WA’s efforts to get into debt in environmentally friendly and social markets labeled “greenwashing”
Western Australia has announced plans to raise billions of dollars in debt in so-called green finance markets in a bid to counter the view that the state is a major source of global pollution.
- The WA government has made plans to tap the global $ 1 trillion durable bond market
- This move follows the Swedish central bank which last year abandoned its holding of WA bonds for climatic reasons.
- Critics have pointed to WA’s increase in carbon emissions for describing the plan as “greenwashing”
After Sweden’s central bank last year abandoned its holdings of Western Australian government bonds over concerns about Australia’s climate policies, the state sought to rename its debt as sustainable. on the environmental level.
Premier Mark McGowan, who is also state treasurer, has revealed his intention to potentially issue “green” and “sustainable” bonds in global financial markets as part of WA’s efforts to achieve net zero by 2050.
Bonds are a form of debt that governments incur to finance their activities.
But the push has been described as “more icing than cake” and an attempt by the government to whitewash its heavy reliance on the mining and resource industry and its support for carbon-intensive projects.
It is understood that the money will be used to pay for expenses ranging from public transport assets such as railways and solar panels on social housing to recycling initiatives for pine plantations.
WA’s decision to enter the world of environmental, social and governance (ESG) finance follows similar initiatives taken in recent years by New South Wales, Victoria and Queensland.
Market margins of $ 1 trillion
The change also comes amid extraordinary growth in the sustainable bond market, which exploded from negligible levels five years ago to reach the $ 1,000 billion expected in 2021.
Reserve Bank of Australia board member Mark Barnaba welcomed the announcement, saying the growing size of the market suggested WA could not afford to sit on the sidelines.
Mr Barnaba, who is also vice chairman of iron miner Fortescue Metals Group, said there was a risk that WA’s financing costs would eventually rise unless the state could access the market.
“We are a green state,” said Barnaba.
“We are looking to be a leader in green hydrogen, for example, not only in Australia but around the world.
“It is additional capital that the state can access.
“So for these various reasons it makes a lot of sense.”
According to Barnaba, a rigorous reporting and auditing process that required borrowers to show how they were spending the money was essential for entering the green bond market.
He said investors in ESG markets were increasingly demanding transparency to ensure that the money they lent went to specific assets or programs and that a borrower failure meant funding could be withdrawn.
WA Greens MP Brad Pettitt said the Prime Minister’s efforts to promote the government’s green credentials ringed out as the state’s carbon emissions, which were already the highest per capita in the country, continued to increase.
WA labeled “recalcitrant” climate
Dr Pettitt said green bonds would be a key way to fund projects and initiatives needed to reduce global emissions, but the WA government’s timeline seemed cynical.
“WA’s economy is currently extremely unsustainable,” said Dr Pettitt.
“You will still have greenwashing and we are probably seeing unprecedented greenwashing right now when just about every company is trying to rebrand itself as part of the carbon solution.
“But the only measure of success in this space is how your shows are followed… and our shows go the other way.”
To illustrate his point, Dr Pettitt cited Mr McGowan’s strong support for the Scarborough LNG project as an example of the government’s mixed messages on the environment.
The Greens MLC said Scarborough would dramatically increase WA’s carbon footprint – and Australia by extension – and was inconsistent with calls from the International Energy Agency to halt new oil and gas projects.
“We have a government that has been in power for four and a half years – there is no reason why we should not have a cohesive plan.
“And, of course, green bonds can be part of it, but they’re not the solution in and of itself.
“There is a real concern that these things are distracting us from where the energy needs to go.”
The risks are “worth the rewards”
Mr Barnaba acknowledged that green laundering was a key risk for the ESG bond market, but argued that WA would have put in place adequate safeguards to protect its reputation as a responsible borrower.
He said the stringent conditions attached to durable bonds by investors meant they kept borrowers in line.
“It’s a risk that you don’t realize that this is where the market is heading, that there is a reserve of capital here and that you just come in late,” he said.
“The other risk of course is that you enter in a very aggressive manner and cannot keep the promises made or the goal set.
“But I don’t see that as a risk in Western Australia with the projects we have with solar power, with pollution reduction and even with hydrogen.”
McGowan said the approach would “improve WA’s ESG performance,” although he noted that the government’s need for new debt would be minimal in the near term.