Why the grey army wants green bonds

Retiree investors want reliable government-guaranteed income and Canberra wants investment to reduce carbon emissions. Here’s a new idea.

The time looks right for green bonds.

It could be a perfect match: older Australians are desperate for a reliable income stream and our ‘‘no new taxes’’ government is increasingly keen for the public to finance the move to net zero.

National Seniors has been working on a green bonds plan where everyday investors could get a fixed rate of return and the government could get to raise much of the $20 billion it will need to find very soon.

Government-backed retail bonds have been trotted out regularly as a possible solution to Australia’s grey army of income hungry retirees. But this time could be different, and the detailed green-bond proposal deserves attention.

Ironically, the issue may not be the willingness of older Australians to invest in such bonds – but rather the willingness of government bureaucrats to create such a market and, crucially, the level of returns investors might reasonably expect.

Just now the bond market is not the place to be. Bond yields are rising, which forces down prices and the result is that ‘‘total returns’’ for investors could be negative or below average for some time ahead. As the RBA put it in Tuesday’s statement: “Bond yields have increased recently and bond-market volatility has also risen significantly.’’

Australia’s only green bond accessible to everyday investors is the Australian Unity Green Bond Fund, which has a minimum entry level of $5000. The Green Bond Fund – which targets investments that contribute to the lowering of carbon emissions – has an extremely modest one-year gross return of just 0.83 per cent.

Separately, the national debt management office, the Australian Office of Financial Management, has regularly cooled bursts of enthusiasm over potential government bond issuance, especially relating to ‘‘green’’ investing.

But, to quote Victor Hugo, nothing is more powerful than an idea whose time has come. Green bond issuance is a hot sector, and in the US bond issuance has reached a new record level with the market now broadening into corporate activity.

The idea from National Seniors is that a green-bond market would be managed by the Future Fund – returns to retired investors would be mandated in advance, perhaps ranging from 1.56 per cent to 3.12 per cent depending on the level of commitment.

Ian Henschke, chief advocate at National Seniors, says a recent survey by his group showed 85 per cent of older Australians ‘‘believe climate change is occurring’’ and he says “the vast majority of them have cash in bank accounts, which is making nothing much, they would move major funds towards a national clean energy bond’’.

Bill Bovingdon, chief investment officer at Altius Asset Management, which manages the Australian Unity Green Bond Fund, explains the recent return from the fund did beat the Bloomberg AusBond Composite Index, which is the core promise of the product.

He adds “new investors in bonds will be getting a better deal as bond yields inevitably rise higher in the years ahead’’.

“Older Australians want this to happen and the government is looking for a breakthrough,” says Henschke, “It’s a time to be bold”.