By DAVID MYTON
A quiet but potentially powerful revolution is unfolding in higher education – a drive towards sustainability that has become something more than recycling paper and turning off the lights. It now integrates into the very infrastructure of the institutions and, beyond even that, into financing itself.
The breakthrough example of this is Australian Catholic University’s move last year to secure $200 million in investor funds for campus projects designed to deliver on positive social and environmental outcomes.
ACU raised the funds, in a world-first for universities, from the sale of Sustainability Bonds to some of Australasia’s biggest institutional investors.
The funds will help to finance, and in some cases refinance, the university’s teaching and research expenditures in areas including education, healthcare and green property projects that align with the International Capital Market Association’s Sustainability Bond Guidelines.
In return, investors will receive coupon payments equivalent to 3.7 per cent semi-annually for a period of 10 years.
ACU Chief Financial Officer Scott Jenkins told CMM that issuing the bonds gave investors an opportunity to help the university to “realise its commitment to a sustainable future”.
Primary catalyst
Jenkins said the “primary catalyst” behind the bonds was the university’s infrastructure plans for the next 10 years. The university wanted a funding model that resonated with its social, environmental and financial goals.
“We looked at different markets – the bank market, the US Private Placement, the debt capital markets here in Australia – and then we looked at the idea of doing a bond issue, very aware that that market was open to the likes of ACU,” said Jenkins.
With rating agency Moody’s giving ACU a strong Aa2 credit rating – and assisted by advisors from NAB, Sustainalytics and KPMG – Jenkins and colleagues determined that they would go to the Australian Debt Capital market.
Having thoroughly canvassed the idea with the university executive leadership and senate, they settled on sustainability bonds.
The money raised from such bonds can only be used for sustainability projects, giving investors “the assurance and confidence” that the funds will be used for social and green purposes.
Jenkins says the university had considered opting for straight green bonds – “but we wanted more”, something that aligned with the university’s sustainability guidelines issued in June 2017.
Close alignment
Sustainability bonds ticked all the social and environmental boxes: “we found a very close alignment with us as an institution”.
“It was a big question for ACU going through the decision-making and we kept our senate and our different committees informed about the different opportunities. They were very supportive,” he said.
As well as chiming with the university’s education and social goals, the move was also in accord with the Pope’s Encyclical guidance on developing a sustainable world.
A major element of ACU’s infrastructure plan is the $200 million St. Teresa of Kolkata Building – named in honour of Mother Teresa – work on which is scheduled to begin this year at the university’s St Patrick’s campus in Melbourne. It is currently awaiting final Council and Heritage Victoria building permits.
The funds, which will also go towards work on projects including buildings on the Canberra and Ballarat campuses, would also help “to reduce the university’s environmental footprint” through investments in campus buildings that are Green Building Council of Australia 5- and 6-star Green Star rated,” said Jenkins.
“They will also support our teaching and research activities geared towards improving and enriching the lives of Australians and people around the world.”
New territory
In 2016, Monash University raised A$218 million through a climate bond issued in the US private placement market to fund further sustainable development projects across its campus network. The climate bond was certified by the ‘Climate Bond Initiative’ (CBI) and a Green Bond assessment [accreditation] from Moody’s Investor Services.
Congratulating Monash on a “fantastic job” in securing the funds, Jenkins explained that sustainability bonds operate under different guidelines – “so we’ve been able to go into something which is new territory”.
More and more investors, he said, were now looking to invest in social and environmentally-friendly projects so he expected mechanisms such as sustainability bonds to grow in popularity.
Universities, too, were increasingly conscious of their social and environmental footprints and wanted funding that was in accord with those values.
Leanne Denby, President of Australasian Campuses Towards Sustainability, told CMM that financing was a strong way of signaling a university’s values.
“If you are going to go out to market and look for bonds, there is no better way to send a message as to what your institution values than by aligning those bonds with sustainability outcomes. ACU were very smart in positioning their bonds in a way that messages what’s valued at that institution,” she said.