BNP Paribas issued Australia’s first green bond linked to the performance of an index tracking companies tipped to benefit from the country’s transition into a low-carbon economy, aiming to bridge a gap in sustainable investment products.
On Friday, BNP sold A$140 million ($101.12 million) of 8-year bonds that pay a fixed coupon plus a potential return tied to the performance of a “forward-looking” climate transition index, the first of its kind, investors said.
As large asset managers reshape their investment strategies away from dirty investments, the ‘A+’-rated bond adds to the $350 billion in green bonds expected to be issued globally this year.
Developed by the French bank in collaboration with Monash University, ClimateWorks Australia and the ESG arm of corporate governance consultant Institutional Shareholder Services, the index uses scenario weighting and company data to chose those likely to do well from the transition to a decarbonised world.
Australia’s First State Super, a A$125 billion pension fund, QBE Insurance, and the government-funded Clean Energy Finance Corporation (CEFC) invested in the bond, which builds on a similar European equity-linked green bond issued by BNP in 2014 that was not forward looking.
Investors will receive an undisclosed fixed coupon linked to BNP Paribas’ green bond program, plus a potential “green premium” stemming from the performance of the new Australian index. BNP will use the proceeds to invest in certified green projects and hedge the exposure to the index.
While there are plenty of climate-related investment indices that rely on emissions and financial data that is backward looking, the new Australian Climate Transition Index focuses on future climate transition risks and opportunities for Australian companies.
“With the companies on the ASX 300 responsible for an estimated 40% of national emissions, there is clear potential for them to make a substantial contribution to improving Australia’s emissions profile,” CEFC CEO Ian Learmonth said.