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Sustainability

ANZ Sustainable Finance Insights

Sustainable finance

2022-02-02 00:00

Market update

Market figures

  • Global issuance of sustainable debt in 2021 totalled USD1.64 trillion, more than doubling 2020’s full year issuance of USD761bndisclaimer. In 2021, Q4 ESG issuances totalled USD394bn, marginally higher than the prior quarter (USD370bndisclaimer) and significantly higher than Q4 2020 at USD265bndisclaimer. The total global sustainable debt market now exceeds USD4 trillion.

  • 2021 has been a defining year for Sustainable Finance, with issuance activity growing exponentially, driven by the flurry of new public commitments to net-zero by 2050, in response to increasing pressure from investors, regulatory developments, and COP26. Analysis by the International Energy Agency (IEA)  estimates that to reach net-zero emissions by 2050, global investment in clean energy will need to more than triple by 2030 to around USD4 trillion per annum.
     

Global Sustainable Debt Issuance (USD billions)

Instrument evaluations

Instrument type

Q4 2021

2H21

2021

2H21 vs 2H20

2021 vs 2020

Green Bonds

162

318

619

+130 (+69%)

+311 (+101%)

Sustainability-Linked Loans (SLLs)

110

190

428

+126 (+197%)

+303 (+244%)

Social Bonds

23

60

213

-46 (-43%)

+64 (+43%)

Sustainability Bonds

37

87

184

+35 (+68%)

+107 (+139%)

Sustainability-Linked Bonds (SLBs)

34

60

109

+50 (+485%)

+97 (+858%)

Green Loans

28

49

89

+2 (+5%)

-1 (-1%)

Total

394

764

1,642

+297 (+64%)

+881 (+116%)

 

Global Sustainable Debt Market by Year and Product (USD billions)

{CFINFOGRAPHIC: global-sustainable-debt-market-by-year-product.png}

Source: Bloomberg, 31 December 2021

 

Global Sustainable Debt Market by Year and Quarter (USD billions)

{CFINFOGRAPHIC: global-sustainable-debt-market-by-year-quarter.png}

Source: Bloomberg, 31 December 2021
 

Notable transactions

  • Green bonds continue to dominate, making up 41% of total Q4 issuance whereas social bonds made up the smallest percentage of issuance, contributing only 6% of total volume. Sovereigns and Government issuers are continuing to drive the momentum in green bond issuances; the UK issued its second green bond, raising GBP6bn with a 32-year green gilt, making it the longest-dated sovereign green bond in issue, maturing in 2053. The order book was 12 times oversubscribed.

  • Airport Authority Hong Kong (AAHK) issued a quadruple-tranche USD4bn 5/10/30/40-year bond. The 5-year issuance is AAHK’s debut green bond with net proceeds to finance or re-finance eligible green projects under AAHK’s Sustainable Finance Framework. There was strong investor demand, with the order book reaching over USD11.2bn. ANZ acted as Joint Associate Sustainability Structuring Advisor, as well as Joint Lead Manager and Bookrunner.

  • SLLs remain the second largest format in the market, making up 28% of total Q4 2021 activity. An example transaction is retirement village provider Metlifecare’s NZD1.25bn refinancing of the company’s bank loan facilities into an SLL. This is NZ’s largest ever sustainable refinancing, with targets relating to emissions reduction, building new aged care facilities with a 6 Green Star rating, and increasing the amount of care beds with dementia friendly accreditation. ANZ was Joint Sustainability Coordinator, as well as Joint Mandated Lead Arranger and Bookrunner.

  • Pacific Equity Partners’ smart utility infrastructure-as-a-service company, Intellihub Group received a world first Electrical Grids and Storage Certification under the Climate Bonds Standard (CBS) for its green loan. The new AUD1.45bn 5-year facility will fund the rapid rollout of smart meters to homes across Australia and New Zealand. ANZ acted as sole Green Loan Coordinator for Intellihub.

  • UK affordable housing association Sage Housing has raised GBP280m from a sustainability bond, the first European Social Housing Securitisation. The bond will be secured against 1,712 affordable and social rent homes to support the delivery of over 20,000 new energy efficient homes. The allocation of proceeds from the sustainability bond will not be divided into 'green' and 'social' segments – instead all the properties are considered eligible under both criteria. The bond term is expected to be 5 years but contains twenty 1-year extension options.

  • The European Investment Bank (EIB) issued a record Kangaroo sustainability awareness bond. The AUD1.5bn 5-year transaction sets the new record for the largest single tranche issuance from a supranational in the Kangaroo market. Asia was the largest source of investor demand, while almost a third of the issue was placed onshore in Australia. Proceeds from the bond will be allocated to EIB’s lending to activities that materially contribute to sustainability objectives in line with evolving EU sustainable finance legislation. ANZ acted as Joint Lead Manager.

  • The Asian Development Bank (ADB) issued its largest ever kauri bond, opening the NZD SSAdisclaimer market for 2022 with a NZD1.2bn 5-year ADB health bond. Asian investors accounted for 71% of demand, while NZ based investors made up 28% of demand. ANZ acted as Joint Lead Manager.

  • Indian corporates are taking the lead in bolstering the country’s transition to net-zero:
    • Indian conglomerate Reliance Industries Limited’s commitment to reach net-zero carbon by 2035 was showcased via the group’s strategic acquisitions and investments in its New Energy and New Materials business, which included the acquisition of REC Solar Holdings AS by its wholly owned subsidiary, Reliance New Energy Limited. ANZ acted as an Original Lender for the USD250m 6-year green loan which was raised to primarily fund the acquisition of REC Solar Holdings AS.

    • Birla Carbon, a global supplier of carbon black solutions, has sought to tie its financing strategy to its aspiration to achieve net-zero carbon emissions by 2050, via the company’s inaugural USD750m sustainability-linked loan. ANZ acted as sole Sustainability Coordinator and Mandated Lead Arranger.

Broader developments

Emerging themes

  • The Science-Based Targets initiative (SBTi) launched the world’s first framework for corporate net-zero target setting. The Net-Zero Standard covers a company’s entire value chain emissions (scopes 1-3) and ensures that corporates can now verify not just their short term (2030) targets, but also their long term (2050) targets. Note that from 15 July 2022 onwards, the SBTi will no longer validate targets in line with well below 2°C, so all corporates seeking validation should have 1.5°C aligned targets. The SBTi is also developing the first global standard for net-zero targets in the financial sector which is due for release this time next year.

  • Australia committed to net-zero by 2050 in time for COP26. The Government’s plan focuses on driving down the costs of low emissions technologies including clean hydrogen, carbon capture and storage, solar, soil carbon, and energy storage. Deploying these technologies at scale, alongside purchased carbon offsets, are expected to contribute 85% of emissions reduction necessary to achieve net-zero by 2050. The remaining 15% of emissions reductions will be driven by new and emerging technologies. The Government’s analysis also showed that failure to adopt a net-zero by 2050 target would lead to Australia’s debt costs increasing by up to 300 basis points.

  • Prices for Australian Carbon Credit Units (ACCUs) soared 197% in 2021, driven by the growth in voluntary demand for carbon offsets as companies set net-zero targets in response to pressure from investors and consumers. Research from carbon market consultancy Reputex shows that the 2021 price rally in ACCUs surpassed even the 146% increase in the European carbon market. A sustained period of higher prices could incentivise companies to further explore and prioritise decarbonisation options before utilising carbon offsets.

  • Australia signs international biodiversity declaration. The Kunming Declaration sets out the intentions of the signatories to develop, adopt and implement an effective post-2020 global biodiversity framework that puts biodiversity on a path to recovery by 2030. Biodiversity targets to be decided around May 2022 are likely to place obligations not only on governments of participating countries, but also on companies (e.g. assessing and reporting dependencies and impacts on biodiversity). Conversely, financial institutions are calling for the creation of a more ambitious Global Biodiversity Framework (GBF) with an expectation for financial institutions and businesses to align financial flows to global biodiversity goals.

  • The IFRS Foundation Trustees announced the formation of a new International Sustainability Standards Board (ISSB) via the consolidation of the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF houses the Integrated Reporting Framework and the SASB Standards) by June 2022. This will create greater consistency of sustainability reporting across global jurisdictions. Investors may expect corporates to align their disclosure with the new standards once finalised.

  • The US has published its Long-Term Strategy of the United States for addressing climate change, outlining the stepping stones and policies needed to achieve net-zero emissions by 2050. The report details an integrated approach, using various pathways including the transformation of the energy system, carbon capture and limits for non-CO2 emissions. This will likely support the growth in emissions reduction solutions in the US as well as the growth of the US sustainable finance market.

  • Over 100 Nations at COP26 have signed the US and EU sponsored Global Methane Pledge (GMP). The signatories committed to collectively reduce global methane emissions by at least 30% by 2030 versus 2020 levels. Major sources of methane emissions include oil and gas, coal, agriculture, and landfills. The greatest potential for targeted mitigation by 2030 is in the energy sector. The European Commission will propose legislation to measure, report and verify methane emission, put limits on venting and flaring, and impose requirements to detect leaks, and repair them. 

  • Asian central banks are playing a bigger role in incentivising companies to decarbonise. For example, China's central bank will provide financial institutions with low-cost loans to help firms cut carbon emissions, supporting the country's long-term carbon neutrality goals. Meanwhile, Japan’s central bank has begun to provide interest-free ‘climate response’ loans worth up to JPY2 trillion (USD18bn) to encourage investments in decarbonisation. This is expected to accelerate the growth of sustainable finance in Asia.

  • Despite the most recent IEA report calling for no investment in new fossil fuel supply projects, the European Commission has proposed, via its Taxonomy Complementary Delegated Act, to include some nuclear and natural gas energy generation in the EU’s sustainability taxonomy. This has drawn criticism from some EU member states and the broader market. The EU Member States Expert Group on Sustainable Finance had until 21 January to provide their responses, ahead of formal adoption by the Commission. It will then be sent to the EU Council and Parliament, who will have up to six months to object to it or the Act will be automatically adopted.

Investor perspectives

Product guidelines

  • UN Women, International Finance Corporation and International Capital Market Association (ICMA) have published guidance on how issuers can use sustainable bonds to advance gender equality. It provides illustrative examples of gender-related use-of-proceeds for social and sustainability bonds as well as metrics and targets for sustainability-linked bonds.

  • ICMA has recommended that the International Platform on Sustainable Finance’s Common Ground Taxonomy (CGT) of green activities widens its scope to include additional categories and transition activities but avoids developing the granularity seen in the EU Taxonomy. The CGT was described as a “much needed” attempt to set global standards by mapping overlapping ‘green’ activities identified in the EU and China taxonomies.

ANZ updates

  • ANZ is proud to be awarded Australian Sustainability Debt House of the Year and Global Coverage House of the Year – Sustainability in the 2021 KangaNews awards. We congratulate all our customers who also received deal and issuer awards.

  • A Sustainable Finance Portfolio team, headed by Jo White, has been established to support the rapid growth in customer demand for sustainable finance. The team will enable our market-leading origination business and drive best in class execution capability. 

  • ANZ Sustainable Finance welcomes Monique Wilson who joins us as a Manager in Auckland from Kiwibank’s Property Finance team, and Shaina Tan who joins us as a Manager in Singapore from EY’s Climate Change and Sustainability Services team.

  • ANZ published its 2021 ESG Supplement, Climate Change Commitment, and Climate-related Financial Disclosures.

  • ANZ Group Treasury published the latest annual Use of Proceeds and Impact Report and annual assurance statement for the ANZ SDG Bond program

 

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ANZ contacts

ANZ has a global Sustainable Finance Team with presence in Sydney, Melbourne, Singapore, Hong Kong, London and New Zealand.

Feedback and enquiries can be directed to sustainablefinance@anz.com.

Australia 

Katharine Tapley

Head of Sustainable Finance
T: +61 2 8937 6092
E: Katharine.Tapley@anz.com
Based in Sydney

Jo White

Head of Portfolio, Sustainable Finance
T: +61 2 8937 6062
E: Jo.White@anz.com
Based in Sydney

Emily Tonkin

Executive Director, Sustainable Finance
T: +61 2 8937 8454
E: Emily.Tonkin@anz.com
Based in Sydney

Bronwyn Corbet

Executive Director, Sustainable Finance
T: +61 4 1941 5343
E: Bronwyn.Corbet@anz.com
Based in Melbourne

Tessa Dann

Director, Sustainable Finance
T: +61 2 8037 0602
E: Tessa.Dann@anz.com
Based in Sydney

Tania Smith

Director, Sustainable Finance
T: +61 3 8655 1655
E: Tania.Smith@anz.com
Based in Melbourne

Katie Wood

Associate Director, Sustainable Finance
T: +61 4 5994 9710
E: Katie.Wood@anz.com
Based in Melbourne

Ivan Ng

Senior Manager, Sustainable Finance
T: +61 4 8146 1415
E: Ivan.Ng@anz.com
Based in Melbourne

Kate Cheeseman

Senior Manager, Sustainable Finance
T: +61 2 8937 6590
E: Kate.Cheeseman@anz.com
Based in Sydney

Jessica Liu

Manager, Sustainable Finance
T: +61 4 3492 4546
E: Jessica.Liu@anz.com
Based in Sydney

New Zealand

Dean Spicer

Head of Sustainable Finance, New Zealand
T: +64 4 381 9884
E: Dean.Spicer@anz.com
Based in Auckland

Kate Gunthorp

Director, Sustainable Finance
T: +64 9 252 6122
E: Kate.Gunthorp@anz.com
Based in Auckland

Caroline Poujol

Director, Sustainable Finance
T: +64 2 161 9532
E: Caroline.Poujol@anz.com
Based in Auckland

Monique Wilson

Manager, Sustainable Finance
T: +64 9 252 6354
E: Monique.Wilson@anz.com
Based in Auckland

Poppy Brinsley

Analyst, Sustainable Finance
T: +64 2 7844 7095
E: Poppy.Brinsley@anz.com
Based in Auckland

 

International

Stella Saris Chow

Head of Sustainable Finance, International
T: +65 6708 2896
E: Stella.Saris@anz.com
Based in Singapore

Stephanie Vallance

Director, Sustainable Finance
T: +65 6708 2839
E: Stephanie.Vallance@anz.com
Based in Singapore

Mara Chiorean

Director, Sustainable Finance
T: +65 8328 1532
E: Mara.Chiorean@anz.com
Based in Singapore

Nancy Wang

Director, Sustainable Finance
T: +852 6595 3762
E: Nancy.Wang3@anz.com
Based in Hong Kong

Prash Odhavji

Senior Manager, Sustainable Finance
T: +852 3917 7307
E: Prash.Odhavji@anz.com
Based in Hong Kong

Shaina Tan

Manager, Sustainable Finance
T: +65 9117 9694
E: Shaina.Tan@anz.com
Based in Singapore

Kaitlin Edwards

Senior Manager, Sustainable Finance
T: +44 2032 292601
E: Kaitlin.Edwards@anz.com
Based in London

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This publication is published by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (“ANZBGL”) in Australia. This publication is intended as thought-leadership material. It is not published with the intention of providing any direct or indirect recommendations relating to any financial product, asset class or trading strategy. The information in this publication is not intended to influence any person to make a decision in relation to a financial product or class of financial products. It is general in nature and does not take account of the circumstances of any individual or class of individuals. Nothing in this publication constitutes a recommendation, solicitation or offer by ANZBGL or its branches or subsidiaries (collectively “ANZ”) to you to acquire a product or service, or an offer by ANZ to provide you with other products or services. All information contained in this publication is based on information available at the time of publication. While this publication has been prepared in good faith, no representation, warranty, assurance or undertaking is or will be made, and no responsibility or liability is or will be accepted by ANZ in relation to the accuracy or completeness of this publication or the use of information contained in this publication. ANZ does not provide any financial, investment, legal or taxation advice in connection with this publication.

Past figures in this report may differ from those quoted in previous reports as all figures are based on BNEF data which is retrospectively updated when new deals are identified from prior periods

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