Tag: Sustainability

Bank Australia sells its first sustainability bonds

On 20 August, according to Moody’s, Bank Australia Limited sold AUD125 million of three-year sustainability bonds, its first issuance of environment, social and governance (ESG) themed bonds. The bank plans to use the proceeds to finance, or refinance, green and social projects. Bank Australia’s ability to tap the growing demand for ESG investments is credit positive because it adds diversity to its funding sources and allows it to lengthen the overall maturity of its funding portfolio.

Bank Australia is a mutually owned bank that is primarily deposit-funded and must compete with larger commercial banks at a time when deposit growth has been slowing, but new liquidity regulations have incentivised banks to gather stable customer deposits. This has caused average deposit spreads to remain high.

The ability to diversify funding to include wholesale sources is therefore attractive. However, Bank Australia is a small mutually owned bank with a market share of 0.2%. Its limited scale means that, inevitably, investors will not have the same familiarity with its credit profile as Australia’s major banks, such as the Commonwealth Bank of Australia. This makes it more challenging and costly for Bank Australia to raise long-term funding in the senior unsecured market.

However, increasing investor interest in environmental and socially responsible investing has provided an opportunity for issuers like Bank Australia to tap longer-tenor wholesale funding in meaningful amounts.

A total of 60% of Bank Austalia’s AUD125 million sustainability bond issuance was allocated to investors with socially responsible investing (SRI) mandates or an ESG framework (Exhibit 2). The scale of investor demand also allowed the bank to increase its final issuance by 25% over the initial offer and to improve its pricing.

Other Australian issuers have also gained traction with bonds providing environmental and social benefits. Teachers Mutual Bank Limited, another small mutual bank, sold an ethical bond in June 2018. Demand has driven Australia’s issuance of green, social and sustainability bonds in the past four years at competitive spreads compared with regular issuance.

Following its sustainability bond issue, Bank Australia’s wholesale funding will increase to 12% from 10% of total funding, on a pro forma basis. Importantly, the sustainability bond, which has a tenor of three years, will lengthen the bank’s overall funding maturity profile.

Bank Australia will likely be able to issue further sustainability bonds in future, because of its involvement in social and environmental projects. For example, it makes loans for affordable housing, community housing, and disability housing.

We expect issuers’ increasing awareness of the benefits of issuing green, social and sustainability bonds to spur additional supply. There is some risk that issuance by larger banks may crowd out some small issuers like Bank Australia. However, any increase in issuance will build on a low base since these notes comprise only 2% of total issuance so far in 2018, according to financial market data collector Dealogic. Investor demand is also growing and is likely to absorb more supply.

 

Time for degrowth: to save the planet, we must shrink the economy

From The Conversation.

What is so refreshing about the UN’s Sustainable Development Goals is that they recognise the inherent tension between economic development and the ecology of our planet. Or so it seems. The preamble affirms that “planet Earth and its ecosystems are our home” and underscores the necessity of achieving “harmony with nature”. It commits to holding global warming below 2℃, and calls for “sustainable patterns of production and consumption”.

This language signals awareness that something about our economic system has gone terribly awry – that we cannot continue chewing through the living planet without gravely endangering our security and prosperity, and indeed the future viability of our species.

UN Sustainable Development Goals

But if you look more closely, a glaring contradiction emerges. The core of the SDG programme relies on the old model of indefinite economic growth that caused our ecological crisis in the first place: ever-increasing levels of extraction, production and consumption. SDG 8 calls for “at least 7% GDP growth per annum in the least developed countries” and “higher levels of economic productivity” across the board. In other words, there is a profound contradiction at the heart of these supposedly sustainable goals. They call for both less and more at the same time.

This call for more growth comes at an odd moment, just as we are learning that it is not physically possible. Currently, global production and consumption levels are overshooting our planet’s biocapacity by nearly 60% each year. In other words, growth isn’t an option any more – we’ve already grown too much. Scientists tell us that we are blowing past planetary boundaries at breakneck speed and witnessing the greatest mass extinction of species in more than 66m years.

The hard truth is that our ecological overshoot is due almost entirely to over-consumption in rich countries, particularly the West.

Ecological overshoot in action. Canadapanda/Shutterstock

SDG 8 calls for improving “global resource efficiency” and “decoupling economic growth from environmental degradation”. Unfortunately, there are no signs that this is possible at anything near the necessary pace. Global material extraction and consumption grew by 94% between 1980 and 2010, accelerating in the last decade to reach as high as 70 billion tonnes per year. And it’s still going up: by 2030, we’re projected to breach 100 billion tonnes of stuff per year. Current projections show that by 2040 we will more than double the world’s shipping, trucking, and air miles – along with all the things those vehicles transport. By 2100 we will be producing three times more solid waste than we do today.

Efficiency improvements are not going to cut it. Yes, some GDP growth may still be necessary in poorer countries; but for the world as a whole, the only option is intentional de-growth and a rapid shift to what legendary ecological economist Herman Daly calls a “steady-state” that maintains economic activity at ecological equilibrium.

De-growth does not mean poverty. On the contrary, de-growth is perfectly compatible with high levels of human development. It is entirely possible for us to shrink our resource consumption while increasing things that really matter such as human happiness, well-being, education, health and longevity. Consider the fact that Europe has higher human development indicators than the US in most categories, despite 40% less GDP per capita and 60% less emissions per capita.

This is the end toward which we must focus our full attention. Indeed, the surer route to poverty is to continue on our present trajectory, for, as top economist Joseph Stigltiz points out, in a world of ecological overshoot, GDP growth is diminishing living standards rather than improving them.

We need to replace GDP with a saner measure of human progress, such as the Genuine Progress Indicator, and abandon the notion of exponential economic growth without end. Sadly, the SDGs pass this urgent challenge down to the next generation – at the bottom of SDG 17 it states: “By 2030 build on existing initiatives to develop measurements of progress on sustainable development that complement GDP.” In other words, they shelve the problem until 2029.

Relaxation isn’t counted in GDP stats. Maxpetrov/Shutterstock

But what of employment? Whenever I lecture about de-growth, this is always the first question I get – and we have to take it seriously. Yes, de-growth will require eliminating unnecessary production and work. But this presents us with a beautiful opportunity to shorten the working week and give some thought to that other big idea that has captured the public’s imagination over the past couple of years: a universal basic income. How to fund it? There are many options, including progressive taxes on commercial land use, financial transactions, foreign currency transactions and capital gains.

Let’s face it – in an age of rapid automation, full employment on a global scale is a pipe dream anyhow. It’s time we think of ways to facilitate reliable livelihoods in the absence of formal employment. Not only will this assist us toward necessary de-growth, it will also allow people to escape exploitative labour arrangements and incentivise employers to improve working conditions – two goals that the SDGs set out to achieve. What’s more, it will allow people to invest more of their time and effort into things that matter: caring for their loved ones, growing their own food, nourishing communities, and rebuilding degraded environments.

Author: Jason Hickel, Lecturer, London School of Economics and Political Science