ANZ today (03 August) announced the launch of a new Sustainability-Linked Derivative product, available in Australia, Hong Kong, Japan and Singapore.
Those who purchase the offerings will have access to derivative products that have a pricing component tied to the sustainability objectives of sustainability-linked bonds (SLBs) or loans.
Damian Underwood, head of consultative risk management and FX structuring at ANZ told FinanceAsia that the new offering is a natural progression within the development of the sustainable finance market, in which ANZ has been an active participant.
He told FA, “climate change and the issue of sustainability are key macro themes that require address through a global change in behaviour. Our new products aim to help corporates investors in their transition, by pushing them to deliver on ambitious, sustainability targets. The aim is to help our clients drive change, leading them towards corporate growth and sustainable business action and development.”
The new derivative products offered include swaps, forwards, cross currency swaps, interest rate and foreign exchange options, all of which are executed alongside SLBs or sustainability-linked loans.
Underwood offered FA a concrete example of the type of derivative that ANZ has worked to supply. “A good example is a five-year interest rate swap. Perhaps a customer has a floating-rate loan that is linked to a sustainable performance target. The target might involve the client increasing its overall internal recycling effort by 20% over a period of three years. At the end of that period, if the recycling objective is achieved, ANZ would then offer a discount on the remainder of the fixed interest rate. The client gets a discount and also makes headway in terms of its sustainability activity.”
Explaining the benefit to ANZ, he emphasised that with sustainability being a theme that is here to stay, ANZ wants to help drive forward progress, “it is a part of the industry that is only going to grow in importance.”
In the context of market volatility and the uncertain outlook surrounding the global pandemic, Underwood explained that derivative products can aid market participants in terms of risk management, noting that diversification of product is key.
ANZ is part of ICMA’s SLB working group and in response to customer demand for financing their sustainability ambitions, the bank has been expanding its sustainability team. A spokesperson for the bank confirmed that the team is expected to grow to 23 people globally, as ANZ enters its new financial year from 01 October.
ANZ closed Australia’s first sustainability-linked loan in December 2018, lending an A$ 50 million 7-year loan to Adelaide Airport. Structured as a revolving credit facility, the sustainability performance component was based on Sustainalytics’ ESG Risk Ratings, an assessment of the company’s exposure to financially material ESG risks.
In June this year, the bank acted as joint sustainability coordinator and joint lead manager on Wesfarmers’ A$ 1 billion issuance of the first sustainability-linked bond (SLB) on the domestic medium-term note (MTN) bond market, which was oversubscribed by 2.5 times.
Andrew Brown, Director, Sustainable Finance Capital Markets at ANZ noted that the oversubscription of the transaction is evidence of the investor support for a company linking the cost of financing to specific aspects of their sustainability strategy and suggests additional potential for the green, social and sustainability (GSS) market.
The deal involved a commitment by Wesfarmers to obtain all the energy requirements for its Bunnings, Kmart Group and Officeworks retail businesses from renewable sources by the end of 2025, as well as limiting the average emissions intensity of its nitrate production plant. If the company does not fulfil these objectives, the coupon on the bond steps up by a maximum 25 basis points.
Tessa Dann, a director in ANZ’s sustainable finance team spoke recently to FA about the Wesfarmers transaction, explaining how the landmark deal opens up the sustainable finance market to corporates and the wider financial industry.
“While green bonds are linked to use of proceeds and therefore a defined asset pool or projects that are largely already in existence, SLBs are forward-looking - they can be used for general corporate purposes provided that they are aligned with ICMA’s sustainability-linked bond principles and embed ambitious sustainability targets into the transaction”, she explained.
She added that the Wesfarmers’ transaction sets the precedent for future issuances. “To date, Europe has largely been the epicentre for this type of issuance. The success of the first SLB in the A$ MTN market from Wesfarmers offers other issuers confidence of the strong investor appetite for sustainability-linked bonds in this market.”
She noted that “the Australian sustainable debt capital market has really been blossoming in 2021, experiencing its strongest year of issuance yet and mirroring the continued growth also seen offshore”.
The Australian bank with the largest presence in Asia, ANZ plans to launch its new derivatives products in other major financial markets later this year. Underwood highlighted New Zealand, Europe and America as being of great interest.
The bank’s spokesperson also detailed new personnel changes that aid its sustainable market financing capabilities.
In mid-July the bank welcomed Mara Chiorean as a director on the sustainability team, and Katie Wood as an associate director in Melbourne. Caroline Poujol starts as director in Auckland from mid-August.
The spokesperson added that the bank is actively recruiting across Melbourne, Singapore and Sydney for an additional three manager/senior manager-level roles. However, she noted that in addition to new hires, the bank is prioritising the embedding of a sustainability mindset across the institutional division and is focussed on delivering ESG training for all bankers.
Other recent internal appointments include, Andrew Brown, who was named as director of Sustainable Finance Capital Markets and veteran ANZ coverage banker, Bronwyn Corbet, who joins the team in Melbourne next week as a director. Kate Gunthorp will transfer from the Loans Execution team into a director role in Auckland when she returns from parental leave in December.
The firm has also recruited Poppy Brinsley from its New Zealand graduate programme for an analyst role in Auckland supporting sustainable finance, and Prash Odhavji joins the team in Hong Kong later this month as a senior manager.
