Investing
| Sector | Investing |
| Sub-sector | Fixed income |
| Location | Australia and New Zealand |
Much of this growth has been in response to client demand and the energy transition with ESG-labelled bonds offering investors diversification alongside alignment with global ESG criteria.2 In Australia, market focus on ESG-labelled bonds was magnified in 2024 when the Australian Government, through the Australian Office of Financial Management (AOFM) which issues debt on behalf of the federal government, issued it's inaugural Green Bond with a 10-year maturity.
As a leader in the Australian fixed income market, MAM has built strong relationships with issuers, which has allowed for open and constructive dialogue with management teams in relation to their ESG-labelled bond issuance programs.
The Framework assesses the potential impact of ESG-labelled bonds issued and their alignment with the International Capital Market Association (ICMA) principles, with outputs used to inform investment decisions.3 Utilising a scorecard approach to assess an issuer's ESG-labelled bond framework and ICMA alignment against the Framework, the potential ESG impact of each bond is assessed and categorised as "Low Impact", "Moderate to High Impact" or "High Impact”. The score is based on weighted criteria that align with the focus of the bond.
This methodology is important to determining the fair value4 of the bond, especially as it relates to the growing demand for ESG-labelled bonds and their inherent scarcity. This demand may result in a 'greenium’ – a premium paid for ESG-labelled bonds due to their specific use of proceeds for ESG-aligned projects.
The inherent scarcity of ESG-labelled bonds relates to two factors. First, the eligibility requirement of projects that can be funded using the bond proceeds. For example, ESG-labelled bond proceeds require a pre-committed project/activity or pool of projects/activities whose cost equals or exceeds the amount raised by the bond. Secondly, the market itself is relatively new, so a yield curve of ESG-labelled bonds is still being built out and this will only occur over time.
Conversely, we may also see an "illiquidity premium" – reflecting the higher yield (or lower price) investors might demand to compensate for the reduced liquidity of certain ESG-labelled bonds versus conventional bonds.
Outcome
Since the development of the Framework in 2023, MAM’s Liquid Credit team has engaged with the AOFM and multiple Australian semi-government issuers to provide feedback on their ESG-labelled bond frameworks, recent and upcoming issuances and/or reporting relating to these issuances.
These engagements have proven to be an effective tool for our own assessment of the issuer’s alignment with ICMA principles and the impact of these ESG-labelled bonds, which includes an assessment of the issuer’s credibility and their ESG targets relative to peers.
global cumulative volume of ESG-labelled bonds5
of Australian semi-government issuers engaged6
invested in ESG-labelled bonds by the MAM Liquid Credit team on behalf of the funds and strategies it manages7
Our continued engagement with Australian semi-government issuers in relation to their ESG-labelled bonds and underlying frameworks, allows us both to critically examine the holdings within our clients’ portfolios and to provide feedback to issuers on what we consider to be best practise within the labelled-bond space.”
David Ashton
Managing Director – Liquid Credit
Macquarie Asset Management
1. Climate Bonds Initiative, ‘Global sustainable debt volume aligned with Climate Bonds definitions hits USD6 trillion’, July 2025
2. Environmental Finance, Sustainable Bonds Insight 2023.
3. International Capital Market Association, Green Bond Principles, June 2025
4. Fair value is the price at which an asset is bought or sold when a buyer and a seller freely agree on a price.
5. Climate Bonds Initiative, ‘Global sustainable debt volume aligned with Climate Bonds definitions hits USD6 trillion’, July 2025.
6. Since the Framework was developed in December 2023.
7. For the year ended 31 March 2025. These bonds have been labelled by the issuers in accordance with industry-recognised standards such as ICMA’s Green Bond Principles or the UNDP SDG Impact Standards for Bond Issuers and/or verified by an external ESG assurance provider
At Macquarie Asset Management, we view sustainability as part of our fiduciary duty to protect and grow our clients’ assets. This focus also helps us generate positive outcomes for our investee companies and the communities they serve. Our latest Sustainability Report outlines the progress we have made over the past financial year.
