An Aussie green bond that could fund a new national park while generating returns

Investors looking to fund nature repair often lack high-quality opportunities. But a proposal to restore national parks in Victoria could be just the thing, say MURRAY ACKMAN and DAVID LINDENMAYER

• $224m green bond to fund forest regeneration and regional investment
• ANU monitoring and oversight
• Why bonds, why now? Pendal’s income and fixed interest experts explain
• Browse Pendal’s fixed interest funds

A PROPOSED green bond offers the opportunity to unlock hundreds of millions in private capital to support the expansion of national parks in Victoria’s central highlands, including a “Great Forest National Park“.

The park is under consideration by the Victorian government as a possible use for public land in Gippsland and North-East Victoria previously allocated to timber harvesting.

No decision has yet been made. But advocates say the national park would attract an extra 379,000 visitors annually, add more than $42.5 million to the local economy every year.

It could also support 750 direct and indirect jobs in environmentally sensitive industries such as invasive species management and ecotourism.

Carbon stock gains from improved protection and avoiding logging is estimated at 55.4 million tonnes. The proposed regeneration of 18,000 hectares of regenerated mountain ash forest would sequester 202,500 tonnes of CO2 by 2035.

Some 214 billion litres of water would be added to the catchment each year, enhancing water yields and supply for more than five million people in Melbourne.

Jacinta Allan’s state government has this year overseen the end of logging in Victoria’s state forests and the closure of state-owned forestry business VicForests.

But decades of logging have left behind some 15,000 hectares of unregenerated forest that now requires extensive restoration, says world-leading forestry expert Professor David Lindenmayer.

Lindenmayer proposes an Australian-first $224 million green bond that would fund the forest’s restoration using private capital.

Find out about

Regnan Credit Impact Trust

Read more

“The giant mountain ash forest outside of Melbourne produces almost all the water for the city,” says Lindenmayer, who has spent more than 40 years studying Australia’s forests.

“It is the most carbon-dense forest in the world.

“In any other city on the planet, there would be an amazing national park right next door to the city. But as a consequence of 60-70 years of intensive logging operations, the forest in many places is degraded.

“It’s still beautiful – but it’s now an endangered ecosystem. There’s a lot of work to be done to put the forest back together again and a lot of thinking to be done about true nature repair.

“How do you bring investment into a place like this?

“How do you rejuvenate the forest, create ecotourism opportunities, assist First Nations people to work on country, and bring Victorians to a place that many don’t even know exists?”

How a green bond could help

The term ‘green bond’ is used to describe a bond issued to raise finance for projects that have a positive impact on the environment, says Murray Ackman, a senior ESG and impact analyst at responsible investing leader Regnan and asset manager Pendal.

The Victorian government has an established track record of issuing green bonds, with the first issued in July 2016, while the federal Albanese government issued its first green bond in June this year.

“From an investor perspective, everyone’s talking about nature repair and biodiversity but there are generally no investable opportunities,” says Ackman.

“So, for us, the exciting thing about this Victorian green bond is that world experts and leaders in academia have come together to propose a viable, exciting, and reliable way to invest in nature repair.”

As longstanding investors in these types of bonds, Pendal’s Income and Fixed Interest team hopes to increase supply in high-quality bonds which have the potential to bring about significant impact.

Investing in nature

Green bonds issued by state governments could attract significant investment for restoration of biodiversity at scale, says Ackman.

Some three billion hectares of agricultural land is degraded globally, impacting close to half the world’s population – with more than US$14 trillion of investment required for restoration.

“For investors, having external monitoring for nature repair is exciting. Nature repair is slow and there is expenditure you need to do each year for the life of the bond.”

Strong demand for green bonds could create an opportunity for investors, says Ackman

“These types of bonds tend to price close to the ordinary curve, though there is often increased demand, so slightly beneficial pricing for the issuer.

“We have also noticed quality green, social and sustainability bonds have heightened demand in the secondary market and tend to outperform.“

Expert monitoring

Ackman says a key feature of the proposed Victorian green bond is the external, expert monitoring provided by Lindenmayer’s team at ANU.

“It is not unusual for a government to issue a use-of-proceeds bond – but the appeal of this one for investors is the government signing up for measured nature repair and reporting every 12 months,” he says.

Lindenmayer says the Victorian opportunity is unique because it is founded on four decades of research collected by his team that provides a robust baseline for monitoring forest regeneration.

Pendal Sustainable Australian Fixed Interest Fund

An Aussie bond fund that aims to outperform its benchmark while targeting environmental and social outcomes via a portion of its holdings.

Read more

“Our background data goes back 42 years in these forests – we’ve monitored the forest, the plants, the animals, the carbon, all those kinds of things. So, there’s an unparalleled baseline against which to compare.

“Investors can have confidence that this is properly monitored and reported – whether it is 2000 new nest boxes or replanting 500 hectares of forest every year it will be carefully monitored so that the people investing in the bond will see what’s been done.

“There will be independent data collected to show what’s happening and what the biodiversity dividend from the investments will be. How many more golden whistlers? How many more greater gliders? How many more tonnes of carbon?

“All those things will be reported so it cannot be greenwashed.”

New jobs, tourism benefits

Victoria is the most land-cleared and degraded state in Australia, making it a fitting place to launch a green bond project like this, says Lindenmayer.

“This is a bond that will give life to the regions. It is estimated the GFNP will attract an extra 379,000 visitors annually, add more than $42.5 million to the local economy every year and support at least 750 direct and indirect jobs.

“The Great Forest National Park is a fantastic place – an extraordinary environment so close to Melbourne with so many things going for it.

“The best people in finance and investment are seeing an extraordinary opportunity.

“It just needs the state government to step up.”