Westpac has tapped into the strong demand for “green” investment products among European investors, pricing a €1 billion green Tier 2 bond.
The green bond – the bank’s fifth since 2016 and its first green Tier 2 in Europe – this week priced at 105 basis points over the swap rate, which Westpac group treasurer Joanne Dawson told Westpac Wire was the “tightest price for an Australian Tier 2 bond issued in Europe since the global financial crisis”.
Ms Dawson said it “made sense” for the bank to issue into Europe, a market she described as “leading the way in the green space”, having issued almost 50 per cent of the $US1 trillion in green bonds globally.
“We had over 100 investors participate in this transaction, the biggest allocation going to France with 24 per cent of the bonds,” Ms Dawson said.
“We (also) saw representation from Germany, the Netherlands, the UK who were also big players, as well as interest from other parts of Europe and Asia.”
The proceeds from the transaction have been earmarked to finance or refinance sustainable projects – such as renewable energy projects like solar and wind, green buildings and low carbon rail transport – ultimately helping Westpac step closer towards its climate solutions lending targets.
Group head of sustainability Siobhan Toohill said the bank was targeting $3.5bn of new lending to climate solutions over the three years to 2023, and $15bn by 2030, on top of its existing $10bn committed exposure at the end of 2020 financial year.
"In the end, we want to be able to help our customers finance their transition…to the net zero carbon economy and back those customers that are fit for a net zero future," Ms Toohill said.
At the same time, she said the bank was reducing its lending exposure to emissions intensive sectors.
"For example, in terms of our lending to electricity generation, we're now at 75 per cent of that being to renewables and only 25 per cent to fossil fuels – a really good example of a shift over a number of years that demonstrates that commitment over time," Ms Toohill said.
Ms Dawson said she expected sustainable debt would become a larger part of the bank's overall funding composition over time as momentum in green investment products continues.
“We are seeing investor mandates for sustainable products becoming more of a standard and starting to drive liquidity in this space,” she said, noting issuance of green bonds in the month of March alone surged to a record high of almost US$73bn driven by a number of sovereigns and supranational organisations accessing the market.
“Certainly, we're seeing a lot more ‘dark green’ investors ... people with really focused and dedicated ESG funds ... who are moving into this space with mandates, and for us that's really encouraging.”
By Ben Young
Head of Fraud and Financial Crime Insights