Market Insight


Measuring Impact Investing
Thursday, November 17, 2016


Impact Investing Australia released a report that presents the first attempt to capture the impact of green and social benefit investing in Australia.

The International Capital Markets Association recently announced updates to the Green Bond Principals, which included expansion of the range of acceptable uses for green bond proceeds to include projects with social objectives.

Thus, social benefit bonds and green bonds are now considered together, within the context of the benefits that each provide to society as a whole.

 

The report prepared by Impact Investing Australia, "Benchmarking Impact: Australian Impact Investment Activity and Performance Report 2016", observes that in 2015, funds raised or being utilised for socially beneficial projects are dominated by green bonds issued by Australia’s major banks. Indeed, ANZ had A$600 million of green bonds outstanding and nab had A$300 million, at the cut-off date.

Green bonds are nevertheless important, because the bonds introduce social impact investing to institutional investors, who can provide substantial funds to the sector in the future. The report also notes that aside from the impact of these green bond issues, over 60,000 vulnerable Australians benefited from the capital that was deployed during the year.

The greatest impediment to participation in impact investing is difficulties with measuring outcomes. The inconsistencies in global measurements are highlighted in the report, while the report attempts to make a strong contribution to measuring impact in the Australian context.

Thus, the report presents the first set of aggregated, market-based data on the performance of Australian impact investment products. Over time, the data collected should shape expectations for the financial and impact performance of impact investment products.

Looking at the performance of the 15 impact investment products domiciled and active in Australia, as at 30 June 2015, the aggregate value of the products was A$1.2 billion. It is clear that the green bonds issued by ANZ and nab account for 75% of this aggregate value.

The funds raised from these bonds were aimed at environmental outcomes. The remaining funds were aimed at social outcomes.

Of the 60,000 beneficiaries of these social outcome projects, 126 schools were supported, 319 jobs were created, 1,072 people with disabilities were supported and 669 mental health sessions were delivered. As for environmental outcomes, 4,493 tonnes of e-waste was diverted from landfill, 11,501 MWh of renewable energy was generated, and 3.9 tonnes of CO2 was avoided.

Measuring financial performance, the report finds that financial returns from all projects have been positive. Where debt has been provided directly, returns range from 5.4% to 17%, bond returns range from 3.25% to 12%, and returns on real assets employed range from 0% to 12.6%.

The report concludes that investors are finding ways to measure social impact as well as financial returns. However, more work is needed to develop meaningful metrics that inform better understanding of the value that is being created.

Philip Bayley

Philip is the Principal of ADCM Services, publisher of The DCM Review an independent online commentary, analysis and data on Australia & New Zealand's debt capital markets. He is also a contributing editor to Banking Day and a director at Australia Ratings.

 

Turning Green
Wednesday, November 16, 2016


In the Australian corporate bond market, institutional investors have been able to buy green bonds or climate bonds, as they are sometimes referred to, since the World Bank issued green bonds in April 2014. That said, the market has not turned green, issuance has been limited to five issues that have raised a total of $2.3 billion, to date.


Green bonds have been beyond the reach of retail investors, until now, however. The Australian Corporate Bond Company - creator of exchange traded bonds (XTBs) listed on the ASX - has just released 10 new XTBs, including two green XTBs.

What are green bonds?

Green bonds are bonds issued to fund green projects, are certified to be in compliance with international climate bonds standards, and are aimed at socially responsible investors. Apart from the World Bank, the German development bank, KfW, nab, ANZ and Westpac have issued green bonds in the domestic market.

Green bonds generally do not provide issuers with cheaper funds in the Australian market, as the bonds price at the same level as the issuer’s ordinary bonds, but arguably provide the opportunity to reach a broader range of investors.

However in 2015, there was an issue of asset backed securities that achieved more favourable pricing than an identical tranche of securities that were not certified green.

Around the world, green bonds are gaining popularity and the definition of green is expanding.


Green bonds issuance

Last week, a global rating agency reported that record green bond issuance of US$26.1 billion dollars was seen in the third quarter of this year, and annual issuance was poised to exceed US$80 billion. Renewable energy projects accounted for 38% of the issuance, energy efficiency 24%, and clean transportation 17%.

It was further noted that in June, the International Capital Markets Association announced updates to the Green Bond Principals, which included expansion of the range of acceptable uses for green bond proceeds to include projects with social objectives. Social benefit bonds have also been issued in Australia but the relatively few issues have been largely restricted to sophisticated, socially responsible investors.

XTBs created by the Australian Corporate Bond Company were launched in May last year. At the time, 17 separate classes of XTBs were listed on the ASX. Each class of XTBs represented an underlying corporate bond obtained from the wholesale market.

The underlying bonds offered are senior ranking, unsecured bonds issued by Australian listed companies and are more than one year old. Investors benefit from being able to buy senior ranking bonds, which are exceptionally rare among the other debt securities listed on the ASX, from the continuous disclosure requirement imposed on the Australian companies, and from the seasoning of the bonds in the wholesale market.

The initial XTBs covered bonds issued by Aurizon Holdings, BHP Billiton, Crown Resorts, Dexus Property Group, General Property Trust, Incitec Pivot, Lend Lease, Mirvac Group, Novion Property Group, Scentre Group, Stockland Trust, Telstra, Wesfarmers and Woolworths. The XTBs function in the same way as an exchange traded fund.

The latest listing of another 10 XTBs takes the total offering to 49 and the new XTBs are backed by bonds issued by ANZ, Bank of Queensland, Macquarie Bank, nab, and Westpac. The green bonds that have been included are the ANZ, June 2020, bonds and the nab, December 2021, bonds.

The ANZ, June 2020, bonds carry a fixed coupon of 3.25% per annum and based on its listing price, will yield 2.326 per annum until maturity. The nab, December 2021, bonds pay a coupon of 4.00% per annum and come with a prospective yield to maturity of 2.539% per annum.

The ticker codes for these XTBs are YTMANZ and YTMNA1. The ticker codes for all XTBs begin with YTM, typically followed by three letters representing the issuer of the underlying bonds.

Brokers such as Bell Potter and Morgans, include the XTBs on their daily fixed income rate sheets. Each XTB has a face value of $100.00.

Philip Bayley

Philip is the Principal of ADCM Services, publisher of The DCM Review an independent online commentary, analysis and data on Australia & New Zealand's debt capital markets. He is also a contributing editor to Banking Day and a director at Australia Ratings.


 

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