Kylie-Anne Richards

Dr Kylie-Anne Richards, Deputy CIO, Fortlake Asset Management, Fund Manager, Blossom, comments on the recent issuing of Western Australia’s first green bond to fund major projects to help decarbonise the state’s electricity grid, including wind farms and big batteries.

Western Australia (WA) and Queensland have been in the international spotlight for their perceived lack of concerted effort towards climate change mitigation. This criticism was underscored in 2019 when Sweden’s central bank excluded bonds from these states due to high emissions and perceived climate inaction. Notably, these states have some of the highest per capita greenhouse gas emissions globally.

Recently, however, a shift in the narrative is evident. An increasing desire among investors to align their capital with sustainable and environmental initiatives is transforming the financial landscape. This burgeoning demand for eco-conscious investments is projected to have a substantial price impact as more investors start redirecting capital from non-sustainable ventures.

Responding to these changing market dynamics, several Australian states, including Queensland and WA, have begun issuing “green” and “climate” bonds. Queensland currently leads as the largest green bond issuer among the states, with the bond proceeds dedicated to environmentally beneficial projects and assets.

Green bond issuances are more than symbolic gestures towards sustainability. In an era where climate risks play an increasingly significant role in determining the value of government bonds, countries falling behind in their green commitments risk higher borrowing costs. Advanced economies struggling to manage their climate transitions may face liquidity constraints and challenges financing recovery from severe climate shocks or natural disasters.

A notable stride in this direction is the successful issuance of Western Australia’s first green bond, raising $1.9 billion to finance the state’s shift from fossil fuels to renewable energy. The oversubscription of the bond offering underscored the strong investor appetite for sustainable investments. The Western Australian Treasury Corp’s high credit rating further amplified investor confidence.

Despite debates around the “greenium” or green premium and questions on whether lower issuance yields offset the additional costs of green bonds, WA’s experience shows that in the absence of a greenium, green bonds can still attract significant interest. Their issuance serves various purposes, from signalling a commitment to the market and enhancing reputation to catering to investor demand and paving the way for future greeniums. Despite the yield being on par with the state’s ordinary bonds, the successful bond issuance attracted over $6 billion in bids from more than 60 investors.

In a broader perspective, this successful green bond auction by the Western Australian government signals a growing commitment to sustainable investment. It potentially heralds a shift towards financial solutions that address climate change and promote renewable energy, setting a precedent for other governments or organizations contemplating similar green initiatives.

The Australian government is set to reinforce this commitment by partnering with energy investors to introduce the nation’s first sovereign green bond by mid-2024. This initiative aims to boost institutional investment in the transition to net zero emissions by providing a vehicle for large investors, such as superannuation funds and banks, to finance public projects aligned with this goal.

By offering investors another way to engage with public projects oriented towards the energy transition, the bond program is expected to attract more green capital to Australia and bolster the scale and credibility of the nation’s green finance market. Thus, the success of the Western Australian green bond auction and the proposed sovereign green bond initiative together serve as a step in the right direction for sustainable finance in Australia.

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Kylie-Anne Richards

Leading fixed income specialist Ardea Investment Management has launched a new research partnership with the University of Technology Sydney (UTS).

The Ardea + UTS Academic Program will foster innovative and impactful academic research to advance knowledge in finance and further strengthen Ardea’s research capabilities, which is expected to benefit the large boutique manager’s clients.

Through the partnership, Ardea will jointly research projects, and author thought leadership articles with UTS researchers, and will provide industry mentorship to UTS students.

Ardea Head of Research and recently appointed UTS Industry Fellow Dr Laura Ryan will lead the participation by Ardea, with UTS Finance Discipline Group academics Dr Kylie-Anne Richards and Dr Gerhard Hambusch leading UTS’ involvement in the partnership.

The partnership is already bearing fruit, with Ardea and UTS currently investigating machine learning for trade idea identification, climate change and government bond investing, and the LIBOR transition and how it may impact trading opportunities. 

Ardea CEO and co-founder Stephen Clout said, “Ardea is thrilled to have this opportunity to work with an organisation of the calibre of the University of Technology Sydney. We believe this partnership will strengthen our offering to clients and enhance our trade idea generation process. It is a key component of our strategic plan to prepare Ardea for a strong pipeline of long-term growth opportunities and ensure we maintain our highest standards of alpha generation,” Mr Clout said. 

The partnership follows the appointment of Dr Ryan earlier this year to progressively build a research team to support Ardea’s growing investment capabilities by researching and developing relative value investment strategies.

Ardea’s relative value investment approach targets reliable risk-adjusted alpha that is independent of market direction and exhibits minimal correlation to broader fixed income and equity markets.

Founded in 2008, Ardea is one of Australia’s largest fixed income investment managers, entrusted with managing over $15bn on behalf of clients, including Australia’s most sophisticated institutional investors and a growing retail and wholesale investor base. 

The firm maintains majority ownership by employees to foster both long-term alignment of interests with clients and stability of the investment team and is partly owned by leading investment manager, Fidante Partners. 

Ardea’s flagship fund, the Ardea Real Outcome Fund, is the top performing fund in Mercer’s Australian Absolute Return Fund category for one year up to 30/06/2020 in terms of gross returns. It is also the top performing fund over three and five years^[1].

The UTS Finance Discipline was one of only four finance departments in Australia to have been awarded the highest possible ranking for research by the national research evaluation framework, Excellence in Research, for Australia in the State of Australian National University Research 2018-19: ERA National Report.

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