Retail scale-up

Most companies will not have the required volume of assets to package into a use of proceeds (UOP) sustainable-debt transaction, or the overall scale for an institutional KPI-linked loan facility. However, retail channels and aggregation facilities for green finance are proliferating.

Much of the progress that can be made toward a low-carbon economic transition is through small business. Examples include the replacement of a small business’s vehicle fleet with electric vehicles (EVs) or the instalment of solar power and thermal efficiency measures on premises.

Unless these are done by companies with the scale to access institutional markets it is unlikely there will be a financing incentive to undertake these types of steps. However, in aggregate they are potentially even more meaningful for economic transition and at the same time could become sought-after institutional assets once enough scale is gained.

The traditional securitisation market could have a role to play. For instance, retail and fleet lenders are hungry to originate EV loans to satisfy investor demand for green asset-backed securities and to meet their own sustainability goals.

Retail assets such as solar panels have already become a feature of the Australian securitisation market through transactions from Brighte and humm, and there are also hopes of growth in the green-mortgage space.

Meanwhile, Clean Energy Finance Corporation (CEFC) provides aggregation facilities to banks and nonbanks for SME and consumer lending to a variety of low-emission assets such as EVs, solar panels and thermal efficiency.

National Australia Bank (NAB) is also providing this sort of financing to nonbank financial institutions, fintechs and SMEs, according to the bank’s head of sustainable finance, David Jenkins. He says discounted asset-based finance has so far proved to be the most effective, scalable and efficient way for the sustainable-finance industry to incentivise smaller businesses.

These facilities allow lenders to provide finance at a discount through retail channels, and also hold great potential for lending providers in the wholesale funding market. Once scale is sufficient, the assets generated can be recycled into the institutional market in the form of green bonds.