NAB helped launch the nation’s inaugural $7 billion sovereign green bond after working closely with the Australian Office of Financial Management and institutional investors. The milestone issuance is set for projects addressing climate change mitigation and adaptation.

Designed to enable institutional investment to support public projects driving Australia’s net-zero transformation, the initiative marks a crucial step in the nation’s environmental journey and the development of Australian sustainable finance markets.

At the forefront of getting this pivotal project over the line is the National Australia Bank, working alongside UBS as joint structuring advisor.

And, says David Jenkins, global head of sustainable finance at NAB, the supporting pool of eligible green expenditures earmarked for green bond funding should quickly rise to “many multiples” of the initial $7 billion issuance now the machinery is in place – and an Exchange-traded Green Treasury Bond is expected to be in place in 2025, making it easy for retail investors to buy into the nation’s green future.

NAB’s involvement in the sovereign green bond program underscores its dedication to fostering sustainable finance and supporting customers through the low-carbon transition.

Jenkins says the project, which he described as a “labour of love” involved almost 12 months of extensive collaboration with teams from the Australian Office of Financial Management (AOFM) and Treasury, showcasing the financial sector’s crucial role in advancing the development of sustainable finance markets to drive Australia’s net-zero transformation.

“On 4 June 2024, the AOFM completed their first syndicated issuance of Green Treasury Bonds with $7 billion issued, making it the biggest green bond ever issued in the Australian market.

“Considering the substantial government investment in supporting the climate transition and fostering positive environmental results, the ongoing green bond program is expected to swiftly multiply from the initial scale, progressing rapidly over several years.”

Jenkins is fresh from the recent success of a four-week roadshow for the green bond, which found strong investor interest and confidence in Australia’s sustainable capital markets.

“The issuance of the green bond showcases Australia’s commitment to sustainability,” says Jenkins.

“The AOFM has taken the approach that the program will be enduring and would expect it to last beyond potential future changes in government.

“And what we’re seeing is feedback from global investors has been extremely positive and supportive.”

Jenkins says the result has been “a very, very deep and more in-depth level of engagement with global investors than they would have had previously”.

“The green bond also allows the government to demonstrate to the broader global investor universe some of the projects that they are investing in. And as fate would have it, the recent budget announcements have given them an even bigger platform on which to do this.”

Setting a benchmark

Anna Hughes, CEO of the Australian Office of Financial Management (AOFM), says the bond will be used initially for climate mitigation projects including financing the Sydney Metro and Rewiring the Nation – a $20 billion program to get clean power from the Renewable Energy Zones to the cities.

“It is a lofty goal – a big piece of this first group of projects is very much around mitigation,” says Hughes.

“Green bonds are a vital component of our Sustainable Finance Strategy, aimed at not only addressing climate change but also enhancing our environmental stewardship.

“This deal is significant – it is setting a benchmark because we’re the sovereign issuer. So, it will have benefits for Australia and for all entities in Australia who are looking at doing labelled bonds.”

Hughes says the bond program will hopefully attract capital that wouldn’t have otherwise come to Australia in search of debt.

“A lot of investors now have ESG specific mandates where they can only invest in green bonds, or they have an overlay to their portfolio where there is an expectation that they will look at labelled issuance.”

Marayka Ward, director of fixed income strategy at QIC, a Queensland government-owned fund manager, praised the federal government and NAB’s leadership on the green bond.

“The Australian government is the biggest issuer of bonds in this country and the Green Treasury Bond is the biggest green bond in the country,” Ward says. “That is a pretty powerful leadership position to take.”

Ward emphasised the importance of the government’s approach in structuring this bond, highlighting the rigorous and collaborative consultation process that informed its design.

“The exceptional and proactive consultation programs that the AOFM, Treasury, and the sustainability advisors have conducted have resulted in a program that’s tailored to meet both the objectives of the sovereign financing needs and the structures that investors are expecting to see,” she says.

Ward says that the issuance of these bonds provides a clear and transparent mechanism for investors to see how their investments contribute to climate change adaptation and mitigation.

“The potential impact on sustainable fixed income investing from the issuance of this bond could be huge,” Ward says.

“It will help investors and even constituents to clearly see the programs and the projects that could contribute towards climate change adaptation and mitigation.”

Aligns with global trends

The green bond program also aligns with global trends and practices in sustainable finance, as it incorporates rigorous standards and eligibility criteria to ensure the robustness and credibility of funded projects.

The development and issuance of the green bond involved extensive collaboration between the AOFM, investors, other sovereign issuers of green bonds and sustainability advisors.

Ward hailed the inclusive approach, noting that it was one of the most collaborative programs she has seen.

“The AOFM and Treasury have delivered ahead of schedule, and they really have listened to investor feedback,” she says.

The roadshow conducted by the AOFM played a crucial role in building investor confidence and garnering support for the green bond issuance.

“The government has engaged investors from the initial design concept, all the way through on the program,” Ward says.

The introduction of sovereign green bonds is set to significantly enhance Australia’s green finance market by attracting more green capital and increasing transparency around climate outcomes.

Ward says that the bonds will help decarbonise investment portfolios and finance climate solutions.

“In the fixed income markets, the obvious way to do that is through something like a green bond,” she says. “The size of this deal really opens that space up again.”

Looking ahead, the issuance paves the way for future green bonds, and signifies Australia’s commitment to sustainable finance and climate action.

The successful launch of this bond is anticipated to stimulate further investments in green projects, supporting the country’s environmental objectives and its transition to a net-zero economy.

Ward expressed optimism about the future impact of the green bond program.

“Post program launch, we’d expect to see an increase in the flow of capital towards sustainable development,” she says. “This inaugural bond deal will be the first of a number that will come out of the Australian government.”

To find out more, please visit NAB.