ANZ Sustainable Finance Insights, Q4 2022

Quarterly highlights  |  Market update  |  Notable transactions  |  Sustainability events  |  Sustainability tools and regulation  |  Notable updates  |  ANZ contacts

Market update

The market update below provides an overview of the global sustainable finance market. All market data is sourced from Bloomberg as at 31 December 2022.

• Global Green, Social, Sustainability and Sustainability-Linked (GSSS) issuance totalled USD1,490.1bn in 2022, representing a 16% decline year-on-year (YoY) compared to the 2021 full year issuances. The slower growth momentum was heavily reflected in Q4 2022, with debt volume for the period significantly lower than Q4 2021 at USD309.6bn (Q4 2021: USD461.8bn). This was driven by market conditions as higher interest rate volatility and rising inflation contributed to market uncertainty and reduced market activity. The total global GSSS market now exceeds USD5.77tn as at 31 December 2022.
  
  
• Green Bonds continue to dominate sustainable finance, contributing 39% to Q4 activity, and 38% to total 2022 activity. Amid slower overall bond activity, Green Bond issuance decreased ~10% YoY driven by lower issuance across all categories. Social Bonds recorded the highest decline, with issuance volume ~39% below 2021, reflecting lower government borrowing to fund pandemic relief measures which bolstered Social Bond issuance in 2021.
  
  
• Sustainability-Linked Loans (SLL) continue to be the second highest product type, with ~USD419.13bn issued in 2022 accounting for ~28% of total GSSS issuance for the period. The SLL format declined ~16% YoY due to lower issuance in Europe, North America, and Oceania, partially offset by the growth of issuances in Asia and South America. In the SLL structures, environmental targets continue to dominate the market, with a particular focus on greenhouse gas emissions reduction and renewable energy.
  
  
• Sustainability-Linked Bonds (SLBs) underperformed against market expectations, producing a ~57% decline YoY for the quarter (Q4 2022 v Q4 2021), and a 21% decline YoY for the full 2022 calendar year. This decline was driven by the consistent market volatility which drove issuers to favour the well-understood Green Bond format to simplify execution. Despite this, SLBs are expected to remain a focus into 2023.
  

Comparative performance of the GSSS issuances for full year ending 31 December 2022 (USD billions)

Source: Bloomberg, 31 December 2022

Global Sustainable Debt Market by Year and Product

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Source: Bloomberg, 31 December 2022

Global Sustainable Debt Market by Region

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Source: Bloomberg, 31 December 2022

Notable transactions

ANZ continues to support customers to access the sustainable finance market. The notable Q4 transactions supported by the ANZ Sustainable Finance team are outlined below.

Australia

• Orica announced the aggregate execution of AUD1.3bn of Sustainability-Linked Loans, which is a milestone debt conversion for the mining and infrastructure solutions sector. The loan margin for the facilities will be adjusted based on performance against the following key performance indicators: (1) scope 1 and 2 greenhouse gas emissions reduction; (2) reducing potable water intensity; and (3) increasing female representation in senior leadership. ANZ acted as Co-Lead Sustainability Coordinator.
  
  
• Lightsource bp successfully executed an AUD540m portfolio green financing on two Australian greenfield solar farms to confirm its position as Australia’s leading solar developer. The financing will support the development of the 425MWdc Wellington North solar farm in New South Wales, and the 90MWdc solar farm in Victoria. ANZ acted as Joint Mandated Lead Arranger and Joint Green Loan Coordinator.
  

New Zealand

• Following the New Zealand Sovereign Green Bond Programme in September 2022, New Zealand Debt Management announced the issue of NZD3bn of Sovereign Green Bonds in November 2022. Green Bonds issued under the Green Bond Framework will primarily address New Zealand’s environmental priorities of climate change, environmental protection, and indigenous biodiversity. ANZ acted as Joint Lead Manager for the Green Bond syndication.
  
  
• Contact Energy has refreshed its sustainability-linked lending programme to further align with its strategy to build a better New Zealand by leading the country’s decarbonisation efforts. In December 2022, Contact converted its existing bilateral SLLs into a new $850m sustainability-linked loan, including targets relating to emissions reduction beyond Contact’s existing 1.5-degree SBTi validated emissions reduction trajectory, increasing renewable energy generation beyond what has already been announced, and continuing to be a leader in broad-based sustainability performance, as evidenced by sustained inclusion in the DJSI. ANZ acted as Joint Lead Arranger and Bookrunner.
  

International

• The Hong Kong Mortgage Corporation Limited (HKMC) successfully issued HKD8bn and CNH3bn dual-tranche Social Bonds under its newly established Social, Green and Sustainability Financing Framework (SGS Framework). Notably, the transaction is the world’s first known dual-tranche Social Bond in the issued currencies. ANZ acted as Joint Lead Manager and Joint Bookrunner.
  
  
• The Asian Development Bank (ADB) and the Vietnam Prosperity Joint Stock Commercial Bank (VPB) successfully executed USD500m Social Loan to expand access to finance for women owned small and medium-sized enterprises (SME) in Vietnam. ANZ acted as a Mandated Lead Arranger and Bookrunner.
  
  
• In a world first, Impact Investment Exchange (IIX) successfully completed a USD50m Women’s Livelihood Bond aligned with the Orange Bond Principles. The bond which is the first multi-continent bond in the Women’s Livelihood Bond series securitises a portfolio of loans to empower ~300,000 women and girls across Asia and Africa. ANZ acted as Lead Placement Agent. (See “Global” section for more information on Orange Bonds.)
  

Sustainability events

Sustainability-themed events have gained momentum globally. Notable sustainability events with impacts and insights affecting all markets and locations across the quarter are summarised below.

• In December 2022, the 15^th United Nations (UN) Biodiversity Conference of the Parties (COP15) resulted in a landmark agreement, called the Kunming Montreal Global Biodiversity Framework (GBF). The GBF has been negotiated over four years and captures agreement from nearly 200 countries to a series of goals and 2030 nature action targets. The 23 targets are expected to drive positive nature action:
  
  
  • Protection of 30% of the world’s land and sea: Increasing conservation of land, freshwater, and sea to 30%, while also restoring 30% of these areas.
  • Disclosure: Countries will take legal, administrative or policy measures to encourage nature-related disclosures. This is expected to accelerate the implementation of the Taskforce on Nature-related Financial Disclosures (TNFD) in the coming years.
    
  • Biodiversity Credits: The use of innovative financing mechanisms such as biodiversity credits is expected to drive private sector finance into biodiversity, and such measures will aim to optimise co-benefits and synergies of finance for nature.
    
  This agreement was led by Canada and China, with strong input from Australia on nature ambition.

• Hosted in Egypt in November 2022, the 27^th UN Climate Change Conference of the Parties (COP27) aimed to deliver on the theme “Together for Implementation” through discussions on global collaboration, finance, and long-term emission strategies. The outcomes attracted mixed views, and focussed on actions to address the existing adverse effects from climate change, rather than actions to mitigate against future damage:
  
  
  • Loss and damage: In recognition of the disproportionate experience of climate change^disclaimer, and the requirement for increased adaptation finance^disclaimer a loss and damage fund will be established to support vulnerable countries respond to the damages from climate change. Through participation of 24 developed nations, the exact sources and uses of the fund will enter a year-long consultation with recommendations to be made at COP28 in November 2023.
    
  • Mitigation: To maintain respect of national sovereignty and circumstances, the mitigation work programme remained unchanged yet countries were encouraged to accelerate efforts to limit the global temperature increase to 1.5-degrees Celsius. This outcome follows the release of the Emissions Gap Report 2022 which identified that in the absence of societal change there is no credible pathway to achieve a 1.5-degree aligned future.
    
  • Article 6: Developing Article 6 of the Paris Agreement (COP21), COP27 addressed the operationalisation requirements on cooperative transfer of carbon credits between countries to reach their climate targets. Discussions covered procedures such as authorisation of emissions removals and required reporting when trading "internationally traded mitigation outcomes”. The first ITMO trade occurred between Switzerland and Ghana, however, other trading under Article 6 is not expected before 2024.
    
  The discussions at COP27 were also supported by the launch of UN reports including the Net Zero Pledge Report, the Glasgow Climate Pact Report and the Emissions Gap Report. Each report calls for increased action and integrity to achieve the established transition goals, including net zero by 2050.

• In parallel to COP27, the G20 Summit was held in Bali with the Presidency theme “Recover Together, Recover Stronger". The Summit assembles leaders of the world’s group of 20 wealthiest nations focussed on a broad range of topics including climate change and food security. The declaration from the two-day summit included a reaffirmation of the commitment to the Paris Agreement, a recommendation to increase biodiversity efforts in line with the Post 2020 Global Biodiversity Framework (GBF), and a promise to take a coordinated approach to sustained food supply for vulnerable communities.
  
  
• The 9^th Australasian Emissions Reduction Summit returned in-person to ICC Sydney on 25 and 26 October. The Summit was facilitated by the Carbon Markets Institute (CMI) with ANZ as a diamond sponsor, and attracted more than 1300 delegates. While carbon market participants continue to acknowledge genuine decarbonisation must be the priority, the scale at which greenhouse gas removal must occur to achieve global decarbonisation targets necessitates the inclusion of carbon credits. In recognition of the theme “Urgency. Integrity. Ambition”, 100 government, business and community leaders discussed the role of carbon market policy, infrastructure and investment in mitigating escalating climate impacts. Notably, the discussion was centred on government investment, and the recognition of First Nations role in carbon farming, and the opportunity for reconciliation. Additionally, regulators including ASIC and the ACCC highlighted the importance of due diligence and supporting evidence for claims.
  
  
• Following the summit, the Final Report of the Independent Review of Australian Carbon Credits (‘Chubb’) Review was handed down on 9 January 2023. The findings endorsed the scheme as “essentially sound”, with 16 recommendations focused on boosting market confidence through improved transparency and governance of underlying projects and the scheme itself.

Sustainability tools and regulations supporting market growth

In recognition of increased market expectations and heightened market scrutiny, corporate commitments are rapidly increasing, with many corporates considering and/or implementing accelerated decarbonisation, and other environmental, social or governance targets. Additionally, corporates are increasingly facing into updated regulation, criteria and guidance to encourage best practice sustainability performance and target setting.

To recap, the below summarises new regulations and guidance supporting corporates to align to market sustainability standards.

Global

• In early October, the Net-Zero Banking Alliance (NZBA) released a Transition Finance Guide to support the role of financial institutions in enabling a net-zero economy. The guide outlines the role of financial institutions in the net-zero journey, with a particular focus on client engagement across various stages of climate transition. The two overarching principles of the guide which should be considered as a minimum baseline, propose that to access transition finance clients must have a credible, feasible and sufficiently ambitious transition plan, and the financing must meaningfully advance the entity and the wider economy’s net-zero journey.
  
  
• Following the launch of the Orange Bond Initiative in March 2022, The Orange Bond Principles were released in October. The initiative, named after the colour of the UN Sustainable Development Goal (SDG) 5, developed an asset class for gender loan investing driven by a Steering Committee of eight stakeholders, including ANZ. The Principles define a set of guiding principles for the asset class and outline three overarching Principles which qualify an Orange Bond: (1) Gender-Positive Capital Allocation; (2) Gender-Lens Capacity and Diversity in Leadership; and (3) Transparency in the Investment Process and Reporting.
  
  
• The Climate Bonds Initiative (CBI) has maintained pace with market developments and expectations, releasing multiple updated criteria and/or guidance:
  
  
  • The Hydrogen Production Criteria is now available for Climate Bonds Certification. The criteria which are based on a mitigation and adaptation component were developed to support the unprecedented momentum of hydrogen as a sustainable fuel and feedstock.
    
  • The Steel Criteria and Policy Guidance for Global Steel Industry launched to help investors, industry leaders and policy makers in the sector to transition to net zero. The Steel Criteria applies to the manufacture and production of steel and is available for certification. The policy paper includes tailored guidance on a climate-aligned pathway for steel.
    
  • A Fast-Track Certification launched to expedite the CBI certification process for debt issuers and approved verifiers. Easy-to-use tools enable debt issuers to access the exact documents for verification, and approved verifiers will be provided a customised list of templates to complete the verification. The fast-tracking process serves to reduce barriers between companies with climate ambition and access to capital, while maintaining sustainable finance credibility and integrity.
    
• The TNFD released the third iteration of the beta framework, following significant input from broad stakeholder groups across the globe. The enhancements include proposed disclosure recommendations related to supply chain traceability, additional guidance on risk and opportunity assessment, and two new discussion papers on scenarios and societal dimensions of nature-related risk management. Publication of the final TNFD recommendations is set to occur in September 2023.
  

Australia

• The Australian Federal Treasurer Dr Jim Chalmers recently announced the Government’s proposal to develop an Australian climate risk disclosure framework. The internationally aligned framework is expected to drive transparency and investment in cleaner and cheaper energy through enforcement of reporting for large entities on climate change response. ASFI members issued a Joint Statement on Accelerating Sustainable Finance which endorses the Treasurer’s announcements. The announcement follows the publication of the draft ESRS which will provide a common European framework on corporate disclosure.
  
  
• Following the Treasurer’s announcements on sustainable finance, ASFI published paper two of the taxonomy project on “Designing Australia’s Sustainable Finance Taxonomy” which includes recommendations for the design of an Australian taxonomy, including proposed purpose, sectoral coverage, eligibility and governance. The paper is informed by stakeholder consultation feedback on the taxonomy project’s first paper, and is available for consultation until 17  February 2023. We congratulate Tania Smith, ANZ Sustainable Finance Director for her contribution to the taxonomy project Technical Advisory Group.
  
  
• The Australian Government’s recent commitments to sustainability were supported by the Australian Federal Budget announcement in late-October. One of the three core pillars of the budget focused on investing in the capabilities of Australian people to deliver “a stronger, more resilient economy” and delivered budget allocation for environmental and social development, including fund commitments for renewable energy, nature and biodiversity, gender equality and First Nations support.
  

New Zealand

• The New Zealand Government released its proposed response to the He Waka Eke Noa recommendations to reduce on-farm methane and nitrous oxide emissions through a pricing mechanism. By 2025, New Zealand farmers will start to pay a levy on agricultural emissions and the New Zealand Government’s response invited consultation on options to price these emissions. Final proposals will go to Ministers for approval in early 2023. For additional insight, please refer to ANZ’s Agricultural emissions pricing recommendations prepared by Susan Kilsby, Agriculture Economist for ANZ NZ Research.
  
  
• The final Aotearoa New Zealand Climate Standards were published on 15 December 2022 by the External Reporting Board (XRB). The country was one of the first globally to announce mandatory climate-related disclosures aligned with the recommendations of the TCFD. The reporting standards have been developed through three consultative iterations over the past 18 months. Around 200 of New Zealand’s most economically significant entities will start reporting against the standards from 1 January 2023.  Reporting on climate-related risks and opportunities is largely still in its infancy but the XRB believes having formalised reporting standards will build momentum and catalyse change. 
  

International

• Singapore and Australia have collaborated on a world-first bilateral Green Economy Agreement (GEA).  The GEA combines trade, economic and environmental objectives, and will deliver on the joint vision statement to “enhance the livelihood of our communities while transitioning to greener economies and addressing the challenges of climate change”. We congratulate Mara Chiorean, ANZ Sustainable Finance Director who contributed to the GEA.
  
  
• Singapore Exchange (SGX) launched the SGX Sustainable Fixed Income initiative which includes three core criteria to facilitate easy identification of green, social and sustainability fixed income securities. The three criteria are centred on alignment with “Recognised Standards”, whereby the alignment must be confirmed by a reputable external reviewer and made publicly available.
  
  
• Monetary Authority of Singapore and the People’s Bank of China announced the establishment of a Taskforce to deepen bilateral cooperation in green finance and mobilise private capital for the region’s sustainable development needs. In addition, the Singapore Exchange, Shanghai Stock Exchange, and Shenzhen Stock Exchange will launch a Low Carbon Index Family by the end of 2022; this will serve as a benchmark for fund managers issuing new green funds.
  
  
• The Hong Kong Exchanges and Clearing Limited (HKEX) announced the launch of Core Climate. The platform serves the international marketplace for effective and transparent trading of voluntary carbon credits. Core Climate allows participants to source, hold, trade, settle and retire voluntary carbon credits. The launch of the platform follows HKEX’s announcement of the Hong Kong International Carbon Market Council (the Council) to explore carbon market opportunities in the region. ANZ is an inaugural member of the council.
  
  
• In June 2022, the Hong Kong Monetary Authority (HKMA) announced a two-year plan on supervisions of climate risks. As part of the plan, HKMA will soon integrate climate risks into the supervisory process, with a round of climate-risk stress tests expected between 2023 and 2024. The process will allow HKMA to assess progress made with institutions on a more consistent basis to ensure climate risk considerations have been integrated in strategies and frameworks.
  
  
• During the G20 Summit negotiations, the International Partners Group co-led by the United States and Japan, and including Canada, Denmark, France, Germany, Italy, Norway, and the United Kingdom successfully launched a Just Transition Partnership with Indonesia. The partnership includes a USD10bn financing commitment to support Indonesia in delivering on a set of climate targets and accelerate a just energy transition for Indonesia.
  
  
• One year following the announcement of the UK Transition Plan Taskforce (TPT) at COP26, the TPT published its Disclosure Framework and accompanying Implementation Guidance. The Framework emphasises the importance of concrete, short-term action by companies and financial firms, and encourages consideration of all resources to contribute to, and prepare for an economy-wide transition to net zero. The Disclosure Framework and Implementation Guidance are open for public consultation until 28 February 2023.
  
  
• Following a period of consultation, the European Financial Reporting Advisory Group submitted the first set of 12 draft ESRS to the European Commission. The standards establish the requirements for sustainability reporting under the CSRD which outline detailed expectations for corporate reporting of environmental, social, and governance (ESG) matters: two general, five environmental, four social, and one governance reporting standard. The proposed reporting requirements will be phased in over time, with the first companies applying the standards in financial year 2024 for reports published in 2025.
  
  
• The European Securities and Markets Authority launched its 2023 – 2028 strategy with updates to the union strategic supervisory priorities to include ESG disclosures and market data quality. The updates recognise the growing importance of sustainability and technological innovation which drive fundamental changes in financial markets and create inherent requirements for improved integrity and credibility to mitigate risk.
  
  
• EU negotiators have reached a provisional deal to reform the EU carbon market to reduce emissions at a faster rate. Through the removal of 117 million CO₂ permits by 2027, the policy is established to cut emissions by 62% from 2005 levels by 2030. Additionally, the policy introduces a carbon market for suppliers of CO₂-emitting fuels used in cars and buildings.
  
  
• Following the milestone announcement of the US Inflation Reduction Act in August 2022, President Biden made announcements at COP27 for the funding landscape to tackle the climate crisis. The additional funding will be used to bolster global climate resilience, accelerate climate action, and empower all of society, with a particular focus on Indigenous Peoples climate stewardship.

Notable ANZ updates

As a global bank committed to supporting the growth of the sustainable finance market, ANZ is actively working with customers to help them transition to net zero emissions by 2050. ANZ’s sustainability highlights for the quarter are outlined below.

• ANZ announced acceleration of our support for the transition Net Zero emissions by 2050 through:
  
  
  • Establishment of a new eight-year sustainable solutions target of AUD100bn by 2030.
    
  • Alignment of lending to the Paris goals setting four new sectoral pathways and targets in oil & gas, aluminium, cement, and steel, in addition to our power generation and large-scale commercial property pathways.

To read more see our climate change roundtable presentation and our 2022 Climate-related Financial Disclosures report here.

• ANZ New Zealand launched Phase 2 of the ANZ Business Green Loan. Building on the five categories established in Phase 1, the second phase introduces two new categories aligned to the Green Loan Principles: Sustainable water and wastewater, and Clean transportation. ANZ considers both categories important additions to its Sustainable Finance proposition within Corporate and Business sectors.
  
  
• The ANZ SDG Bond program FY22 Use of Proceeds and Impact Report was published in late December 2022. The proceeds from ANZ’s SDG Bonds on issue have been fully allocated to Eligible Assets which align to seven of the 11 SDGs. Highlighted impacts related to the Eligible Assets are associated with operation of hospitals and speciality disability accommodation, renewable energy, and financial education programs.
  
  
• Stella Saris Chow, ANZ Head of Sustainable Finance International, was featured in an Environmental Finance article with a discussion centred around key sustainability trends expected in 2023. The article highlights the importance of transition plans to reach a net zero economy, and the increasing focus on biodiversity.