving in capital markets to be integral to whole-business credit analysis. Will there still be a role for labelled products going forward?

MATHEWS Use of proceeds versus the overall issuer strategy is an ongoing discussion but I think there is a role for labelled product in bonds and loans. From an investor perspective, these instruments are relatively straightforward and allow funds to flow, at scale, into assets consistent with the Paris Agreement.

In fact, there remains a shortage of supply in the GSS [green, social and sustainability] market. We fully expect companies with GSS assets available and willingness to issue these products will continue to be strongly supported by the market. A lot of work has been done to get the market to this point of maturity and we should recognise it.

I also really like the sustainability-linked structures. I like that they are forward-looking and use a variable pricing mechanism. They also focus on an issuer’s overall ESG strategy, which is very important for companies that are going through transition. These can serve as great guides for other companies that might see what their peers are achieving with sustainability-linked financing. Overall, sustainability-linked products will play an increasingly large role in the market but I do not think use-of-proceeds instruments will fall away because of it.

TRIGONA It depends on the kind of issuer. For a frequent borrower, such as New South Wales Treasury Corporation, issuing a sustainability-linked bond requires materially more work than having an overarching programme from which we can issue multiple transactions.

We believe our sustainability-bond framework will remain relevant and that we will be able to issue from it, whether in green-, social- or sustainability-bond format, going forward.

TURNER They are different tools in the sustainable-finance toolbox and they are appropriate for the different needs of various issuers. The overall strategy of a company is of course important and nothing should be considered in a vacuum. This does not mean we should not look at use of proceeds as well.