What shifts in Sustainable Finance will we see in 2021?

Ricky Bridge, Group General Manager Environment, Sustainability and Reporting at Downer Group

Capital market issuers are placing greater emphasis on sustainable finance, despite intense challenges as a result of the current unprecedented global pandemic.

2019 was a record year for sustainable finance, with more sustainable debt issued globally than ever before. The total raised was US$465bn globally, up 78% from US$261.4bn in 2018, according to Bloomberg data.

Although the market is still in its infancy, the key instruments consist of Green Loans/Bonds” and “Sustainability-Link Loans/Bonds.  Green Loans/Bonds use the proceeds of such instruments to finance green projects or related capital expenditure (e.g. renewable power generation).  Sustainability Linked Loans are a way corporates can link their financial performance to sustainability outcomes and positive social impact.

There have been 4 major Sustainability Linked Loans in Australia to date that consist of Gold Coast Airport, AGL, Sydney Airport,  and the most recent being Downer who finalised a $1.4 billion syndicated sustainability linked loan facility December 2020. Underpinned by KPI metrics relating to Downer’s greenhouse gas emissions reductions and social sustainability (being cultural awareness and mental health and wellbeing training of Downer employees)

Typically, Sustainable Finance has been linked to GHG emission reduction goals, however we’ll see a shift towards social sustainability metric’s becoming more prevalent as organisations can leverage social sustainability benefits they provide in order to access lower interest finance.

The future looks bright and there is still plenty of room for growth as more and more corporates look at embedding their financing and sustainability strategies into their business models.

In addition, Sustainable infrastructure and smart cities are key focus areas for governments, corporates and investors alike and sustainability through rating tools such as GBCA and ISCA are now being incorporated as a core design feature into almost all new projects. I think we will see these tools play an important role in Sustainable finance moving forward.