Money talks and so does climate change

The KangaNews Sustainable Debt Summit took place in Sydney on 3 April at a time in which the sustainable finance sector is being forced to reiterate its value and purpose. Market leaders say incorporating sustainability considerations into investment decisions is a necessity, not a choice – and the politicisation of the sector does not change why markets decided to address the issue in the first place.

“The global financial institutions we work with, particularly those with a strong presence in the US, are changing what they are willing to talk about publicly – but they are not changing what they are doing. In some ways, the headlines are a symptom and a cause at the same time.”

“There is so much focus on what is happening federally in the US but not nearly as much at state level. In the last couple of months, states such as California, Vermont, New York and Colorado have introduced laws ranging from mandatory climate-related financial disclosures to allowing cities to claw back the cost of adaptation from high emitters. I resist making generalisations about America because the landscape is nuanced, complex and bifurcated.”

“The term ‘ESG’ is easily attacked because it evolved to mean a lot of different things. It suffers from the same political opportunism as other words and labels. Our signatories and the PRI are speaking now about the underlying issues: climate change and resilience, nature loss and restoring biodiversity, workers’ rights, and access to the benefits of economic development.”

“A large UK pension fund took £28 billion from State Street because the latter was backing away from ESG. Investors, issuers, banks and asset managers are all on notice for how they behave in this period. Four years is not a long time, and investors will be paying close attention to what goes on.”

“Just because there is talk of backtracking on requirements to disclose climate risk doesn’t mean the risks have disappeared. Extreme weather events are still happening. Likewise, there is no world in which not meeting human rights standards is acceptable. We are going to continue to pay attention to ESG and integrate it in how we assess companies.”

“Our enquiries from clients and asset consultants are up threefold from last year and the same from the year before that. Only one client has asked about what peers are doing. The rest want to make sure we are staying the course and not winding back our practices. The money in the room is not asking us to step back from what we are doing.”

“Capital has made up its mind and so has the community. Our political class is starting to be dragged kicking and screaming, but it will happen. There is no time for backtracking or getting bogged down.”

“Don’t be distracted by the noise. It will always be there; this is about embedding climate risk and opportunities in day-to-day thinking and in business as usual.”

“In everything we do, we solve for the planet, people and prosperity equation. If one fails, the system derails.”

“Sometimes we in sustainable finance get a bit too confident about what we are going to do to save the planet. Ultimately, market dynamics are driven by overall economic and environmental policy, by governments and regulations. We need to be humble about what we can do to transform the world – at least from our day-to-day jobs in finance. We play a crucial role but a specific one: to enable markets to channel investment to sustainable projects.”

“Desalination is extremely energy intensive infrastructure and it creates a conundrum between government’s climate-adaptation and climate-mitigation responsibilities. This is why the enabling theme of our green-bond programme is to reduce emissions from electricity generation, which in turn aligns with the policy commitment for all energy required for Perth’s desalination plants to be 100 per cent renewable by 2035.”

“An adaptation measure is not worthwhile if everything that surrounds it is not resilient. One of our members improved the flood resilience of a port it owned but when a flood occurred the roads in and out, and then the train line, were unusable and the port became inaccessible. There was no financial benefit from the investment because whole system resilience let the investor down.”

“The Pacific Islands Forum has been leading on the issue of continuity of statehood in the face of climate change-related sea-level rise. How does a country that is going underwater protect its area and continue to benefit from it? If your country is underwater, do you still have passports and nationhood?”

“The TCFD and IIGCC’s climate resilience investor framework help companies identify climate risks and investment opportunities. However, unclear metrics for climate risk and resilience benefits, along with ambiguity about what defines a credible adaptation project, make it difficult to build strong investment cases and limit the pipeline of investable projects.”

“Australia is home to world-class innovation and research. The next exciting frontier is unlocking the full potential of these breakthroughs by expanding and accelerating the investment pipeline to support innovation to scalable, market-ready opportunities.”

“Adaptation is often overlooked in the world of climate finance – it is considered the poor cousin. We should not forget it is the second pillar of the Paris Agreement: we need to combat climate change and adapt to its effects.”

“Catastrophe bonds have a risk-return profile that is arguably second-to-none of any asset class I’ve seen in my career. But you wouldn’t allocate 40 per cent of your portfolio to them. Absent a major catastrophe, which hasn’t happened since the advent of the asset class, it is unlikely to perform better than nearly 20 per cent two years in a row.”

“QBE issued a catastrophe bond in January this year. It was a US$250 million bond that covers named events in the North American market, from Puerto Rico up through the US and Canada. It was well priced at a 4 per cent spread. The driver was APRA [Australian Prudential Regulation Authority] relaxing its regulation by reminding insurers that they have access to insurance-linked markets and that it would consider these securities to be a contributor to regulatory capital.”

“A number of countries and territories have issued catastrophe bonds in the last five years, including Jamaica, Puerto Rico and Mexico. These are generally weaker government credits and those that are exposed to Caribbean Sea and coastal risk. Generally, [high-rated] governments are not issuing. Catastrophe bonds can help these economies recover from natural disasters with a prompt payment of timely funding and take pressure off governments when rebuilding communities.”
MICHAEL VINE S&P GLOBAL RATINGS

“The Australian taxonomy adopts a pragmatic approach by allowing the classification of activities that serve as practical stepping stones to greenness. The idea is to recognise activities that either actively contribute to environmental sustainability or represent the best available transitional option for now.”

“The insurance-linked securities market reached US$50 billion last year. This is small relative to the total investment landscape, but the growth is enormous. The Swiss Re catastrophe bond index has had two years of stellar performance, returning almost 20 per cent in 2023 and 2024.”

“Good transition plans have a taxonomy sitting next to them. This sets out the pathway so financiers can discuss where capital allocation needs to be. This is the way we view transition: it is not ideological, it is about where we need to get to and the role of capital to support and allocate in the right ways.”

“We are making a major step forward in our strategy of gradual alignment with the European taxonomy and the European Green Bond Standard. This is not a break with the past: it continues our operationalisation and promotion of best practice within the Green Bond Principles. We began with this strategy in 2019, when the taxonomy and EU regulations were still in the making. With the help of the EU sustainable finance framework, we have further improved the substance of our green bonds on a step-by-step basis.”
ALDO ROMANI EUROPEAN INVESTMENT BANK

“Investors are focused on understanding our framework and reporting metrics but some would like us to have a rating from MSCI or Sustainalytics. They want to make sure we are not just presenting them with an asset they can invest in that aligns with ICMA’s Green Bond Principles, but that the company has strong sustainability goals.”

“We are aware that we are not an early adopter of green bonds. Therefore, it is important that our approach is best-in-class and meets investor expectations – including as those expectations evolve. To the degree possible, we want to set the standard. We have already had conversations with other issuers about things we have done that they will introduce into their own programmes.”

“At the start, the Australian market was very qualitative – it was about storytelling. Investors are now more focused on data. In our annual sustainability report, we initially published the data we thought was important. But now it is clearer what investors want.”

“RBC research found that, in 2024, 38 per cent of new fund launches were related to Paris-aligned climate transition funds – strategies that are broadly driven by carbon-emission-reduction pathways. This proportion has been increasing since 2020 and is beginning to become more relevant than impact or SDG-driven funds. We are moving toward a focus on data and carbon emissions as an additional layer of complexity to labelled bond issuance.”

“We love the labelled bond market as it ensures the use of proceeds from a bond goes to projects that will support climate stability or the under-served in society. The risk is reduced supply going forward. In the US, there has only been one new green bond issued this year – which is the lowest number in a decade. Fewer bonds are being issued in emerging markets as well. We want issuers to continue to view labelled bonds as useful.”

“Transition financing is not always easy, especially where the political will is challenging. But ESG, transition finance, and the key goal of decarbonisation remain at the heart of the conversation that needs to be had.”

“Mandatory climate reporting is a real step change. It brings structure, transparency and comparability to sustainability disclosures— especially for issuers already active in sustainable finance. This shift helps close the gap between what companies disclose and what investors need. It’s about building trust and consistency across the market”

“More than half the world’s GDP is moderately or highly dependent on nature and its services. Think about things like wild pollination for plants that go into medicines, soil health in decline – which affects food security and agriculture productivity – increases in zoonotic diseases like COVID-19, and water scarcity – which has obvious impacts on the agriculture sector but reaches into industrial processes like energy production and data centres.”

“Even though nature might feel like a big area to get into, if you have made progress on climate you have already made progress on a big domain you would have needed to address in nature. From there, the next domain can depend on the sector. A fishery might need to look at oceans and rivers, whereas a property company might need to look at land use change. It does not all need to happen at once.”

“We think of nature as infrastructure that requires investment and as a tool that can help us to attenuate floods, provide shelter for animals, cool down waterways, build resilience and create jobs in our communities. It will deliver benefits, and reduce costs and risks well beyond the farm gate. The challenge is how we get this investment to the ground level.”