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Murray Ackman: Why invest in green bonds from utilities?
As electricity systems decarbonise, utility green bonds are emerging as an important way to fund the infrastructure needed for the transition. Pendal’s MURRAY ACKMAN explains
- Renewable infrastructure requires significant long-term investment
- Green bonds fund essential transition infrastructure
- Find out more about Pendal’s Responsible Investing capabilities
ELECTRICITY generation remains one of the largest contributors to global greenhouse gas emissions.
Decarbonising electricity is one of the most direct pathways available for reducing emissions across the broader economy.
As transport, buildings and industrial processes become increasingly electrified, the importance of reliable, low-emissions electricity systems will increase.
This requires more than renewable generation. It requires networks, transmission lines, substations, storage assets and the infrastructure needed to connect renewable energy to the grid.
These are long-life assets that require substantial amounts of capital.
One of the largest themes across both Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund is investment in green bonds issued by utility and electricity infrastructure companies.
Many of the utility green bonds held within the portfolio support exactly this type of investment.
In Australia, Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invest in Victoria Power Networks’ green bond. Victoria Power Networks operates the electricity distribution network across Melbourne and western Victoria.
Bond proceeds support network upgrades, smart meters and grid infrastructure that helps increase renewable energy connectivity.
As larger volumes of solar, wind and battery projects are developed, these network investments become increasingly important.
In New Zealand, Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invest in Mercury’s Green Bond.
Mercury’s eligible assets include geothermal power stations and wind farms that contribute to one of the most renewable electricity systems in the developed world.
Geothermal generation is particularly valuable because it provides stable renewable electricity regardless of weather conditions, complementing wind and hydro generation.
Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund also invest in green bonds issued by SSE in the United Kingdom. SSE owns and operates regulated electricity networks as well as renewable generation assets and is investing heavily in the infrastructure required to support the UK’s energy transition.
This includes both renewable generation and the electricity network infrastructure required to connect that generation to consumers.
Offshore funds flowing into Australian projects
Another example is Iberdrola. Although headquartered in Spain, Iberdrola has become one of Australia’s largest renewable energy investors through its ownership of renewable energy and transmission infrastructure.
An offshore issuer does not necessarily mean offshore impact. Capital raised through green bonds can ultimately be deployed into projects that support Australia’s own energy transition.
Climate change is a global challenge. The atmosphere does not distinguish between a tonne of carbon avoided in Victoria, Scotland, New Zealand or South Australia.
What matters is whether capital is helping build the infrastructure required for lower-emissions electricity systems.
From a portfolio construction perspective, utility issuers also possess characteristics we find attractive as credit investors.
Many own essential infrastructure assets, operate under regulatory frameworks and generate relatively predictable cash flows.
The services they provide are fundamental to the functioning of modern economies and demand is often resilient across economic cycles.
As a result, green bonds from utilities can provide an attractive combination of financial and sustainability characteristics.
They allow Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund to invest in businesses with investment-grade credit profiles while supporting the generation, transmission and distribution infrastructure required for the transition to a lower-emissions economy.
Find out about
Regnan Credit Impact Trust
George Bishay, Head of Credit and Sustainable Strategies
About Murray Ackman and Pendal’s Income and Fixed Interest boutique
Sustainable finance and impact investing director Murray Ackman joined Pendal in 2020 to provide fundamental credit analysis and integrate Environmental, Social and Governance factors across credit funds.
Murray has worked as a consultant measuring ESG for family offices and private equity firms and was a Research Fellow at the Institute for Economics and Peace where he led research on the United Nations Sustainable Development Goals.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
Regnan Credit Impact Trust is a defensive investment strategy that puts capital to work for positive change
Pendal Sustainable Australian Fixed Interest Fund is an Aussie bond fund that aims to outperform its benchmark while targeting environmental and social outcomes via a portion of its holdings.
This report has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL 431426.
It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider whether the information is suitable for your circumstances and we recommend that you seek professional advice.
The product disclosure statement (PDS) for the Regnan Credit Impact Trust (Trust) and Pendal Sustainable Australian Fixed Interest Fund (Fund), issued by PFSL, should be considered before deciding whether to acquire, dispose, or hold units in the Trust or Fund. The PDS and Target Market Determination can be obtained by calling 1300 346 821 or visiting our website www.pendalgroup.com.
This report may contain information contributed or prepared by third parties. Any information contributed or prepared by third parties is believed to be accurate as at the time of compilation and is being provided in good faith without independent verification. PFSL does not warrant the accuracy or completeness of any information provided by a third party.
To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. All investing involves risk including the possible loss of principal.