Transition Finance in Australia
Australia’s sustainable finance market reached a record in the first half of 2026, with total sustainable debt issuance of USD 37.5 billion (~ AUD 51.9b), up from USD 32.4 billion (~ AUD 44.9b) in the same period in 2025 and well above historical levels. The global cumulative market has now exceeded USD 13.7 trillion (~ AUD 19t). Behind those headline numbers, the market is becoming more sophisticated, more varied in its instruments, and increasingly connected to the quality of underlying climate data. This article explains the main instruments available, provides a snapshot of Australian market activity, and looks at where we believe the market is heading.
What Transition Finance Is
Transition finance is a broad term for financial instruments and structures that direct capital toward activities supporting the shift to a low-carbon economy. It sits within the larger sustainable finance ecosystem alongside green finance, social finance and broader Environmental, Social and Governance (ESG)-linked finance.
The main instruments in use in Australia are:
- Green bonds are debt instruments where proceeds are ring-fenced for specific environmentally beneficial projects like renewable energy, green buildings, clean transportation, water management and biodiversity. They are issued by governments, banks, corporates and multilateral institutions, and must comply with internationally recognised frameworks, most commonly the International Capital Markets Association (ICMA) Green Bond Principles.
- Green loans function similarly to green bonds but in loan form, where proceeds are directed to eligible green projects. Green loans have become the dominant sustainable loan instrument in Australia, comprising 78% of Australian sustainable loan issuance in 2025, according to Westpac’s Sustainable Finance Market Update.
- Sustainability bonds combine green and social use of proceeds, financing projects with both environmental and social benefits such as affordable housing, education, healthcare infrastructure and clean energy access are common categories.
- Sustainability-linked loans and bonds operate differently from use-of-proceeds instruments. Rather than ring-fencing proceeds for specific projects, they link the cost of borrowing to the borrower’s performance against predetermined sustainability key performance indicators (KPIs), for example, emissions intensity reductions, renewable energy procurement targets or gender diversity outcomes. If the borrower meets its KPIs, it may access a lower interest rate. If it does not, a margin step-up applies.
- Transition bonds and loans are a newer and still-evolving category, designed specifically for companies in high-emitting sectors such as steel, cement, shipping, aviation, agriculture, where the transition pathway is complex and cannot always be captured by standard green criteria. Transition bonds finance credible decarbonisation plans in industries where a purely green label would not be appropriate but where capital is still needed to fund the shift away from higher-emission activities.
The Australian Market
Australia’s sustainable finance market has grown substantially over the past decade and is now a meaningful participant in global sustainable debt markets, with Australia’s share of global sustainable loan volumes exceeding 5%.
The H1 2026 Westpac data shows a market that is increasingly two-speed in nature. Sustainable bond issuance continues to grow and Australian sustainable bond issuance reached USD 24 billion (~AUD 33.2b) in H1 2026. Sustainable loan issuance, however, remains subdued relative to historical levels, with Australian sustainable loan issuance totaling USD 6 billion (~AUD 8.3b) in H1 2026. Green Loans remain the dominant sub-label within that loan market.
Renewable energy, green buildings and clean transportation together accounted for more than 60% of green bond use-of-proceeds allocations in H1 2026, reflecting a continued focus on the most established decarbonisation sectors. Data centres have emerged as a significant new category, driven by the growth of artificial intelligence and cloud computing infrastructure, with the Australian Sustainable Finance Taxonomy providing technical screening criteria to assess their environmental credentials.
The Australian Government’s Green Treasury Bond program, managed by the Australian Office of Financial Management (AOFM) in partnership with Treasury, has been active since June 2024. The program is aligned with the ICMA Green Bond Principles 2021 and the Climate Bonds Initiative taxonomy, and is subject to external audit and verification by the Australian National Audit Office (ANAO).
Australian Transactions
The range of sustainable financing transactions completed in Australia in recent years illustrates how broad the market has become across sectors, borrower types and instrument structures.
In the data centre sector, AirTrunk completed a AUD 16 billion sustainable financing package mixing green and sustainability-linked loans, with KPIs tied to energy and water efficiency, renewable energy adoption and gender pay equity. Stack Infrastructure completed a AUD 1.3 billion Green Loan in 2025 for its Melbourne hyperscale campus.
The major Australian banks have each built substantial sustainable finance programs. NAB delivered USD 1.3 billion (~ AUD 1.8b) in green finance as part of its A$80 billion environmental financing goal through FY2030, with green lending to commercial real estate accounting for the largest share. ANZ issued a EUR 750 million (~ AUD 1.23b) Sustainable Development Goal (SDG) subordinated bond in May 2026 under its updated SDG Bond Framework. Westpac and the Commonwealth Bank of Australia (CBA) both have active green bond programs, with Westpac having issued across multiple currencies including Euro-denominated bonds directed to renewable energy, low-carbon commercial property and rail transport.
The Clean Energy Finance Corporation (CEFC) has been an active catalyst across the market, including a A$100 million loan to Origin Energy for a solar project, a A$90 million facility with Mirvac for sustainable property developments in Queensland, and a A$100 million bond issuance with Macquarie to subsidise clean consumer asset financings.
Multilateral institutions have also been issuers in the Australian market. The World Bank issued a A$300 million Green Bond – the first Australian market green bond kangaroo issuance. The European Investment Bank has completed six Australian market Climate Awareness Bond issuances, including a A$750 million bond and a A$1 billion bond for 2028. The Inter-American Development Bank issued A$500 million in Social (Education, Youth and Employment) Bonds in 2024.
Understanding the Decline in Sustainability-Linked Loans
One of the more notable trends in the Australian and global sustainable finance market is the significant decline in sustainability-linked loan volumes. Australian sustainability-linked loan issuance fell 30% year on year in 2025, and globally volumes have fallen sharply from the peaks of 2021 and 2022.
The earlier boom in sustainability-linked loans was partly driven by loose structuring, where key performance indicators that were set at levels borrowers were already on track to meet, regardless of the loan, making the sustainability label largely cosmetic rather than genuinely additive. Heightened scrutiny from investors, lenders and regulators has made that approach harder to sustain, and some borrowers have found the increased reporting and disclosure obligations attached to these instruments a deterrent.
The anti-ESG political environment in the United States has also reduced appetite among some global corporates and lenders for sustainability-linked structures that attract public attention. In that context, the decline in volumes may reflect a market where quality is beginning to take precedence over quantity.
Accessibility for Mid and Smaller-Sized Companies
In our experience, mid and smaller-sized Australian companies are not generally talking about sustainable financing options as part of their capital planning. There is a perception that green bonds and sustainability-linked instruments are primarily the domain of large-cap corporates, major banks and government entities, and the examples listed above show this.
However, the perception that sustainable finance is inaccessible to mid and smaller-cap companies is increasingly inaccurate. Green loans and sustainability-linked loans are available from Australian banks at smaller deal sizes, and the CEFC specifically targets transactions that would not otherwise proceed on commercial terms, including with smaller borrowers. The barrier for many mid-sized companies is not the market’s willingness to lend, but the maturity of their own ESG data and reporting. Lenders assessing green or sustainability-linked instruments require credible, documented evidence of environmental performance, which means companies that have not yet built their data infrastructure will find the process harder.
As AASB S2 reporting becomes established and more companies build robust climate data capability, that barrier should reduce. The availability of a credible, standardised emissions baseline is types of evidence that makes a green or sustainability-linked financing application more straightforward to assess and approve.
Our View
The Australian sustainable finance market is growing, maturing and becoming more connected to the quality of underlying climate data which is a positive development. The record H1 2026 issuance figures are encouraging, and the range of instruments and sectors now involved reflects a market that has moved past its early focus on large-cap green bonds.
The decline in sustainability-linked loan volumes is something we watch with interest rather than alarm. The correction in that market appears to reflect a raising of standards rather than a withdrawal of appetite, and a market where the sustainability credentials of an instrument are more rigorously tested is a better market for everyone – borrowers, lenders and the communities whose decarbonisation these instruments are intended to support.
On accessibility, sustainable finance should be seen as available to mid and smaller-sized Australian companies, not just the larger end of town. The instruments exist, the lenders are willing, and the CEFC specifically exists to catalyse transactions that would potentially not otherwise proceed. What mid-sized companies often lack is not access to the market but the ESG data maturity that makes a credible application possible. That gap is closing as AASB S2 reporting builds a standardised, auditable baseline across a much broader range of Australian companies.
Our prediction is that there will be a direct correlation between the increase in climate data and reporting driven by AASB S2 and the Australian Sustainable Finance Taxonomy, and an increase in transition and sustainable financing applications from Australian companies. That correlation is likely to become clearly visible within three to five years as Group 2 and Group 3 reporters build their data infrastructure and begin to use it for more than just compliance.
Sources
- Westpac Institutional Bank, Sustainable Finance Market Update Q2 2026, July 2026, westpaciq.com.au
- Westpac Institutional Bank, Sustainable Finance Market Update Q1 2026, April 2026, westpaciq.com.au
- Westpac Institutional Bank, Sustainable Finance Market Update Q4 2025, February 2026, westpaciq.com.au
- ANZ, Sustainable Finance Insights Q2 2026, July 2026, anz.com
- Australian Office of Financial Management (AOFM), Green Treasury Bonds, updated September 2026, aofm.gov.au
- Moody’s, Global Sustainable Finance Outlook 2026, January 2026, moodys.com
- TD Securities, Sustainable Finance 2025 in Review and 2026 Outlook, tdsecurities.com
- NAB, Green Finance: Accelerating Australia’s Low-Carbon Transition, ESG News, October 2025, esgnews.com
- King and Wood Mallesons, Green and Social Capital practice, mallesons.com
- Climate Bonds Initiative, Green Loans Australia and New Zealand, climatebonds.net
- Clean Energy Finance Corporation (CEFC), Investment Activity, cefc.com.au
- NettZero, Green Finance in Australia, October 2024, nettzero.com.au
- Australian Sustainable Finance Institute (ASFI), Australian Sustainable Finance Taxonomy, sustainablefinance.org.au
Anabranch ESG Advisory provides independent advice on ESG strategy, climate disclosure, and sustainability reporting. The information in this article is general in nature and does not constitute legal or financial advice.
