Sustainable finance in Australia: the bigger picture
The KangaNews Sustainable Debt Summit 2020 migrated to an online format but this did not stop it attracting the widest range of speaker perspectives in its history. Delegates heard perspectives from across financial markets and also the whole economy, covering the urgent need for capital flows to shift to support a critical transition.
"The Climate Change (National Framework for Adaption and Mitigation) Bill 2020 will create a framework for businesses and investors to have policy certainty around climate change. It is legislation to lock net-zero emissions by 2050 into law and it will have very specific mechanisms to ensure accountability and transparency."
"The banks absolutely have a huge responsibility. We cannot support a low-emission future but be funding the very technologies causing emissions. Banks need to focus on investments that are reducing emissions and they need to be transitioning away from fossil-fuel investments."
"Having options gives issuers the flexibility to communicate current and forward-looking sustainability strategies. GSS bonds and loans let them highlight existing sustainability initiatives across a variety of project categories while sustainability-linked products let them demonstrate a forward-looking commitment to improvement on key sustainability metrics."
"When we consider what sustainability actually means, all it is asking is that business decisions are made not to the detriment of others. For far too long, commercial and economic models have prioritised financial return above everything else. We need to revise the weight that should be given to natural and environmental capital."
"Before the update to the Social Bond Principles in 2020, many interpreted that the use of proceeds from a social bond could only go to a select population. The updates emphasise that there are circumstances where beneficiaries could be the general populace. Our argument has always been that sometimes you need to focus on the general population for a target population to benefit from the social good."
"With the Climate Transition Finance Handbook we are offering issuers in high-emitting sectors the building blocks for accessing transition finance in a credible and transparent way. To have a chance of meeting the goals of the Paris Agreement, we have to include these issuers and send a signal to the market that, done the right way, transition is not the dirty sibling of green."
"Harmonisation globally is possible, even if countries have different views on what they are trying to achieve with their economies. We need clear environmental goals, standard industry-classification systems, environmental-performance metrics and criteria that align with environmental goals. If every country had a framework with these four elements, we could harmonise – even if there are differences."
"Transition bonds are not really needed as a separate asset class. If transitionary activities are conducted in a manner that is ambitious enough, it is green enough. It does not matter if issuers select use-of-proceeds or KPI-linked bonds, as they are both suitable for transition financing. It is not about the instrument choice, it is about the activities."
"The use-of-proceeds market will continue to grow – it is well-established thanks to the GBP SBP. However, there is a growing group of investors that wants to know not just the allocation of proceeds to green or social projects but the sustainability credentials of the bond issuer. This is where the growth of sustainability scoring has come in."
"The cohesive efforts of the ASEAN Capital Markets Forum and the ASEAN working committee on capital-market development will catalyse the ecosystem by delivering a holistic approach that encompasses all stakeholders. The official sector is bringing the market along with it in building demand and supply, and we will see the financial sector and the real economy connected and mutually reinforcing each other."
"In recent years we have seen a lot of focus on renewable energy, such as wind and solar, which are often used as eligible projects for use-of-proceeds bonds. But it is becoming increasingly clear that to achieve the ambitions of the Paris Agreement we also need businesses in high-carbon sectors to find a way to make the transition to net-zero emissions."
"Financial markets have not waited and neither have our customers. We are increasingly seeing capital flow to green and clean assets, and investors are increasing their activism around where they will and will not invest. The ASFI roadmap will help, but Australia has already been innovative – particularly in capital markets."
"It is more important to show that we are on a path to reach net-zero emissions by 2050 than to have all the debate about getting to the more ambitious target of 2040. Certainly, 2040 will be important to get anywhere close to the 1.5 degree objective – but it will be much easier to accelerate to 2040 if we are on the path to net-zero already."
"A decade ago one could see gas having a substantial role in the transition, but we have left it a bit late now. There is some role for gas but it will be a shrinking one going forward."
"As a consequence of the COVID-19-related recession, there is growing awareness in many sectors – notably in Europe and China – about the extent to which the recovery has to be ‘build back better’ in nature. We need to use this inflection point to address the critical problems facing our society, notably climate change."
"The grid operators have identified renewable-energy zones that offer the best renewable-energy resources as well as the best access to the grid. REZs require substantial investment in transmission and we are using our capital to support them so we can strategically invest in renewable-energy generation in the right places."
"Data harmonisation and technology will be helpful in assessing ESG risks whether or not there is a unified pricing model – investors are already factoring this into their assessment. As a development organisation, World Bank recognises the value of having more funds channelled toward sustainable activities. Increasing transparency will help investors direct more of their investments toward this."
"Originally, thinking around transition risk focused on the expectation of a regulatory impost. But as the price of technology changes and market demand moves, this transition risk is no longer regulatory-driven. Modelling transition risk by assuming a carbon price does not necessarily work anymore."
"It is exciting to see portfolio-wide net-zero-emission commitments by superannuation funds – they have stepped up the conversation on climate-change opportunities and risks to a new level. We have had strong messaging from our European clients on this for some time, so it is great to see it in Australia too."
"Twenty years ago, carbon footprints were the big thing. Five years ago, stranded assets were being talked about all the time. Two years ago, climate scenario analysis started cropping up. Suddenly in 2020 everyone is talking about net zero. It is important to understand what this means in the real world, and also what it means for asset owners."
"The whole point of ASFI is that it will change the way we think about how we deploy capital in the economy, to move away from a short-term focus and instead deal with long-term value creation, and to set up our community to cope with a range of externalities that are material now and will be increasingly material in the future."
"If a company’s actions and reporting do not align, it can very quickly lose the trust of its employees, resulting in them either reducing discretionary effort or leaving the organisation. We talk about managing stakeholders, but in fact stakeholders will manage us – as we are seeing with customers, employees and investors taking action."
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