WA efforts to raise debt in environmentally friendly, socially friendly markets labeled ‘greenwashing’

Western Australia has signaled plans to raise billions of dollars in debt from so-called green financial markets in an attempt to address views that the state is a major source of global pollution.

After Sweden’s central bank dumped its holdings of WA government bonds last year due to concerns about Australia’s climate policy, the government has tried to rename its debt as environmentally sustainable.

Prime Minister Mark McGowan, who is also the state treasurer, has unveiled plans to potentially issue “green” and “sustainable” bonds to world financial markets as part of its efforts to reach WA net zero by 2050.

Bonds are a form of debt that governments raise to fund their activities.

But the push has been described as “more icing than cake” and an attempt by the government to greenwash its heavy reliance on the mining and resource industry and support for carbon-intensive projects.

It is understood that the money will be used to pay for expenses for things ranging from public transport assets such as railways and solar panels on social housing to initiatives to recycle pine plantations.

WA’s decision to enter the world of environmental, social and government funding (ESG) follows similar initiatives in recent years from New South Wales, Victoria and Queensland.

From margins to $ 1 trillion market

The shift also comes amid extraordinary growth in the sustainable bond market, which exploded from insignificant levels five years ago to be worth an expected $ 1 trillion in 2021.

A soil surface perspective of a stand of large curries.
The McGowan government has announced plans to stop native logging in WA.(ABC RN: Fiona Pepper)

Reserve Bank of Australia board member Mark Barnaba welcomed the announcement, saying the rapidly growing size of the market indicated that WA could not afford to sit on the sidelines.

Sir. Barnaba, who is also vice president of iron ore miner Fortescue Metals Group, said there was a risk that WA’s financing costs would eventually increase unless the state was able to access the market.

“We are a green state,” Mr Barnaba said.

“We are looking to be a leader in green hydrogen, for example, not just in Australia but globally.

Greens MP Brad Pettitt superimposed in front of smoking chimneys
Greens MP Brad Pettitt has questioned the government’s motives.(Delivered)

“It’s an extra pool of capital that the state has access to.

“So for the various reasons, it makes a lot of sense.”

According to Mr Barnaba, a rigorous reporting and auditing process that required borrowers to show how they spent their money was crucial to accessing the green bond market.

He said that investors in ESG markets increasingly demanded transparency to ensure that the money they borrowed went to specific assets or programs, and a mistake by a borrower meant that funding could be withdrawn.

WA Green MP Brad Pettitt said the prime minister’s efforts to blow up the government’s green credentials rallied as the state’s carbon emissions, which were already the highest per capita in the country, continued to rise.

WA labeled climate ‘stubborn’

Dr. Pettitt said green bonds would be an important way to fund projects and initiatives needed to reduce global emissions, but the WA government’s timing seemed cynical.

“WA’s economy at the moment is extremely unsustainable,” said Dr. Pettitt.

“You’ll always get greenwashing, and we’re probably seeing unprecedented greenwashing at the moment, where pretty much every business is trying to rebrand itself as part of the carbon solution.

“But the only measure of success in this space is how your emissions are tracked … and our emissions go the other way.”

large pipe with gas plant infrastructure in the background
The WA government has thrown its support behind plans to expand the Pluto LNG plant.(Delivered)

To illustrate his point, Dr. Pettitt Mr McGowan’s strong support for the Scarborough LNG project as an example of the government’s mixed messages on the environment.

The Green’s MLC said Scarborough would add significantly to WA’s CO2 footprint – and Australia’s by extension – and was incompatible with calls from the International Energy Agency for a halt to new oil and gas projects.

“We have a government that has been in power for four and a half years now – there is no reason why we should not have a coherent plan.

“And of course, green bonds can be a part of it, but they are not the solution in themselves.

“There’s a real concern that these things are actually distracting us from where the energy is going.”

Risks ‘are worth the reward’

Sir. Barnaba acknowledged that greenwashing was a major risk to the ESG bond market, but he argued that WA would have adequate safeguards in place to protect its reputation as a responsible borrower.

Mark Barnaba has been named chairman of Western Power's board.
RBA board member Mark Barnaba.(Delivered)

He said the strict conditions attached to sustainable bonds by investors meant they kept borrowers in line.

“It’s a risk that you do not realize that this is where the market is heading, that there is a pool of capital here and that you are simply coming too late,” he said.

“The other risk, of course, is that you go in very aggressively and you can not live up to the promises you have made or the goal that has been set.

“But I do not see that there is a risk in Western Australia with the projects we have with solar energy, with pollution reduction and even with hydrogen.”

McGowan said the approach would “improve WA’s ESG performance”, although he noted that the state’s need for new debt would be minimal in the short term.

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