$140 million of new Australian green bonds will be invested in ASX-listed companies that demonstrate a commitment to a climate transition, which investors hope will attract greater engagement in planning for a zero-emissions economy.
Investment managers BNP Paribas has established the new Australian Climate Transition Index (ACT Index) using companies drawn from the list of ASX 300 companies and based on their ability to contribute to a viable climate transition.
The $140 million green bond issuance based on the new climate transition index has received the support of the Clean Energy Finance Corporation, which made a $60 million cornerstone investment in the new green bonds.
The index assessed companies using a set of climate transition scenarios developed by ClimateWorks Australia and detailed in its 2020 Decarbonisation Futures report.
The index has sought out companies that have a range of emissions reduction initiatives in place, including emission reduction targets and goals for investments in energy efficiency, renewable energy, electric vehicles and fuel switching to achieve those targets.
By supporting the issuance of green bonds based on the ACT index, the Clean Energy Finance Corporation hopes to support Australian companies that should prosper under a strong climate action scenario.
“The ACT Index is an exciting market-leading development, mobilising the increasing scale of impact investment capital to benefit the Australian companies leading the emissions transition,” CEFC CEO Ian Learmonth said.
“With the companies on the ASX 300 responsible for an estimated 40 per cent of national emissions, there is clear potential for them to make a substantial contribution to improving Australia’s emissions profile.”
“As the first forward-looking index in the Australian market, the ACT Index gives investors the capacity to analyse the climate risk profile of their ASX portfolios. At the same time, it gives emissions-focused ASX 300 companies a powerful incentive to accelerate their decarbonisation efforts,” Learmonth added.
BNP Paribas, who managed the green bond issuance, welcomed the participation of the CEFC, and its success in attracting institutional investors in First State Super and QBE Insurance to also participate. The green bond issuance attracted total investments of $140 million.
“Having the long-term support of these three major Australian investors indicates a clear willingness and readiness for action among critical sectors in Australia. We are pleased to support climate transition efforts in Australia and bring our European expertise to the development of this innovative climate index,” head of global markets for Asia Pacific at BNP Paribas Pascal Fischer said.
The CEFC hopes that by successfully attracting the interest of institutional investors in the Australian Climate Transition index, that it will encourage further ASX-listed companies to engage with the climate transition scenarios.
There has been growing interest amongst institutional investors, including superannuation funds facing pressure from customers to invest retirement savings in climate resilient investment opportunities, but have lacked access to investment opportunities that meet their investment requirements.
“Over time, we expect the ACT Index to secure increased investor interest, complemented by greater participation by ASX 300 companies. This can send a clear signal to the market that there is an emerging pool of capital dedicated to companies that are either supporting the climate transition, or well equipped to adapt to the transition,” CEFC Executive Director Rory Lonergan said.
“In addition, companies performing well on the ACT Index may benefit from a lower cost of capital from investors seeking greater exposure to companies which demonstrate their progress in transitioning to a low carbon future.”
A recent analysis of the performance of ASX-listed fossil fuel companies found that they ranked amongst the worst, consistently underperforming compared to the rest of the Australian market over the last decade.