Momentum behind sustainable finance innovation

The size and breadth of the sustainable finance market has grown and with it the ambition of its participants. In September, KangaNews Sustainable Finance and Westpac Institutional Bank hosted a group of borrowers, each of which has expanded the boundaries of what is achievable in the Australian market, to discuss their motivations, aspirations and challenges.

  • Dan Dillane Group Treasurer GENESIS ENERGY
  • Steven Fischer Deputy Australian Treasurer PEPPER MONEY
  • Darren Lake Group Treasurer MIRVAC GROUP
  • Charlotte Plaisant Millecamps Director, Sustainable Capital Markets WESTPAC INSTITUTIONAL BANK
  • Paul Washer Chief Financial Officer PACT GROUP
  • Michele Wong Chief Financial Officer NORTH QUEENSLAND AIRPORTS
  • Laurence Davison Head of Content KANGANEWS

Davison It is generally agreed that good environmental, social and governance (ESG) practice has long-term business benefits – that it will be necessary to be sustainable to maintain access to capital, for instance. But the many transition goals have up-front costs. What is driving decisions to put ambitious targets in place when doing so is not mandatory, and why is it important to be an outperformer in ESG?

FISCHER Our approach to sustainability aligns with our mission to help people succeed, by providing innovative financial solutions to the under-served. Pepper Money was founded more than 22 years ago on the principle of seeking to have a positive impact for our customers, stakeholders, employees and the environment. We have built strong foundations of supporting the community, embedding good corporate governance and lending responsibly to our customers.

LAKE Things have changed. When we began looking at ESG, our chief executive would talk to investors about our goals and quite a few were simply not interested in hearing about them. Whereas today it is probably the first question they ask. It is amazing how attitudes have changed in a relatively short time.

At Mirvac Group, we are building places for people to live, work and play, and we are trying to leave the planet a better place than when we started – this is effectively the goal within the company. It has evolved over time. In 2013 there was some angst within the business around why we would want to do this, but in the past 10-12 years the whole landscape has changed.

We are now in a very good position, having to eliminate only 7,000 tonnes of emissions. This would not have been the case if we had not started our journey so early and worked to reduce our emissions along the way.

Davison Some of the first corporate use-of-proceeds (UOP) green bonds in Australia were from the property sector. Do tenants want to see this to the point that it is a competitive advantage for the developer?

LAKE Absolutely. Governments want a minimum NABERS ratings on buildings they lease. Corporates are very much moving along this path – Westpac [Banking Corporation] is a great example of one that wants to be in a green building.

More and more corporates are making these demands, although this was not the case when we started the journey. Our chief executive’s crystal ball was a bit clearer than others and, by starting this process early, we have been able to spread the cost over a longer period. It has been less of an issue than if we were just starting this journey today.

Davison The New Zealand energy generation sector is perceived as being very progressive on green financing. But why did Genesis Energy go a step further than just issuing green UOP bonds, with its sustainable-finance framework and sustainability-linked loans (SLLs)?

DILLANE It is about alignment with our overall strategy. Our purpose is to enable New Zealand’s sustainable future, and financing is just one part of this.

The discussions we have had with wholesale investors for the last few years have switched completely to ESG matters, particularly because Genesis has a significant carbon footprint. Five years ago, perhaps one investor out of eight might mention it; now it is 80 per cent of the discussion. There is no investor now that does not want to talk about ESG.

This is the reality. The ‘why’ is the connection to the company’s purpose. It fits naturally and is really quite straightforward. If a company has assets that could be used for a UOP bond but its purpose is not clear and demonstrated, such a bond would not be particularly well received by the market because it would not be connected to the company’s purpose. In our case, the greater corporate purpose is inherently connected with sustainable finance.

“The universe of ESG risks is expanding too – we are no longer talking only about carbon and energy. Other environmental challenges such as waste management are really important, social KPIs are making their way into structures and biodiversity is a new topic – more borrowers are interested in embedding nature-related goals in different forms.”

Davison North Queensland Airports (NQA) chose to take the sustainability-linked product up a further notch by adding a biodiversity element to its recent SLL. What was behind this decision?

WONG We are a privately held company and our shareholders are long-term investors for which sustainability is really important – our ultimate investors are superannuation funds, linking what we do to our purpose, and our stated purpose is to sustainably grow our aviation-related business to support the growth of our community.

Growing sustainably is part of our purpose that is important to our shareholders and to our community. Cairns is a unique location where the environment is particularly important, and the future of that environment is part of a wider discussion. Our ambition is driven by the expectations of our shareholders and by the community in which we operate.

WASHER At the end of the day, it is consumers who are making the demand for change. Our customers are large food and beverage companies, and their consumers are telling them they want a better world including the end of single-use packaging. Society is moving away from single-use products because we all know there are not enough resources to keep up with the growing population.

We realised we had to have a recycle-and-reuse option because consumers are demanding it. The markets in Europe and the US, which are much more advanced than in Australia and New Zealand, are driving this change. In most cases, they are prepared to pay for it as well – so there is an economic value proposition to being able to offer a recycled product.

It is for industry to work with the remainder of the ecosystem – governments and other stakeholders – to encourage the recycle-and-reuse industry. We do not want to see plastic in streams or affecting other species and we have to work out how to deal with our waste. The underlying goal is to get out of single-use plastic. The human population should have the smarts to work out how to reuse our resources, and this has been the driving factor for Pact Group.

A lot of governments have already put packaging targets on the table, too – so it is now for us and our customers to work out how we get there within the timeframes available to us.

In the packaging space, we want to be at 20 per cent recyclables by 2025. At this stage there might not be a penalty for not doing it, but we all know we need to work out how better to reuse our resources. Thankfully, this means we have a sustainable business model and a number of other stakeholders that also realise they have to be part of the sustainability journey. In the long term, it will be a differentiator for our markets, our investors and the communities we serve.

“We have been talking to airlines about sustainable aviation fuel. The other piece is working with airlines on which aircraft are flying the routes: the new narrow body aircraft are much more fuel efficient than older fleets, and we are developing routes where these aircraft will be used.”

Davison We have covered staff, communities consumers, investors and management. Which is the biggest driver of sustainable behaviour?

PLAISANT MILLECAMPS It is a combination of all of them. But I would draw particular attention to the finance aspect because of how quickly it has grown. A few years ago, investor updates might have one slide about health and safety, and now we are setting up ESG-specific meetings and one-on-ones between investors and our clients because the buy side really wants to go into the details of corporate strategy.

Sustainable finance, especially labelled product, is an accelerator of transition, embedding the sustainability strategy in the business and helping it deliver on its targets. It is a virtuous circle in some ways.

There is commentary about getting financial benefit from a sustainable finance structure, but it is rarely the primary objective. It is more about demonstrating and signalling that a business is heading toward where it wants to be. On the loan side, a focus on ESG also attracts like-minded financiers. More financial institutions, either through their sustainable finance or credit teams, are asking questions on ESG – even in standard, unlabelled transactions.

CHEN I agree it is a combination of these factors. But while a lot of firms have net zero targets and many leading companies are taking action on climate and ESG, scientifically speaking we are not moving fast enough. As a result, policymakers and regulators are getting more involved and we are also seeing more climate litigation these days.

Westpac and the NZBA

In July, Westpac Banking Corporation announced that it had joined the Net Zero Banking Alliance (NZBA). At the same time, it disclosed updated and enhanced 2030 financed emissions targets as part of its commitment to supporting transition to net zero by 2050.

The NZBA is a UN-convened group of banks currently numbering 117 across 41 countries and accounting for approximately 40 per cent of global banking assets, according to its own estimates. Its goal is to reinforce, accelerate and support “the implementation of decarbonisation strategies, providing an internationally coherent framework and guidelines in which to operate, supported by peer-learning from pioneering banks”.

Member banks sign acommitment statement that requires them to align with pathways to net zero by 2050 or sooner, develop targets for each five-year increment from 2030 – including an initialfocus on the most green house gas-intensive sectors within their portfolios – publish annual emissions and emissions intensity reports in line with best practice, and “take a robust approach to the role of offsets in transition plans”.

The NZBA also has guidelines for climate target setting by member banks, which have been developed by signatories of the Collective Commitment to Climate Action, a leadership group under the UNEP FI Principles for Responsible Banking. The core elements of Westpac’s 2030 targets cover power generation, upstream oil and gas, thermal coal mining and cement production (see table).

Westpac notes that renewables already made up 79 per cent of its total lending to the Australian and New Zealand power generation sector. The bank says: “Existing oil and gas customers will continue to be supported with corporate lending where they have a credible transition plan in place by 2025. Prior to that date, we will work with customers as they develop credible transition plans.”

Westpac’s 2030 financed emissions reduction targets
Power generation 0.1t CO2e/MwH of power generation customers’ scope-one and scope-two emissions (2021: 0.26t CO2/mwH).
Upstream oil and gas 23% reduction in scope-one, scope-two and scope-three financed emissions (versus 2021 baseline). Only consider directly financing new greenfield oil and gas projects in accordance with IEA’s net zero by 2050 scenario or if the Australian or NZ government or regulator determines supply from the asset necessary for national energy security.
Thermal coal mining Zero lending to companies with >5% of revenue coming directly from thermal coal mining by 2030.
Cement production 0.57t CO2e/tonne scope-one and scope-two emissions of customers’ cement production (2019 Australian industry average: 0.77t CO2e/tonne).

Source: Westpac Banking Corporation 27 July 2022



Davison Overall, does this suggest the market environment is beginning to move from the carrot of financial incentives to the stick of regulatory compulsion?

CHEN I think it is – and the stick is not just coming from regulators and litigators. Capital markets are punishing companies for not moving quickly enough, so potential penalties are coming from multiple angles. It is certainly becoming a more balanced carrot-and-stick approach these days.

WASHER It is an ecosystem and the reality is that individual companies cannot solve the problems alone. We are trying to reuse resources that in the past we have simply used up, but Pact cannot solve the plastic packaging issue on its own – the whole ecosystem needs to evolve so everyone is playing a role. There has to be a wider effort rather than just one or two companies making a change, or transition will not happen fast enough. We are only so big in our patch, so we are always thinking about ways we can make the ecosystem evolve faster.

CHEN Westpac’s climate strategy has three pillars. The first is reaching net zero in our operations. The second, and most material, pillar is reaching net zero in our financing activities – meaning the companies and people we provide finance to. The third is collaborating for impact so the economy as a whole decarbonises.

This sounds nice, but what do we actually mean by it? We have set up and participated in various forums to address climate change through collaboration. For example, we partner with the Australian Industry Energy Transitions Initiative. This brings together industry and finance to look at what needs to happen in hard-to-abate sectors where a lot of the heavy lifting needs to be done to decarbonise the rest of the economy.

The questions are things like where and how the government should intervene, the role of capital and industry and, in particular, how we solve systemic problems together.

LAKE We are looking at scope-three but it is extremely difficult to make bold targets in this area, especially given the legislative environment – which of course is not under our control. There are elements upstream and downstream from Mirvac’s operations that we also cannot control, like customers’ electricity usage. There is so much to unpack in the scope-three debate, but we are trying to work through it. Now we have achieved our scope-one and -two net-zero target, this will be the next big focus.

It is one of those areas where the more one looks at it, the more difficult it becomes. On one level, we could say that if everyone solves for scope-one and scope-two, no-one will have a scope-three problem. But this is idealistic – so the question is who should be responsible for scope-three? There is a debate to be had and the solution will be a combination of factors, but it could be said that putting individual companies on the hook for scope-three is effectively letting someone else off their own responsibilities.

“While a lot of firms have net zero targets and many leading companies are taking action on climate and ESG, scientifically speaking we are not moving fast enough. As a result, policymakers and regulators are also getting more involved and we are also seeing more climate litigation these days.”

FISCHER The other aspect is that it can be hard for companies to provide external incentives. For context, we did a bond with a green tranche earlier this year and there was no pricing differential between the green tranche and the rest of the deal. Issuing green bonds is capital intensive and there has to be a point where it becomes economical in the sense of costs being passed on to the underlying borrowers or supported in capital markets. It comes down to data as well – having data points to show investors is important, but this requires more capital investment.

LAKE From a builder’s perspective, it will have to be led by the consumer. We offer solar and battery upgrades, which are significantly cheaper to do when building a house than afterward, but until recently we had very low take-up rates because consumers prefer to use their money for other things.

I have asked major lenders that do 90 per cent loan-to-value ratio (LVR) home loans why they cannot do, say, 92.5 per cent with the extra 2.5 per cent required to be used for sustainable features like solar and batteries. This way the consumer does not really have the choice to spend the funds on other inclusions, only the energy efficiency items.

We did a project in collaboration with Clean Energy Finance Corporation where it provided a lower margin loan that offset 50 per cent of the cost of solar panels and batteries to be fitted on a significant number of townhouses. But it will be a couple of years before we see if there is a value differential between a townhouse that does not have solar and batteries and one that does.

Hopefully, consumer behaviour will start to change when people can see a value proposition over the longer term. Every builder can build homes with these features – it is just a question of who pays for it. So far, the consumer has not been willing to pay in large numbers.

Davison Could this idea of larger loans specifically for sustainable upgrades work?

FISCHER Absolutely, but investors would also have to be on board as they are sensitive to LVR. We are working on various products to try to address this issue. Overall, we believe Pepper Money is well placed to assist customers to improve their environmental footprint.

Davison How does NQA think about reducing scope-three emissions – which are obviously very significant in the airport sector?

WONG This is a big question for our industry. The first step is to measure scope-three – and this is an exercise we will undertake in the next couple of years. We are looking at things that happen on the ground that we can control or influence, as well as what the airlines are doing as our customers. Immediate and realisable opportunities include installing charging units in car parks, enabling our car rental operators to convert to electric cars and looking at how energy is procured on campus.

We have been talking to airlines about sustainable aviation fuel, which would be a major contributor to reducing scope three emissions. The other piece is working with airlines on which aircraft are flying the routes: the new narrow body aircraft are much more fuel efficient than older fleets, and we are developing routes where these aircraft will be used.

Everything's gone green

The idea of issuers being considered ‘universally green’ for investment purposes is something of a holy grail in sustainable finance. It remains a work in progress.

DAVISON While use of proceeds (UOP) issuance is limited by a borrower’s qualifying assets, is there any reason why all bank debt couldn’t be in sustainability format?

LAKE I regard this as the biggest fundamental challenge for the sustainable finance market. The bond market is for general corporate purposes, but companies that are already green have to go down the UOP route to access sustainable finance. This means tying funding to assets, which is the opposite of what we do in the bond market. This is a fundamental problem.

My concern is getting Mirvac Group rated green. We are net zero – we have achieved the target the Paris Agreement is all about – but it does not enable us to do anything in sustainable finance. We cannot do a bond for general corporate purposes based on our net zero achievement.

I have spoken to many different players in the market and there does not seem to be a solution to this, though I am sure the market will mature over time. For now, this is a challenge we have at Mirvac, having started down this path earlier than some others. We will end up doing a green bond or a green loan, but it is not something I feel 100 per cent comfortable with because of the asset linkage.

CHEN More attention is now focused on the corporate level and companies’ net zero strategies, rather than just on the assets in the pool. There is a lot of discussion about whether, at borrower level, having a net zero aligned strategy makes all the company’s financing green.


Davison How does the function of a lender change as sustainability ambitions grow?

CHEN We were the first Australian bank to commit to managing our business in line with the Paris Agreement, in 2015. This is all well and good, but it has to mean something for our lending practices. A couple of weeks ago, we announced four sector financed emissions targets and we have also signed up to the Net-Zero Banking Alliance, which requires us to align our lending activities with a 1.5 degree trajectory [see box on p16].

We will have to do this progressively across the entire balance sheet, starting with the most emissions intensive sectors. This is big because current policies still have us above a 2 degree trajectory. There is a wedge between the real economy and our commitments, which means we are playing a key role in driving the transition.

The lever we have is essentially that we can manage our portfolio for each sector target, which means we can chase green assets really hard and also work with high-emitting entities on their credible transition plans. We will be assessing how their decarbonisation plans line up with ours – which is where sustainable finance comes in, in the sense that it can be used to incentivise our clients to achieve their targets. This in turn helps us achieve our goals. It goes back to the ecosystem working together as a whole.

Davison Are borrowers encountering a greater focus on transition plans across their bank groups?

DILLANE We have a commitment to reduce our emissions, but it is not simply a case of us stopping generating from coal – moving too quickly on this will actually make the cost of electrification greater.

Our situation is more nuanced and complicated than coal generation in Australia. There will be very little coal generation by 2030 but at present we still do not have something in place to firm up the hydro storage issue by then. Our bank partners understand this, as do our shareholders. The important thing is that we are all working together – it is not just about us but about the whole sector.

“We could say that if everyone solves for scope-one and scope-two, no-one will have a scope-three problem. But this is idealistic – so the question is who should be responsible for scope-three? Putting individual companies on the hook for scope-three is effectively letting someone else off.”

Davison How do lenders weigh the ongoing need to support transition with their internal drive to get emissions out of lending activities?

CHEN You are pointing out a natural tension we grapple with every day when we are onboarding new clients or looking at our portfolio. We want to be the transition partner for our customers and this includes working with heavy emitters on their transition pathways, insofar as they are committed to net zero.

So how do we square the two away? The role of the bank is widening: customers are coming to us more for guidance and insights nowadays. Capital is also changing, in the sense that traditional sustainable finance plays a key role but it is not just about labelled product. It could also be through vanilla acquisition finance when we help a customer invest in greener businesses, or asset finance when customers are greening their fleet.

This is why the training of bankers is important, because at the end of the day sustainable finance means helping customers transition in a holistic sense. We are working with clients in a more rounded way, which helps them and helps with our financed emissions targets as well.


Davison On the product side, did recent SLL borrowers get the sense that they were being asked to go through a more rigorous process than might have been the case if they had tried to bring a transaction even a couple of years ago?

WONG For NQA, it was a very iterative and cooperative process with our sustainability coordinators. My view on sustainable finance is that the bar has lifted. We have talked about driving ambition and this being an evolving field, and it has come on a long way since the first airport sustainability-linked loans.

What I really wanted was a set of KPIs that linked to what we felt were the important pieces of our ESG strategy. We are really pleased with where we ended up, with a range of KPIs that align with what we think are the important areas for us. This covers carbon emissions, biodiversity and indigenous engagement, which is entirely appropriate to where we operate and to our business. The market has become more flexible in meeting individual borrowers’ tailoring requirements.

When we worked through the SLL process, we were able to articulate the specific and measurable targets we need to achieve over the life of the loan and thus demonstrate our ambition. When we started this process, I would not have been able to predict where we would land with the targets. Working with our coordinators, we have articulated what I think is an ambitious set of goals, some of them groundbreaking. Hopefully, we are inspiring others to do the same.

PLAISANT MILLECAMPS Australia’s first SLL was from an airport, and at the time there was not yet a lot of benchmarking globally. The first sustainability-linked transactions either used an ESG rating, which was seen as a good way to represent a company’s journey holistically, or just one or two KPIs. At the time, very specific data was really only available in Australia for greenhouse gas emissions and percentage of renewable energy.

The scope of KPIs has expanded, as has the work done on KPIs and targets. In the past, a loan would have had two at most but now we can see up to five. The universe of ESG risks is expanding too – we are no longer talking only about carbon and energy. Other environmental challenges such as waste management are really important, social KPIs are making their way into structures and biodiversity is a new topic – more borrowers are interested in embedding nature-related goals in different forms.

We should note, however, that biodiversity is currently an area where it is much more difficult to have quantifiable, measurable data and a target that is aligned with relatively shortterm instruments. But we can get there.

Sometimes the ambition is not just how one sets a target. Sustainability-linked bonds do not typically feature a two-way price mechanism so there is no direct price carrot – just the stick. But ambition can be reflected in other ways, such as going behind the numbered target and hearing the story.

Also, in the loan space, ambition can be reflected in the documentation or in the list of sustainability review events. It should be a simple, but exhaustive, process to ensure all parties are protected during the life of the facility.

In Australian SLLs, we have been really adamant in pushing for the two-way pricing mechanism and the use of external reviewers. This is not something we see everywhere in the world so it is a strong advantage for Australia and a standard we need to maintain for the integrity of the market.

“The discussions we have had with wholesale investors for the last few years have switched completely to ESG matters. Five years ago, perhaps one investor out of eight might mention it; now it is 80 per cent of the discussion. There is no investor now that does not want to talk about ESG.”


Davison Is it more the case that lenders are demanding a greater degree of ambition from borrowers nowadays, or that borrowers are telling banks to structure lending around their existing ESG ambitions?

WONG It was probably somewhere in between for us. We have an enormous list of sustainability projects we would like to undertake, and we wanted to prioritise projects that would be appropriately ambitious and satisfy lender requirements. This helped us choose which ones to highlight. We still have a long list of other priorities we will continue to focus on beyond the SLL, but we developed the targets for the loan in collaboration with our sustainability coordinators.

PLAISANT MILLECAMPS We work with our clients in defining which targets are appropriate. We look at the sector first, but we also look at the company: NQA is different from another airport, especially in the relevance of biodiversity, for instance.

We tailor financing to the specifics of the borrower, which can make it difficult for financiers or investors to determine if a target is ambitious. It is collaborative and sometimes it is the most time-intensive part of the structuring work.

Companies typically have a set of corporate KPIs, which can evolve, so there is a question about how they should structure future SLLs – by reusing KPIs from the first one, expanding them or creating SLLs with different KPIs in response to different financing needs. This is still a nascent area and we need to see more evidence of what the market will accept.

WASHER The targets we chose for our SLL built on ambitions we already had. But when we talk about ambition on things that might happen three or four years in the future, we do not necessarily know how to get there. Sitting down with a lender challenges us to set a pathway to actually achieve our ambition.

The rigour we found was the need to break down our ambitious targets into annual plans. This gets internalised within an organisation pretty quickly. Sustainable finance creates a framework, through lenders, that provides internal discipline within the organisation to actually make the pathway a reality.

We can only succeed on what we actually measure. By measuring performance over time, we can galvanise effort and resources to make it all happen. We went through a very rigorous process for our SLL and now we can say with confidence that we can do it.

DILLANE We have a science-based target that focuses on 2025. To comply with the Science-Based Targets initiative’s rules, we had to have a plan in place on emissions reduction even though we knew our emissions were not going to decrease in a smooth line. As it happened, in the first year of our SLL we beat the emissions targets quite easily, but it was not really something we controlled – a lot of it was about hydrology in New Zealand.

Having ambitious targets for renewable generation development is important. But with a 2025 target, building the steps to get there was quite complex and required a lot of discussion.

Setting ambitious targets is always interesting with the benefit of hindsight. Loans are shorter-term products with year-by-year requirements, which means the borrower has to spell out in steps how it plans to hit its targets. This gets quite complex as it is split down into annual levels. It is important to know where one is going to be in five years’ time, but sometimes the near-term steps are the harder ones.

“It can be hard for companies to provide external incentives. For context, we did a bond with a green tranche earlier this year and there was no pricing differential between the green tranche and the rest of the deal. Issuing green bonds is capital intensive and there has to be a point where it becomes economical.”

Chen Have Genesis’s conversations with debt investors changed in light of the company’s SLL strategy?

DILLANE Absolutely – and even though it is not necessarily possible to have the same targets in certain debt capital markets. The SLL allowed us to demonstrate our commitment. We were very concerned that we would be seen as greenwashing if we just went down the UOP route.

We have NZ$2.8 billion (US$1.6 billion) of green assets and about NZ$600 million of not-so-green assets, so a much bigger part of our value portfolio is green than otherwise. But investors are very aware of our thermal assets, so we were very conscious that we had to demonstrate our sustainable commitment and not just get a free ride off our green assets. The feedback we receive is mostly about our SLL, even though it is not available to anyone except the banks. It is the best rating we can have without using an ESG rating agency as it provides something concrete.

Davison Pepper Money became one of the first movers in the social space in the Australian securitisation sector, in 2022. This must have been an interesting experience because sustainable finance overall is much more mature now than it was when the first green bonds were issued and there seems to be less leeway given to ‘best efforts’ transactions in a new space. How did Pepper Money go about sending the message that the social product would be a work in progress?

FISCHER Our social RMBS [residential mortgage-backed securities] deal was a key initiative driven by the business. Even though establishing the programme was a material task and it took 6-7 months of building out the social framework, it provided us with a solid platform to develop further products. The investors that participated in the transaction understood that this was an initial step to developing this space and fully supported our initiative.

PLAISANT MILLECAMPS Investors are now asking for more time to talk to issuers about their ESG strategies. This is why we also set up ESG-specific meetings – so when a transaction comes to market investors have had the time to do their ESG due diligence.

Whether it is a UOP or a sustainability-linked deal, investors might only have a week to analyse a deal and decide if it is ambitious enough. They rely on external reviewers – which we view as an additional, sometimes very detailed, due-diligence piece – as well as what the issuer says.

But if it takes six months to build, there is – and should be – a whole story to tell, so we have to ask how we also can support investors in their understanding of this work and where the issuer is on its journey.

Davison Is the ESG work something that can be done and then put on ice to be revived when conditions are right, or does it have to be a part of the live deal process?

PLAISANT MILLECAMPS Some issuers, especially overseas, have started signalling a couple of months ahead of time that they are considering ESG transactions or a sustainable finance framework, and then sharing a lot about what they are doing. This might help reduce execution risk of a labelled transaction.

Getting the framework process right ahead of time can also help get a transaction done quickly. It means the only things that have to be checked on the sustainable aspect of the transaction are that there has been no update to the sustainable finance strategy, the targets are still relevant and there has not been any market event specifically affecting sustainability, for example a new mandatory disclosure rule.

On the demand side, we have recently seen some tapping of existing green, social and sustainability bonds. This is a great way to increase size and improve liquidity of a bond.

FISCHER Undertaking the first deal is challenging as the issuer needs to line up many different things by a specific date. But once this is done, the next deal should be a lot smoother as the framework and second-party opinions are in place.

Company level sustainability ambition

The corporate borrowers taking part in the KangaNews Sustainable Finance-Westpac Institutional Bank roundtable explain their individual sustainability aspirations and pathways.

DAVISON What are each of the businesses’ ESG ambitions and the timelines for their targets?

WASHER We just launched our first sustainability-linked loan (SLL), refinancing about A$420 million (US$273.3 million) of our debt facilities. This was born from recycling targets Pact Group looked at three years ago when it came out with its 2025 “end of waste promise”.

Pact has always been very keen to eliminate the nonrecyclable packaging we produce. We chose a target for our SLL of offering 30 per cent average recycled content across our plastic packaging portfolio by 2025. To put this into context, today the figure is only 10 per cent.

Three years ago, Australia and New Zealand lost the ability to send their plastic waste to China so we had to begin building an ecosystem to handle that waste. The target of 30 per cent recycled content is central to this, as is our target of increasing the amount of recycled material we can process and distribute to the external market.

We have partnered with Cleanaway Waste Management, Asahi Beverages and Coca-Cola Europacific to create facilities over the next couple of years that will increase our recycling capacity to 120,000 tonnes of external waste, from 60,000 tonnes. We are trying to bring fundamental change to the industry, and this requires the government, our customers and our partners to have the ambition to make a real step-change in this space.

We also realised there are still some ‘tickets to the game’ in the form of greenhouse gas emissions reduction. We have targeted 50 per cent reduction of our scope-one and scopetwo emissions by 2030. We have also covered the people side by targeting a reduction in the gender pay gap.

These key metrics bring our sustainability story together and let us demonstrate our commitment to our people and customers – and therefore to our shareholders and the financial institutions that support us in our strategy.

The ambition is to have a very different world of sustainable packaging in the next 3-4 years. This is very much a part of Pact’s business model but also an ambition we set three years ago to make a difference to our people and our planet.