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In a trailblazing issuance for the local market, Wesfarmers launched the first Australian dollar denominated sustainability-linked bond (SLB) in June this year, raising AUD 1 billion in a transaction that was enthusiastically over-subscribed by approximately 2.5 times. 

The SLB was issued in two tranches – a seven-year AUD 650 million bond and a 10-year AUD 350 million bond with a coupon of 1.94 per cent and 2.55 per cent respectively.

The coupons are linked to Wesfarmers’ progress against two sustainability performance targets and a potential step up totalling 25 basis points will apply on the SLB’s trigger date if the targets are not met.

This issuance reflects the growing trend in Australian corporates turning to sustainable finance to support their ESG ambitions. Wesfarmers is a leader in this space, with the SLB issuance following the company’s 2020 sustainability-linked loan.

Wesfarmers Executive General Manager, Group Finance, Luigi Mottolini says the company has been following developments in the sustainable finance markets for a number of years.

“Wesfarmers is very focused on ESG – it’s embedded in how we operate and manage our businesses and we’ve been at the forefront of reporting on sustainability for many years,” he says.

“It just makes sense to link some of our funding to ESG as well, and we could also see an increased investor appetite in the market.”

What is a Sustainability-Linked Bond?

SLBs are performance-based instruments with interest margins that vary according to the issuer’s performance against pre-determined, measurable sustainability targets. Unlike use-of-proceed instruments like green or social bonds, which are issued to fund projects with positive climate or social benefits, proceeds of SLBs can be used for general corporate purposes.

The global market has developed rapidly since the first SLB was issued in 2019 by Italian energy company ENEL. In response to the growth, the International Capital Market Association (ICMA) published the Sustainability-Linked Bond Principles (SLBP) in 2020 to provide a market framework with recommended structuring features, disclosure and reporting.

Eliza Mathews, Head of Sustainable Finance at Westpac Institutional Bank, says current investor demand for sustainable finance instruments is exceeding supply.

“We are seeing a significant change in the types of questions investors are asking, the sophistication of their understanding of ESG matters and the urgency with which they expect these matters to be addressed,” she says.

“This change has been accelerating in the past 18 months and there is an increasing demand for these types of products, but a shortage of supply. If you are an issuer like Wesfarmers, with a well-structured transaction, you will be rewarded with a significant oversubscription, as we’ve seen in this case.”

The SLB’s sustainability performance targets

As part of the transaction, Wesfarmers has pledged to obtain all of the energy requirements for its Bunnings, Kmart Group and Officeworks retail businesses from renewable sources by the end of 2025. Its second target commits to limiting the average emissions intensity of its ammonium nitrate production plant in its hard-to-abate Chemicals, Energy and Fertilisers (WesCEF) division to 0.25 tonne of carbon dioxide equivalent (CO2e) per tonne of ammonium nitrate produced.

“The targets address both, our biggest earnings operations, being retail, and our largest emitter,” says Mottolini. “That way, we could demonstrate to investors that we are addressing the whole group as broadly as possible with some very specific targets.”

Naomi Flutter, Executive General Manager, Corporate Affairs at Wesfarmers, says the WesCEF target is both brave and ambitious.

“It has the potential to drive systemic impact in one of Australia's important core industries, which is adjacent to the resources sector and hard to abate,” she says. “And the systemic impact comes from us being brave enough to say ‘this is the emissions intensity of this hard-to-abate industry’. By publishing our emissions intensity, it allows others to see what we've achieved, and perhaps aspire to achieve that themselves.”

The target also encourages valuable feedback, adds Flutter.

“It invites feedback from people who might have ideas or strategies to further decarbonise that business, and enables our customers – who are some of Australia’s largest miners – to take account of these scope 3 emissions,” she says. “There’s an openness, a transparency and a vulnerability in this target, but also an ambition, which is significant in that it doesn't generally happen in our hard-to-abate industries in Australia.”

Westpac’s role

As joint lead manager and joint sustainability coordinator of the Wesfarmers SLB transaction, Westpac worked with Wesfarmers to ensure targets and KPIs were both ambitious and achievable.


“There were a number of robust discussions to ensure the targets found the right balance because this transaction sets a precedent in the Australian market,” says Sam Iyer Associate Director Sustainable Finance at Westpac. “Wesfarmers needed to come out with a credible transaction that met the relevant sustainability linked bond principles as well as investor expectations.”


Westpac has a strong track record of supporting corporations in their transition to a more sustainable future. The bank was part of the world’s first green loan to be certified under the new Climate Bonds Standard v3.0 and is the largest financier to greenfield renewable energy projects in Australia.

“The purpose of sustainable finance is to connect financial outcomes with sustainability,” says Mathews. “Finance is a powerful lever for change and by connecting finance to sustainability, our goal within the bank is to drive improved ESG performance globally and help our customers to reach goals aligned to the Paris Agreement and the UN Sustainable Development Goals.”

Broader outcomes

The Wesfarmers SLBs also serve to meet investor expectations around its ESG performance.

Investors are absolutely focused on financial performance of the business, but there is a high degree of interest in ESG,” says Flutter. “I think that's driven by a growing awareness that there are various ways in which is ESG matters drive value and impact future value. Our efforts around de-carbonisation make these businesses more resilient over the long term, and if you're an investor thinking about your capital value several years out, then that's relevant.

“There’s also evidence that when people are contributing to super funds, they're favouring ESG mandates over just vanilla mandates and so the flow and weight of money into funds that have an ESG or a green overlay seems to be quite strong.”

Mottolini notes Wesfarmers’ ESG commitments also present a strong credit proposition.

“If you're a lender to Wesfarmers, whether it be a bank lending to us or an investor buying bonds, the credit proposition is stronger,” he says. “You can have greater confidence that not only will you be repaid in full and on time, but also by a company that is aware of its ESG opportunities and risks.”