Some of the nation’s largest super funds have leapt at the opportunity to buy the Australian government’s first green bonds issue, as investors seek ways to further tap into the sustainable finance market.

Earlier this week, Treasurer Jim Chalmers said the “landmark” issuance was over-subscribed with more than $22 billion in bids, more than three times the $7 billion transaction value.

The Australian Office of Financial Management (AOFM), which issued the bonds on behalf of the Australian Government, said it received significant domestic and global interest. Allocations were made to 106 institutional investors, of which 35 per cent are offshore.

Locally, AustralianSuper and UniSuper are among the super funds that have managed to snag an allocation in the issue.

AustralianSuper declined to comment on how much it has allocated to the program, but head of fixed income Katie Dean said it is “a unique opportunity” despite the fact that the fund has participated in green bond issues across other sectors  .

The fund has committed to achieving net-zero carbon emissions for its entire investment portfolio by 2050.

“This is a new market that is sure to grow over time,” Dean told Investment Magazine.

“We weren’t alone, with a significant level of interest, coupled with a smaller than normal issuance size for the AOFM, adding to its scarcity value.

“Pricing was fair in that it offered similar returns to current (non-green) lines on issue, with only a modest premium for the green characteristics.”

Expanding market

According to Climate Bonds Initiative, an investor-focused not-for-profit, green bond issuance globally has reached US$328.1 billion ($493.4 billion) to date in 2024.

Australia’s inaugural green bond’s average yield was priced at 4.295 per cent and will mature in 2034.

Potential uses of proceeds will be assessed with green expenditure criteria: alignment with one or more Green Goals (climate change mitigation, adaptation and improved environmental outcomes); low risk that the project will not proceed as expected; measurable performance indicators; and government commitment to significant funding.

The AOFM is expected to reissue the Green Treasury Bond in the 2024-25 financial year via tender and introduce other maturities over time.

The issuance is a part of the Labor government’s sustainable finance strategy that aims to rally private capital behind its vision to make Australia an “energy transition superpower”.

“Demand for the bond confirms Australia is a go‑to destination for international green capital,” Chalmers said in a media release.

“This nature positive approach ensures that as our environment thrives so too does the economy and the community.”

In this year’s federal Budget, Chalmers handed down a $23 billion package of spending measures over the next decade for the Future Made In Australia Act – the Labor government’s flagship initiative to attract private capital to areas such as critical minerals processing, battery production, renewable hydrogen, and green metals.

Super funds are also gradually coming to terms with the inevitability of climate risks in their portfolios, as the size of Australia’s pension system now dwarfs the nation’s economy.

At the recent Fiduciary Investors Symposium, former First State Super chief investment officer Richard Brandweiner said super funds should expect themselves to be called upon when it comes to investing in key economic areas such as the energy transition.

“Regardless of where you sit on questions like fiduciary duty and other sorts of things, the way the super system gets invested will help shape the world that we all retire into,” he said.

“It’s just too big in the context of our economy not to play that [energy transition facilitation] role.”

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