Leadership and whole-of-issuer stories the focus of high-grade GSS issuance

Green, social and sustainability bonds have become a consistent component of high-grade Australian dollar issuance. While labelled deals still deliver a relatively small proportion of aggregate supply, these issuers have led the evolution of the market and, in particular, the drive toward a holistic understanding of borrowers’ sustainability credentials.

Kathryn Lee Senior Staff Writer KANGANEWS

Labelled bond issuance was born in the high-grade sector, and it remains the only sector where labelled issuance is a reliable component of most Australian dollar borrowers’ funding programmes. Corporate flow is sporadic and bank supply next to nonexistent (see corporate feature). By contrast, green, social and sustainability (GSS) bonds represent more than half of all supranational, sovereign and agency (SSA) Kangaroo issuance and have come to represent a relatively small but consistent component of the local semi-government market.

According to KangaNews data, in recent years GSS bonds have contributed around 40 per cent of SSA Kangaroo supply and around 20 per cent of syndicated deal flow from Australian semi-government names (see charts 1 and 2). All the largest GSS issuers in the Australian dollar market come from one of these two sectors (see table).

There is a clear rationale for high-grade issuers to have a presence in the labelled bond market. For multilateral development banks, there is a natural connection between labelled issuance, the projects the proceeds of these transactions fund and the sole purpose of the institutions.

Governments and semi-governments are a similar story. Increasing climate ambitions – with climate change and decarbonisation having been a relevant issue for governments for at least the last decade – mean this type of issuance has allowed a way to showcase the environmental initiatives of sovereign entities. It has also helped satisfy increasing investor interest in what bond proceeds are used for – an area that has evolved progressively since the first-ever green bond in 2008.

Alongside a responsibility to respond to climate change, governments also have an obvious role in the social cohesion of society including the provision of education, social welfare and healthcare – areas that have made social bonds and sustainability bonds relevant, though reporting metrics are less advanced.

In effect, high-grade issuers have some degree of the natural alignment between purpose, strategy and financing that typically has to be built in the corporate sector.

Largest Australian dollar GSS bond issuers via syndication
IssuerVolume of syndicated issuance (A$b)First deal pricing dateMost recent pricing date Formats issued
South Australian Government Financing Authority* 19.7 14 Mar 24 14 Mar 24 Sustainability
Queensland Treasury Corporation 12.3 15 Mar 17 25 Jan 24 Green
European Investment Bank 11.2 25 Jul 17 7 Mar 24 Green, Sustainability
World Bank 13.4 16 Apr 14 8 Feb 24 Green, Sustainability
New South Wales Treasury Corporation  8.1 9 Nov 18 17 Jan 24  Green, Sustainability
Asian Development Bank 7.6 8 Jan 19 9 Jan 24  Green, Social
KfW Bankengruppe 6.5 26 Mar 15 5 Jan 24  Green
International Finance Corporation  4.6 6 Mar 18 11 Apr 24  Green, Social
Treasury Corporation of Victoria  2.8 19 Jul 16 16 Sep 21  Green, Sustainability
National Housing Finance Investment Corporation 2.6 21 Mar 19 1 Nov 23  Social, Sustainability

Source: KangaNews 15 May 2024

*Volume includes bonds retrospectively classified as sustainability bonds. In this case, "first pricing date" refers to SAFA's first deal issued as a sustainability bond. 


Many issuers, however, have gone beyond just adding GSS bonds to their funding mix. There is a clear sense, among global and domestic borrowers, that it falls upon the high-grade sector to provide leadership to the sustainable debt market. This includes pioneering new products, responding to and driving market evolution, and following best practice as it emerges.

This goes right back to the start of the GSS market. The first-ever green bond came about after a group of Swedish pension funds read a UN climate change report in 2007 and approached a local bank, SEB, to ask if there was a way to link its stewardedsavings to projects that could contribute toward solving the science-backed issues the report identified. Given World Bank’s mandate and expertise in the area, SEB approached the supranational as the prospective bond issuer. The result was the world’s first labelled green bond, which World Bank issued in 2008.

Six years later, the asset class reached Australia when World Bank priced the first Australian dollar green bond. The genesis played out in a similar way. UniSuper already offered its clients sustainable investment options but the way it addressed the concept in the fixed-income market was through exclusions. UniSuper saw green bonds as a way to increase impact in the debt space so it approached World Bank with an offer to cornerstone an Australian dollar deal (see p32).

Heike Reichelt, Washington-based head of investor relations and sustainable finance at World Bank, says the early transactions fundamentally changed market participants’ though process. “Game changing bonds catalyse developments we may not immediately recognise or connect to the bond itself,” she comments. “The way issuers and investors approach fixed-income investment is completely different today than it was in 2014 – and it is not just about labelled bonds. Financial return, safety and liquidity used to be the only focus, but labelled bonds sparked conversations about what the money is supporting.”

“The way issuers and investors approach fixed-income investment is completely different today than it was in 2014 – and it is not just about labelled bonds. Financial return, safety and liquidity used to be the only focus, but labelled bonds sparked conversations about what the money is supporting.”

In this context, Reichelt says green bonds were a stepping stone the market needed. By taking the first step into issuance, she believes World Bank initiated a process that led to the International Capital Market Association Green Bond Principles, Social Bond Principles and Sustainability Linked Bond Guidelines.

She explains: “There is now a whole industry around the Principles: the executive committee, observers and various working groups collaborating toward efficient sustainable capital markets, providing investors, issuers and other market participants with helpful resources and publications. We started and set this in motion, and it has changed capital markets.”

Kaylene Gulich, chief executive at Western Australian Treasury Corporation (WATC), agrees the first World Bank bonds fundamentally changed the market. “I came across the World Bank green bond in 2015 when I joined the WATC board as a director and I was in Syndey for a conference. I remember saying how amazing it was, and commenting that it would be how governments issue and raise finance in future – it allows us to share the story of why we do things,” she reflects.

The issuer side has evolved, Gulich adds. “At the time, there was a lot of skepticism among central borrowing agencies on the basis that labelled issuance was bespoke and added complexity to a functional market. But we now understand that clarity on use of proceeds is front and centre – and not just for labelled bonds but across programmes.”

Again, high-grade issuers are leading the charge in delivering what the market increasingly demands. Gulich continues: “Governments are providing more information on what we do and how we go about it to allow investors to be comfortable about how their funds are being used.”


This is not to say high-grade issuers do not derive direct benefit from labelled issuance. The most commonly named is gaining access to a wider liquidity pool. This too goes back to the earliest days of the market. Treasury Corporation of Victora (TCV) was the first Australian semi-government borrower to issue a green bond, in 2016. In its annual report from the same year, TCV noted: “green bonds enhance the diversity of our investor base, provide important support to the state’s sustainability objectives and are in demand by the investment community”.

This motivation rings true for semi-government issuers today. Whether it flows through into superior pricing is less clear. The ‘greenium’ is certainly less apparent than it is in Europe, but issuers note the value of being able to issue substantial volume in GSS syndications at margins flat to their curves.

Jose Fajardo, executive director, funding strategy and investor relations at Queensland Treasury Corporation (QTC) in Brisbane, explains that the issuer has never sought a pricing advantage via green-bond issuance. But he adds that issuing A$3 billion syndicated transactions with no new-issue premium represents an excellent pricing outcome.

Still, the goal of gaining and retaining access to new investors via labelled issuance goes hand in hand with the concept of leadership, in the sense that high-grade issuers have consistently sought to keep their GSS programmes at the cutting edge of best practice to match ever-increasing investor expectations. Specifically, this means demonstrating that it is possible to align GSS bonds with an entity’s whole balance sheet.

This evolution is evident in WATC’s green-bond journey that produced its first syndicated transaction in 2023. Gulich says entering the labelled bond market was not an end in itself but rather a natural extension of the issuer’s sustainability journey and its sustainability bond framework, which the treasury corporation introduced after increasing investor interest in what the state is raising funds for.

“Our green-bond process was about layering how the assets work together to send a holistic, as opposed to a piecemeal, message. This was well received: investors could understand what we were trying to get to.”

WATC created the framework in response to investor queries on sustainability in a resources-focused economy like that of Western Australia (WA), and how the big picture aligns with state financing. The green bond plays a part in communicating this story.

“We wanted to pick assets of significant size, that investors could understand and see tangible delivery against but that also tied into a broader message about how the decarbonisation of our energy system supports other categories of investment,” Gulich comments. “Our green-bond process was about layering how the assets work together to send a holistic, as opposed to a piecemeal, message on environmental outcomes. This was well received: investors could understand what we were trying to get to.”

For instance, Gulich explains that removing coal from WA’s domestic fuel mix is important because it also facilitates electrified transport to offer a low-emissions option as well as reducing the emissions impact of the state’s desalination plants and electric vehicle charging infrastructure.

Earlier this year, South Australian Government Financing Authority (SAFA) took this alignment of strategy and financing a step further when it reclassified all the debt it has issued since July 2018 as sustainability bonds. It now has almost A$20 billion of such bonds outstanding, giving it the largest labelled bond pool in Australian dollars.

In a Q&A with KangaNews after the first new issue off the programme, in March, Peter King, head of financial markets and client services at SAFA in Adelaide, noted the purpose of the move was primarily to prioritise liquidity in the issuer’s bond lines – by not risking splitting liquidity between, effectively, two programmes. But the approach also gives the state a chance to highlight its broader environmental, social and governance (ESG) approach.

“South Australia has environmentally aligned policy initiatives that in the first instance are not always capital intensive from a state government financing perspective and so do not fit into the eligibility asset pool, but nevertheless contribute significantly to our ESG credentials,” King added.


SAFA’s approach is similar to a move World Bank made in 2021: to classify all its general-purpose issuance since July 2018 as Sustainable Development Bonds (SDBs).

World Bank still prints green bonds periodically, but its SDBs – in lieu of what previously would have been unlabelled issuance – draw attention to the fact that everything the multilateral development bank does is at its core aligned with the UN Sustainable Development Goals.

As Andrea Dore, World Bank’s Washington-based head of funding, told KangaNews in 2021 in the wake of the first issue in this format, the funding approach reflects the fact that some of these projects may not be eligible for inclusion in the pool of assets that are eligible for allocation of green bond proceeds but still have an important climate component.

“If we finance a school, we will ensure that it has as many low-carbon, climate resilient features as possible,” she said. “We may, for example, see if the school can incorporate power from renewable sources such as solar panels installed on the roof. Or we may seek to to include climate in the curriculum and the way the school is managed, and ensure that the building is resilient and can provide shelter during climate disasters.”

Reichelt now explains that green bonds should be viewed as a starting point for a wider conversation. “Issuers get questions about all the activities they finance. The more questions they get, the more likely they are to extend transparency to all their activities,” she tells KangaNews.

Green bonds still play a part in World Bank’s issuance but are a small portion of its funding programme. Reichelt says this reflects an evolution in the issuer’s approach but also on the buy side, from segregated green-bond funds to a more holistic – and widely adopted – integration of ESG factors across portfolios. World Bank has “supported investors along on this journey”, Reichelt notes.

Ultimately, she believes holistic models make the most sense. “Some issuers group assets into categories, saying some projects are green, social or transition. It is easier to do it this way if they are just picking a few projects. But it is more helpful to think about entities holistically – even though it is more complicated and some things may not be as easy to explain,” she says.


High-grade issuers leading the market forward is likely to remain a central theme of the GSS market. The debut of the Australian sovereign as a green-bond issuer is imminent, with a first transaction due by the end of June 2024. Investors believe this deal should further cement the role of labelled bonds in the local market (see investor roundtable) and the Australian Office of Financial Management has noted the role of green-bond issuance in supporting one of the federal government’s four categories of climate action, “international climate leadership”.

Meanwhile, SAFA’s inaugural new issue off its sustainability programme was well received. Its first impact report – due to be released in 2025 – will likely be the next key test. “Most ESG-focused investors were comfortable with our framework, and we only had a small number of investors say to us that they would not invest in the bonds – mostly due to their strict ESG criteria and ring-fencing of funds,” King told KangaNews.

“South Australia has environmentally aligned policy initiatives that in the first instance are not always capital intensive from a state government financing perspective and so do not fit into the eligibility asset pool, but nevertheless contribute significantly to our ESG credentials.”

The jury is out on whether other issuers will follow SAFA’s lead. For instance, Daniel Chandler, New South Wales Treasury Corporation (TCorp)’s Sydney-based head of funding and sustainability, says the emergence of new frameworks and issuance formats demonstrates the ongoing development of the local ESG market – noting that they “may be relevant for our own activities”.

He adds: “Naturally, we evaluate our approach against these market developments as part of our ongoing diligence.” TCorp issued its first green bond in November 2018 and has since added sustainability bonds to its funding mix. The process of identifying suitable projects for the issuer’s eligible asset pool can be complex and time consuming, Chandler acknowledges, and ultimately this can constrain the size of the underlying asset pool and thus potential issuance volume.

Gulich, meanwhile, has doubts about whether capturing every government project in labelled issuance is the future – even though WA’s decision to support green-bond issuance with more detailed, holistic information about the state represents “a bit of both”.

She adds: “Over time, I suspect these spaces will blur. But I’m not sure whether this means the entire programme becomes labelled. It will depend on how regulation and market expectations evolve and, if it happens, I’m sure it will be necessary to do it in a way that is genuine and demonstrates outcomes.”

QTC has a similar view. It has issued green bonds since 2017 and published its first annual sustainability report in 2021 in response to investor demand for holistic information on state sustainability objectives. “Investor conversations have developed – they want to know what the state is doing on ESG beyond the bounds of the green-bond asset pool,” Fajardo confirms. “We have not taken an approach like SAFA’s, but we have picked a different way to communicate what the state is doing on ESG.”