By Emily Barrett
Don’t expect Australia to join the growing ranks of countries issuing debt to fund environmental objectives any time soon.
Sustainable finance is one of the hottest parts of global markets, with green bond issuance above $US200 billion ($259 billion) so far this year. But that surge is from a low base, said Rob Nicholl, chief executive officer at the Australian Office of Financial Management. And the agency isn’t yet convinced that the cost of raising green debt would be easily offset by a lower interest rate it would have to pay investors, he said in a speech at an event this week.
“We’ve had lot of people say, we wish you’d issue green bonds because we’d buy lots of them,” Nicholl said in a subsequent phone interview. “It’s not our role to create new markets just for the satisfaction of investors. We’ve got to do this because it delivers some outcome for government.”
“It’s not our role to create new markets just for the satisfaction of investors,” says Australian Office of Financial Management CEO Rob Nicholl. Credit: Rohan Thomson
The debt management office has come under criticism for the distance it’s maintained from climate risks in its program. In the absence of a strong economic case, however, the AOFM says any move to issue green bonds would be a government policy decision.
Prime Minister Scott Morrison still refuses to commit to a deadline for net-zero emissions, despite the country’s susceptibility to climate change as a dry continent beset by increasingly savage bushfires. It’s a stance that sets him apart from the Group of Seven leaders he encounters in Cornwall this weekend.
Holding back
But Australia isn’t alone in its reticence toward green sovereign bonds. In the US, green bonds haven’t worked their way into the Treasury’s list of products to explore, at least publicly, although the Biden administration does aim to boost spending to achieve sustainability goals.
Australia, for its part, is focusing its issuance plans on the existing suite of notes and bonds. AOFM isn’t looking to extend its borrowing term any more, despite some of the best financing conditions for long-term debt in history. It’s more inclined to rely on short-term bills as a nimbler option in this crisis recovery, when spending plans and revenues can take sharp and unpredictable turns, Nicholl said.
Quickening inflation and a major equities rout are the most credible risks for markets, along with another bout of extended shutdowns related to the pandemic, said Nicholl, who’s also on the steering committee for the OECD’s debt management working party. While these aren’t necessarily likely, “there’s some pretty big faultlines out there,” he said.
Australia is an outlier though, with more and more countries working on sustainable financing plans to tackle climate change. A total of 16 governments had issued green bonds as of end-September, according to the Organisation for Economic Co-operation and Development. Since then Italy has debuted, and the UK, Canada and Ghana have deals in the pipeline.
Green bonds are just a tiny part of the total pool of global assets right now, Nicholl said. At some point it’s possible, though maybe not for years, that these securities “will become a much bigger proportion of the market, in which case we’ll be forced to acknowledge that.”
Bloomberg
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.