BEHIND THE NUMBERS: staying ahead of sustainable finance

The COVID-19 pandemic has highlighted the importance of sustainability while climate change impacts, environmental degradation and loss of biodiversity are among the most critical issues we face today.

"We are preparing for one of the biggest mega-trends ever to hit the global system – the rapid decarbonisation of the economy.”

Indeed, we are seeing some research showing environmental degradation is a growing factor in the spread of zoonotic disease, as is likely with COVID-19.

The response around the world from governments, regulators, companies, communities and individuals has been momentous. It has required all companies and industries to identify ways to make their businesses more sustainable, more diverse and more equal in opportunity for employees and customers.

World leaders are preparing to gather at the UN Climate Change Conference in Glasgow in an attempt to address these issues on a global scale.

The transformation in how we produce, distribute and consume energy is one of the biggest shifts in banking in a generation and brings incalculable opportunities for governments and the private sector to develop new technologies, products and services.

Smoothing transition

ANZ is well-placed to shape and support this transition, partly due to our heritage and partly as a result of our geographic reach. ANZ is Australia's most international bank – operating in 32 markets around the world – and we are also the country's largest institutional bank.

We're one of the largest project finance banks in the region with core competencies in export credit agency work , providing advice and financing renewable energy projects in wind, solar and geothermal. We've deepened our understanding around the next generation of renewable energy, particularly in areas like hydrogen, so we can better understand the risk parameters.

According to the International Energy Agency, investment related to the transition to zero emissions will need to reach $US4 trillion annually by 2030 from around $US1 trillion now. It is estimated $US150 trillion will need to be invested globally over the next 30 years to achieve a net-zero world.

Within this, the sustainable finance market represents a significant and exciting opportunity for ANZ as demand for new products and services rises. This is not something we have just recognised.

Growing team

Having been a prominent renewables advisory and project finance bank for some years, we commenced building our Sustainable Finance business in 2015. Today, we have the largest Sustainable Finance team in Australian and New Zealand banking with over 20 people including debt capital markets and loans specialists as well as sustainability technicians in Sydney, Melbourne, Auckland, Wellington, Singapore, Hong Kong and London.

We have been operating in the sustainability business since it emerged and have an annualised growth rate of more than 150 per cent over the past six years.

In the year to September 30 2021 we saw record volume growth, participating in about $A119 billion of transactional volume across 81 deals in multiple currencies and jurisdictions. Of this volume, $A10.5 billion is attributable to ANZ’s balance sheet lending capacity and our capital markets distribution capability. This compares with $A6.5 billion of attribution in financial year 2020.

In addition, our sustainable finance volumes contribute materially to our target of financing $A50 billion worth of sustainable finance solutions by 2025. We are on track to achieve the target ahead of the deadline with about $A22 billion of transactions concluded as at 30 September 2021.

We are also looking at sectoral shifts as the economy decarbonises. Some key areas we want to pursue include the electrification of the transport supply chain, commercialisation of hydrogen, financing energy efficient buildings and assisting our customers establish and develop their own transition plans. Grasping the opportunity on carbon transition will be one of the defining features of success for banks like us.

One of the most important roles we can play in meeting the Paris Agreement goals is to help our customers reduce emissions and enhance their resilience to a changing climate.

New frontiers

Our relationship and product teams are all working closely with customers, particularly our institutional customers, to help fund their transition to a low-carbon economy.

One ANZ customer, investment conglomerate Wesfarmers, issued the first sustainability-linked bond (SLB) in June this year into the Australian medium-term note market. The bond commits Wesfarmers to key sustainability targets.

As part of this transaction, Wesfarmers has committed to obtain all the electricity requirements for its Bunnings, Kmart and Officeworks retail businesses from renewable sources by the end of 2025.

The company has also committed to limit the average emissions intensity of its ammonium nitrate production plant to 0.25 tonne of carbon dioxide equivalent (CO2e) per tonne produced by the end of 2025.

We are also continuing the commitment we made in 2019 to engage with 100 of our largest emitting business customers, supporting them to establish and, where appropriate, strengthen existing transition plans.

Customers involved in the process so far have valued our engagement, our perspectives and our ambition to assist them in the transition. In fact, a number of customers outside the 100 largest emitters are engaging with us as well. They have sought clarity on our expectations, have requested suggestions to improve their approach and many have demonstrated clear improvements already.

Also this year, in what we believe is a first by an Australian bank, we launched a framework to support customers pursuing sustainable supply chain management. Our Sustainable Supply Chain product allows our customers to incorporate a sustainability performance-linked pricing mechanism into their supply chain facilities. We also launched a sustainability-linked derivative product allowing customers to include a similar pricing mechanism into their interest rate swaps.

At ANZ, environmental sustainability is one of the three key priorities underpinning our purpose – to shape a world where people and communities thrive. This is not just a line to include in our company presentations. It puts sustainability at the heart of everything we do – how we do business, the customers we bank, how we treat our people, our customers, shareholders, regulators and the communities in which we operate.

And it also presents us with an almost unprecedented opportunity to help lead this transition.

Katharine Tapley is Head of Sustainable Finance and Christina Tonkin is Managing Director of Corporate Finance at ANZ