The first step toward green issuance

Accessing sustainable finance should be seen as a hard-earned step in an organisation’s journey toward net-zero emissions, rather than an entry point into the world of sustainability, according to Kevin Jones, Chief Financial Officer at SA Power Networks (SAPN).

Speaking to On Air with ANZ Institutional after SAPN becoming the first Australian electricity distributor to issue a certified green bond in the Australian market, Jones said there is a lot of critical work to be done getting a business into a position for such issuance.

“The first thing about issuing a green bond is you’re on a sustainability journey,” he said. “And the green bond is part of that journey - as opposed to saying, ‘what I want to do is a green bond’ and then back solving.

“And if you’re on that journey, start telling that story before you start thinking about issuing the paper.”

The process is not without complexity, Jones admitted, but said shifting reporting standards meant businesses will soon be expected to provide much of the operational transparency required for such issuance as part of their business-as-usual-obligations.

“I think the concern about the amount of administration [preparing for sustainable issuance] would cause internally is starting to diminish, because that's coming anyway,” he said. “You’re going have to deal with it."

Jones made the comments in conversation with Bronwyn Corbet, Executive Director of Sustainable Finance at ANZ Institutional and Rachael Leach, Head of Corporate Finance, South Australia.  You can listen to an edited version of the conversation below.

{video}

Support

In May, SAPN became the first Australian electricity distributor to issue certified green bonds. The group issued $A245 million in three-year bonds and $A250 million at a duration of 8.5 years, with ANZ acting as joint-lead manager and sole-sustainability coordinator. Proceeds will go toward distribution that will “support South Australia’s transition to a distributed and decarbonised energy system”, SAPN said.

Jones said SAPN and its staff were “committed to the path the state and the organisation [are] on”, and further sustainable issuance was likely from the group in the future.

“I find it hard to conceive that we would issue anything other than green-label bonds into the Aussie market, at least, for the next time,” he said.

ANZ is a long-term supporter of both SAPN and South Australia, serving as the sole transaction-banking partner of the state’s government.

Jones said the success of the bond was a testament to SA’s work adopting renewables. More than 70 per cent of the electricity currently generated in the state comes from renewable sources, with the goal of transitioning to 100 per cent by 2027.

“The fact that we were able to issue … bonds in a green format is a culmination of work that [SA] has been doing for many years,” he said.

Corbet expects significant demand from investors for Australian, green-labelled corporate bonds will continue, particularly if the offerings secure Climate Bonds Initiative certification as SAPN did.

“This was the first sustainable-finance-labelled transaction for an Australian corporate this year,” she said. “And that’s something investors have been asking us [about] for a long time.”.

Certification will be critical given the “one thing investors really look for is credibility behind the bonds”, Corbet said. SAPN secured certification based on the 'electrical and grids and storage' eligibility criteria.

Leach said South Australia’s leadership when it comes to the transition to renewables was also a driver behind the bond’s success.

“The government’s got a really clever circular strategy there, to use surplus renewable [energy] to generate hydrogen, and then store the hydrogen to then firm the renewable power,” she said. “So it’s really clever.”

Being blessed with such natural resources “forces [SAPN] to be innovative”, Leach said, “because if you're the world leader in renewables, you have to deal with things like too much capacity, and not wanting to lose that”.

Resilience

Jones said part of the criteria used to issue the bond was based in investing the resilience of SA’s energy grid.

“We had to demonstrate we were investing in that resilience as time goes by,” he said.

ANZ has set a target to fund and facilitate at least $A100 billion by the end of 2030, including $A15 billion in fiscal 2024, in social and environmental outcomes through customer activities and direct investments by ANZ.

“The transition is the biggest challenge of our lifetime,” Leach said. “And all industries have to get on board with it, including the banks”.

Listen to the podcast above to find out more.

Alexandra Cooper is a contributor at ANZ Institutional Insights

This note reflects the edited version of the conversation as it appears on the podcast.