Green loans and bonds that link the loan proceeds to a clearly identified green spend are not always suitable, as not all companies have a specific transitional capex requirement.
Sustainability-linked loans (SLL) have been at the vanguard of GSSS mostly because of the frequency with which companies use general-purpose corporate debt facilities.
This gives an SLL broad application across borrowers and can contribute to ESG goals that encompass a range of issues that are generally inclusive of an emissions-related KPI, leaving borrowers to seek out energy solutions.
Recently, says Duncan, the bond space in Australia is starting to mature.
“The Aussie dollar space has been catching up very quickly when compared with Europe, which is traditionally at the vanguard of anything ESG related.”
As these markets develop, he says, it is already affecting Australia’s approach to commodities — including investment options and how they are extracted.
“It’s changing the focus of opportunity for a lot of boards,” he says.
“Multiple companies have come out and publicly stated that they’re pivoting towards renewables or they’re branching out, into some of the adjacent spaces that go with renewables, such as rare earth extraction, engineering, mining services, data capture and analytics.”
These decisions may be incremental, but the tide of capital is now flowing ever more strongly in the direction of ESG and GSSS outcomes.
“It’s not really a case of switching off some industries and switching on to others. It’s more the fact that smart companies are changing their business models and making investment decisions based on the ecosystem they’re expecting to see in five to 10 years’ time,” Duncan says.
Amanda Taylor, managing director and head of large corporates and sustainable finance for HSBC Australia, says sustainable finance instruments such as sustainability-linked loans and bonds are a financial tool par excellence for accelerating the energy transition.