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NSW bond-raising agency readies new sustainability issuance

Katherine Palmer: Mapping assets to SDGs
Katherine Palmer: Mapping assets to SDGs

The NSW government is uniquely positioned to issue a range of sustainability and social bonds, according to TCorp's Katherine Palmer.

Palmer is senior manager of funding and balance sheet with TCorp, the state's bond-raising agency, and is leading preparations for a new sustainability and social bond to be issued later this year.

The issuance was flagged in the NSW Budget by Treasurer Dominic Perrottet, who said it would help the state "effectively deliver programs that matter".

It will follow last year's $1.8 billion inaugural NSW green bond raising, and Palmer told Footprint the 2018 offering was made firmly with the idea that other bonds would be issued under an overarching sustainability bond program.

"We worked very hard last year behind the scenes to set up the sustainability bond program under which that green bond was issued," Palmer said.

Issuances under the program could encompass a green bond raising money for environmental initiatives, a social bond, or a sustainability bond with proceeds going to either environmental and/or social initiatives, she noted.

Palmer chairs the sustainability committee that oversees and administers the program, and which comprises "a very solid team of people with different expertise".

Participating agencies include NSW Treasury, which has been instrumental in identifying assets that could be funded by bond proceeds, and the Office of Environment and Heritage.

The Office of Social Impact Investment is also involved, leading the group tasked with reporting annually on the projects that underpin the bond.

Although both Victoria and Queensland have issued green bonds (two in the case of Queensland), neither has so far established a formal program to issue sustainable or social bonds, she noted.

An important role for UN goals

Palmer said the state government intended to map the assets supported by its environmental, social and sustainability bonds to the 17 UN Sustainable Development Goals (SDGs).

The internationally-recognised SDGs cover a wide array of environmental, social and economic goals, and Palmer said the mapping would enable investors to demonstrate that their capital was being allocated in support of them.

An SDG mapping exercise also allows investors to understand how a bond will match their own environmental, social and governance goals, as well as those of the super funds and insurers on whose behalf they act, she noted.

The SDGs are "becoming like a common language, through which people can articulate their ESG credentials and their move forward in that space", she said.

Investor diversification

Palmer added that last year's green bond had clearly demonstrated the capacity to attract new investors.

The 2018 green bond had just under 60 investors (compared to about 35 for a standard bond raising), of which 15 were new to TCorp, she noted.

Diversification of the investor base is a strong reason for a sustainability bond raising because it helps to mitigate future funding risk, Palmer explained.

"If there is, for instance, a situation where a particular market segment is closed to us in terms of demand for our bonds, then then the ability to tap into a slightly different investor sub-set helps maintain our ability to fund the state."

Last year's bond had been certified to the Climate Bond Initiative, which is very well understood by Australian investors, but that isn't an option for bonds with a broader sustainability remit than environment and climate, Palmer noted.

However, she pointed out that the raisings are to be aligned with the 2018 International Capital Market Association green and social bond principles and sustainability bond guidelines.

Palmer's cautionary advice for others contemplating sustainability bond issuances is that "it does take time to set up a new program".

The benefits are very significant, but planning a sustainability bond requires the right team of people, and the bond has to fit with the goals that the business or agency has set for itself, she noted.

"There's no point in issuing a green bond for instance if it is not something that is consistent with the belief of the organisation," Palmer said.

"That being said, establishing the program does allow issuing entities to showcase their ESG credentials and to highlight activities that support a positive environmental or social outcome."

Last year's green bond allocated capital to transport and water assets, she noted.

However, the state's significant investment plans for sectors such as education and health, could potentially also be supported via a new sustainability bond, Palmer said.

NSW, Carbon finance, Investor activity, Grants, finance

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