WATC's long road to green-bond success

The journey to green-bond issuance was a protracted one for Western Australian Treasury Corporation, as the issuer wanted state government commitments and the wider state economy to align with investor expectations before joining the market. A successful debut transaction priced in June 2023 suggests the preparatory work was more than worthwhile.

The resources sector is a longstanding boon to the economy in Western Australia (WA). Elevated commodity prices in the wake of the pandemic have boosted the state government’s coffers, minimising its borrowing requirement and providing a tailwind to ongoing improvement in the WA budget position.

WA’s financial strength is well established. On 11 July, Moody’s Investors Service upgraded WA to Aaa, noting that the state is “an outlier to its domestic and international peers”. The upgrade makes WA the only Australian state with across the board triple-A ratings.

However, strong links to mining have also made for a tougher task when it comes to sustainability alignment. Western Australian Treasury Corporation (WATC) has historically acknowledged this, pointing to the nature of the state economy as one of the primary reasons for its relatively late debut in the green, social and sustainability (GSS) bond space.


WA published an environmental, social and governance (ESG) information pack in November 2021 – Supporting Continuous Improvement in ESG Outcomes for Western Australia – summarising its “key policy commitments and actions to address environmental and social challenges”. By this point, three other Australian state treasury corporations were already active in the GSS market with the first such transaction priced five years previously.

At the time of its release, Kaylene Gulich, chief executive at WATC in Perth, explained that the pack was an important step to bridge the gap between investors’ perception of the state and willingness to support its sustainability strategy via green-bond allocations.

“We have been following the GSS market closely for some time, including watching what the other Australian semi-government issuers are doing,” Gulich told KangaNews. “Our conclusion is that just issuing sustainable bonds now would not be received as well by investors as it could be, because of perceptions about the nature of the WA economy. We are a strong mining, high per-capita emissions state, and of course we also get caught up in concerns investors might have about Australia more generally.”

The primary goal of the investor pack was to respond to mainstream investors’ growing demand for issuers to provide detailed information on ESG strategy. The pack did not set out new policy commitments but instead collated major elements of the state government’s ongoing ESG efforts in alignment with one or more of the UN Sustainable Development Goals (SDGs).

“The feedback we have received was that this sort of information is stronger when aligned to a reputable framework – which is where the SDGs come in,” Gulich explained. “The state government is committed to progressing the SDGs, and they showcase the breadth of activities the government undertakes. We have also focused the information on tangible actions and activities, and acknowledge the importance of transition.”

The pack highlighted initial transition targets under the WA government’s net zero by 2050 commitment, including that more than 70 per cent of energy generation in the South West Interconnected System – which covers more than 85 per cent of the state’s population – would come from renewables by 2040, and less than 5 per cent from coal. The 2020 figures were 37 per cent renewables and 20 per cent coal.

Other environmental aspects described in the information pack include waste recycling, pollution control, water management and biodiversity conservation. Social aspects – which account for nearly two-thirds of the annual expenditure outlined in the pack – cover physical and mental health, education and training, liveability and culture, housing – including home ownership, housing affordability and social housing – equality and outcomes for Aboriginal people.

WATC emphasised at the time of the information pack’s publication that it was not an immediate precursor to green-bond issuance – not least because the state’s small funding requirement did not align with a quickfire market debut. But it was a key building block. In an interview with KangaNews a month before the pack was released, the state’s then premier, Mark McGowan, revealed: “From this start, WATC will develop a framework that will allow for GSS issuance, subject to market conditions and the state’s broader borrowing strategy.”

“We now have a strong, cohesive story that we believe suits engagement with investors, backed by commitments and projects of a scale that is meaningful to the state and for investment purposes.”


WATC published its Sustainability Bond Framework a year and a half later, in April 2023. Gulich confirmed that the treasury corporation had been supportive of sustainability issuance for some time but “wanted it to be with all-of-state involvement”. This reached a tipping point on the back of a raft of significant state government commitments in support of overall sustainability outcomes.

“We now have a strong, cohesive story that we believe suits engagement with investors, backed by commitments and projects of a scale that is meaningful to the state and for investment purposes,” Gulich tells KangaNews.

In fact, over time WATC could have access to a wider range of assets and thus a larger GSS bond issuance pool than some of its peers. For instance, Perth’s two desalination plants – which produce 45 per cent of the city’s water supply – are both owned by the state government via the Water Corporation. A third, renewable energy powered, plant is planned with the first of its two stages expected to be operational by 2028.

State asset ownership also helps the funding framework address interoperability. The WA state government has now committed to an 80 per cent reduction in its own emissions relative to 2020 levels by the end of the current decade, which will require the elimination of coal from the energy system. This should help ease investor skepticism that has emerged when, for instance, a public-sector borrower issues green bonds to fund electric rail projects while having a coal-reliant power grid.

“The interoperability issue is certainly made easier by virtue of the fact that WA owns more of its own assets – in particular for electricity generation and distribution. It should also make it easier to grow the asset pool over time with material, impactful assets,” Gulich says.

On the other hand, WATC anticipated that investors would give close scrutiny to the specifics of the WA state economy when it roadshowed its debut green-bond deal in Asia, Europe and Japan from late May 2023.

Gulich said the framework was drafted to “acknowledge the reality of being a mining and an export state” but also highlighted the significance of WA’s role in supporting global environmental transition through lithium and other rare earth minerals, and state government commitments to support the development of the green hydrogen power sector.

The work on this front is ongoing. For instance, in October 2022 WA published the Western Australian Industry ESG Information Pack to supplement its original investor pack. The purpose of the newer document is “to inform investment decisions in WA’s key industries”, in particular those that “significantly contribute” to the state’s export sector.


The preparatory work appears to have had the desired effect of attracting investors to WATC’s green-bond debut. The issuer printed a capped A$1.9 billion (US$1.3 billion) in a 10-year transaction on 8 June, with a margin of 53 basis points over EFP – 2 basis points tighter than the left side of the 55-59 basis points over EFP indicative range – and a book of more than A$6 billion including more than 65 accounts.

Demand was largely domestic but supplemented by 25 per cent distribution offshore – mainly to EMEA. Asset managers took nearly 60 per cent of the bonds. Gulich says the book included accounts that are new to WATC and others that have not participated in its syndicated deals for more than a decade.

Scarcity value likely helped – WATC had not syndicated a 10-year benchmark of any kind for more than two years and its overall issuance programme has been limited in size for several years – as did the green format. “It is hard to know the extent to which the support is green-bond related, though there were certainly a number of investors with a specific green lens,” Gulich told KangaNews after pricing. “Others, though, responded positively to the detail we were able to provide on delivering broader ESG outcomes and the positive economic story. We are fine with both – we weren’t looking for demand that was ‘just’ green.”

WATC roadshowed globally ahead of the deal, to what Gulich described as a highly receptive response. “These were the most positive conversations we have had with investors across jurisdictions,” she said. “My sense is that they were impressed with the breadth of the conversation we were able to have about the state government’s ESG credentials and economy – including a lot of interest in the look-through to the mining sector.”

WATC plans to issue a single syndicated benchmark deal in its 2023/24 financial year, which will be a vanilla bond. However, Gulich says it will target supply at increasing the size of the green bond via tap and reverse enquiry, and it will also re-examine the sustainable finance programme ahead of any syndicated deals in 2024/25.