(Bloomberg) -- Aware Super Pty., one of Australia’s largest pension funds, will invest up to A$1 billion ($732 million) in green or sustainability-linked bonds by year-end, an initial move that will pave the way to decarbonize its fixed income portfolio.
The A$150 billion firm will invest A$500 million to A$1 billion in bonds that support plans to reduce emissions and other social initiatives, said Aware Super Head of Fixed Income Michael Clavin. The purchases will be funded by trimming its Australian government debt holdings.
Aware Super is attempting to almost halve emissions by the decade’s end as custodians of Australia’s A$3.3 trillion pension pot face pressure from members to cut exposure to high emitting companies and scrap investments that are undermining the Paris Agreement. While Aware has met its carbon reduction targets for the equity portfolio, it hasn’t yet set specific metrics for its other assets, including government bonds.
By next year, Aware will have mapped the carbon footprint of its assets and will then look to set decarbonization targets for the wider portfolio, Clavin said in an interview Wednesday. Investing in green bonds “is one of the ways we can support emissions reduction and the transition to a low carbon economy while this base-lining is being complete,” he said.
While some cash will head offshore, it’s also eyeing local debt markets after investing in the first green bond issued by the state of New South Wales, he said.
Investors are clamoring for green debt to finance projects aimed at mitigating the impact of global warming. Global issuance of debt linked to environmental, social and governance improvement goals is tipped to reach $1 trillion this year.
Aware won’t sacrifice “any performance in light of having a green or sustainable bond” and has benchmarked the portfolio against the Bloomberg AusBond Composite Index, Clavin said. Deals will also be assessed by its responsible investment team led by Liza McDonald to ensure the criteria for the bond “is truly green,” he said.
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Some issuances in the past “probably have been more around marketing than substance,” he said. “We just want to avoid that.”
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