The CEFC today announced a $60 million cornerstone investment in an equity-linked green bond issuance from BNP Paribas. The bonds are linked to a forward-looking climate index, the Australian Climate Transition Index (ACT Index), the first Australian equities index with a specific forward-looking focus on climate transition and decarbonisation.
The ACT Index will seek to identify companies likely to perform well in a world undergoing a 2°C transition and to continue to play a part of the Australian economy in a 2°C future. This includes 100 Australian companies from within the ASX 300 that will support the transition, adapt and thrive, or be least affected by the expected changes.
It will use a methodology developed through a two-year collaboration between BNP Paribas, ClimateWorks Australia, sustainability analysts ISS ESG and the Monash University Centre for Quantitative Finance and Investment Strategies.
CEFC CEO Ian Learmonth said: “The ACT Index is an exciting market leading development, mobilising the increasing scale of impact investment capital to benefit the Australian companies leading the emissions transition.
“With the companies on the ASX 300 responsible for an estimated 40 per cent of national emissions, there is clear potential for them to make a substantial contribution to improving Australia’s emissions profile.
BNP Paribas issued a series of equity-linked green bonds totalling A$140 million, with the CEFC committing $60 million as a cornerstone investor, alongside First State Super and QBE Insurance. The bonds are linked to the ACT Index.
The ACT Index draws on research into dynamic climate transition scenarios detailed in the 2020 Decarbonisation Futures report. Developed by ClimateWorks Australia, Decarbonisation Futures includes a guide to priority technologies, deployment pathways and benchmarks for achieving net zero emissions. The report, developed with the support of the CEFC, notes that major corporations, investors and governments in Australia and globally are already moving to align their strategies with the goal of net zero emissions by mid-century or earlier.
It finds that key actions for businesses include setting targets for operations and supply chains; bringing forward asset replacement investments with net-zero ready versions; shifting products and services towards low-carbon options; creating new business models to accelerate the uptake of low emissions technologies and increased investor engagement.
Reflecting the CEFC’s focus on renewable energy, energy efficiency and low emissions technologies, the ACT Index methodology will take into account a range of emissions reduction initiatives being pursued by ASX 300 companies.
These will include energy efficiency and process improvements, the transition to low carbon electricity, electrification of company processes, including the use of electric vehicles, fuel switching to renewable energy and the use of non-energy emissions reductions, including carbon forestry.
CEFC Executive Director Rory Lonergan said the ACT Index would meet an established and growing mandate among investors to invest in climate transition, while responding to investor demand for innovative investment products, aligned with key risk and return requirements. In addition, it would enable greater engagement between investors and companies around a wholistic approach to emissions reduction, covering current and future products and services and operating models.
“The Australian Climate Transition Index provides a shared framework to support equity investment decisions, an approach already well established in debt markets,” Mr Lonergan said.
“In addition, companies performing well on the ACT Index may benefit from a lower cost of capital from investors seeking greater exposure to companies which demonstrate their progress in transitioning to a low carbon future.”
Initial investment in the ACT Index is open to institutional investors, via the BNP Paribas equity-linked bonds. As the ACT Index evolves, direct investment in equities products based on the ACT Index may be developed, with potential availability to retail investors.