The Reserve Bank says further private and public sector development of green and sustainable financial markets is needed, if they are to play a significant role in funding Australia’s transition to a lower emissions economy. In an article in the latest Reserve Bank Bulletin, the RBA said local green and sustainable finance activity developed quickly over the past decade but still makes up only a small share of overall bond and loan markets. Around A$13 billion of green bonds were issued in Australia in the first half of 2023, the highest amount since the inception of green bond issuance in 2014. Issuance came from state treasury corporations, Australian banks and kangaroo issuers. Kangaroo green bonds, issued by non-resident organisations but denominated in Australian dollars, are the biggest segment in the domestic green bond market, making up around one-third of total issuance since 2014. The bonds are used to fund clean transport projects, energy efficiency projects and green construction. To get a sense of the scale of the green loan market, the RBA looked at the green asset-backed securities market. Since the first green ABS issue in 2016, seven securitisers have issued, with four of them repeat issuers. A record $1.4 billion of green-labelled ABS was issued through seven transactions in 2022, representing around 3 per cent of total securitisation. Collateral for these securitisations includes green mortgages, green car loans and green personal loans. The RBA said the local green bond and loan markets are likely to benefit from a couple of government initiatives. The government has announced plans to issue a sovereign green bond next year. The green bond program will be managed by the Australian Office of Financial Management, with a starting date set for mid-2024. One of the aims of the program will be to “increase transparency around climate outcomes and the scale of green investments available”. The government is expanding the Nationwide House Energy Rating Scheme to apply to existing dwellings, allowing people to get a star rating of their home’s energy performance. The government said it would work with banks to pilot ways to add energy performance into the set of factors valuers assess when they do house assessments, using the rating system. And the Clean Energy Finance Corporation was allocated $1 billion in this year’s Australian Government Budget to work with lenders to provide low-interest loans for energy-saving home upgrades.