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3 Aug 2020

CEFC backs equity-linked green bond to support unique Australian Climate Transition Index

Australian Climate Transition Index

Monday 3 August 2020  

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.    

As the first forward-looking index in the Australian market, the ACT Index gives investors the capacity to analyse the climate risk profile of their ASX portfolios. At the same time, it gives emissions-focused ASX 300 companies a powerful incentive to accelerate their decarbonisation efforts.
Ian Learmonth
CEO, CEFC

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.  

Having the long-term support of these three major Australian investors indicates a clear willingness and readiness for action among critical sectors in Australia. We are pleased to support climate transition efforts in Australia and bring our European expertise to the development of this innovative climate index.
Pascal Fischer
Head of Global Markets for Asia Pacific, BNP Paribas

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.  

Over time, we expect the ACT Index to secure increased investor interest, complemented by greater participation by ASX 300 companies. This can send a clear signal to the market that there is an emerging pool of capital dedicated to companies that are either supporting the climate transition, or well equipped to adapt to the transition.
Rory Lonergan
Executive Director, CEFC

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.  

View our fact sheet on the ACT Index

 

 

About BNP Paribas in Asia Pacific  

In Asia Pacific, BNP Paribas is one of the best-positioned international financial institutions with an uninterrupted presence since 1860. Currently with over 18,000 employees and a presence in 13 markets, BNP Paribas provides corporates, institutional and private investors with product and service solutions tailored to their specific needs. It offers a wide range of financial services covering corporate and institutional banking, wealth management, asset management, insurance, as well as retail banking and consumer financing through strategic partnerships.  

Media release, 2020