HSBC’s head of debt capital markets, Australia, Andrew Duncan, says the sustainable finance market is continuing to display strong resilience during “a choppy capital market in 2022 with the entire APAC ex Japan sustainable bond market up about 6 per cent”.

Duncan suggests the strong growth will continue especially as banks and investors increasingly focus on decarbonising their financed emissions as evidenced by the strong uptick in signatories to the Net-Zero Banking Alliance and the Net Zero Investor Alliance.

“While it is difficult to put an estimation on the speed of growth, I think we can say with strong confidence that every time an issuer goes to market, they need to be able to address ESG matters, as many investors are now asking about ESG - both for sustainable finance instruments and for vanilla bonds,” says Duncan.

Importantly, many Australian companies are keen to undertake their sustainability journey and aim for net zero and they’re signing up for SLBs and sustainability-linked loans with some pretty strong targets.

Real KPIs drive progress

A case in point is locally born but global engineering services provider and consultancy, Worley, which issued the first-ever public SLB by an Australian company for €500m ($786 million.)

Worley also became the first issuer globally to launch its inaugural bond in the SLB format.

The oversubscribed deal is aligning Worley’s financing approach with its business ambition to be a leading provider of sustainability solutions, and links to its goal of reaching net zero in its scope 1 and scope 2 emissions by 2030.

Scope 1 includes emissions from sources that Worley owns and controls, such as fuel combustion on site, while scope 2 refers to indirect emissions associated with purchased energy such as electricity.

Worley’s executive group director of sustainability, Sue Brown, says the SLB and the KPIs associated with the company’s sustainability performance “just make sense”.

“It reiterates the message to the market that we are serious about this, that we’re backing our own performance and are prepared to take a penalty via the SLB conditions if we don’t deliver,” says Brown.

“It’s a part of integrating sustainability right across the way we run the company,” Brown says.

Worley believes that the key to real change is to prioritise projects that achieve net zero emissions and foster a circular economy. And that’s where Worley has taken a leadership role.

Aligning finance and sustainability

The company worked with HSBC as its ESG structuring adviser on the inaugural sustainability-linked bond.

For Duncan, Worley’s commitment to be the first issuer offering its inaugural bond in an SLB format was a “huge statement about its focus on sustainability – straight out of the gates it’s executing deals in ESG format”.

“Many entities with strong ESG credentials are still yet to look at the sustainability-linked bond market. For Worley to do its inaugural bond in sustainability bond format, that’s quite incredible,” Duncan says.

Global treasurer and head of property at Worley, Craig Busch says the company “has a clear target of reducing its scope 1 and scope 2 emissions”.

“We’ve also joined the Business Ambition for 1.5°C campaign, which aims to limit climate change to 1.5 degrees, and are aligning our emissions reduction target with the goals of the Paris Agreement,” Busch says.

Worley and HSBC have been working together for nearly 30 years in around 40 countries across credit and lending, cash management, trade finance and debt capital markets.

“HSBC understands the global structure of Worley and is a key financier,” Busch says.

“The HSBC team understood what we were trying to achieve with our debut issue and assisted in providing sound advice and the best execution for the SLB process.”

HSBC also acted as the sustainability coordinator in a deal with Woolworths Group where Australia’s largest retailer “utilised a science-based target that could be linearly interpolated”.

“This meant it didn’t need to create a separate sustainability performance target, but could interpolate its 2030 scope 1 and 2 emissions reduction target for the bond,” Duncan says.

The KPIs are directly linked to Woolworths Group’s sustainability goals – specifically, its commitment to reduce its emissions by 2030 to a level equivalent to limiting its contribution to climate change to an increase of 1.5 degrees above pre-industrial levels.

If the group doesn’t meet the emissions reduction targets set out in its KPIs, it will have to pay investors a higher coupon.

As to what HSBC brings to the table for companies looking to fund their transition journey, Duncan says it’s “breadth of knowledge, global reach and views as well as being a market leader in debt capital markets and loans, both here in Australia and globally”.