Economic, green demands are a single package

Paul Goodwin

MD Institutional, ANZ NZ

Green investment is quickly becoming a global phenomenon – and not before time. It’s an issue of particular relevance to New Zealand, where our greatest asset is an environment which directly drives our two biggest export earners, dairy and tourism.

As the county’s infrastructure needs continue to grow, it is clear we cannot divorce discussions on infrastructure from those about the environment. Green capital, such as green bonds, will play an important role.

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Contact Energy’s Te Mihi geothermal plant is one of their accredited green assets

Two of the most-discussed issues during New Zealand’s latest election campaign were infrastructure and the environment. Debate centred on issues such as the future of our transport network, the resilience of our fuel supply, water quality and affordable housing.

"We can no longer applaud economic performance without considering its environmental impact.” - Paul Goodwin

As New Zealanders we can no longer applaud economic performance without considering its environmental impact. When making infrastructure investment decisions it is vital environmental sustainability outcomes are tightly integrated.

Shaping the future

Here in NZ infrastructure and the environment will both be key to shaping such a future and cannot be considered in isolation. And as NZ’s largest financial institution, with a purpose as a company to help shape a world where people and communities thrive, ANZ has a clear role.

Those who operate in the financial and capital markets are involved in the integration of economic and environmental decision-making for today and for future generations.

One area where ANZ can drive tighter integration is in relation to ‘green finance’, linking the capital markets with green investment opportunities.

Green bonds are one of the most developed financing instruments within the green finance world and they’re being used to fund climate-friendly projects globally.

While there’s no legal criteria as to what qualifies as ‘green’, investors typically expect some form of independent review of a borrower’s assertion of greenness. That can be in the form of an opinion, assurance or reference to guidelines or standards such as the Green Bond Principles or the Climate Bonds Initiative (CBI).

The CBI is a not-for-profit which works to mobilise debt capital markets for climate action. I liken the comparison of their accreditation to a ‘Fair Trade’ labelling scheme for debt instruments. Their assurance guidelines are broad and apply across various industries.

Infrastructure opportunity

New Zealand’s infrastructure sector should look at green finance as a way to balance economic outcomes and environmental impacts.

Green finance supports projects that have a positive impact on the environment. Green bonds, which are bonds that fund environmentally positive projects, have been used in cities internationally to fund infrastructure such as drinking water, sewerage systems and public transport.

Green finance is a small but growing market in New Zealand; it presents an incredible opportunity for infrastructure to fund projects that benefit the environment. We need capital markets and the broader infrastructure sector to work together to fund projects that drive New Zealand’s low carbon economy.

A world-leading example is the work ANZ has been driving with one of our largest electricity companies, Contact Energy.

Contact is funding portfolio of over $NZ1.8 billion is now certified ‘green’ by the Climate Bonds Initiative, reflecting a 50 per cent reduction of greenhouse emissions over the past five years and ‘green’ assets such as its Te Mihi geothermal plant.

Investment in green finance around the world has increased from $US3 billion in 2012 to a forecast $US130 billion this year. The Organisation for Economic Co-operation and Development (OECD) recently forecast the global green bond market could exceed $US5 trillion in less than 20 years.

Green finance will become an important component of the New Zealand market as investors and lenders are more focused on the impact of their investments and growing awareness of environmental impact.

Kauri

Governments around the world are continually making more resources available for climate finance and have committed to raising $US100 billion per year by 2020. The feedback we have received suggests green finance will grow here to mirror global trends, albeit at a smaller scale.

In August ANZ jointly led the first ever green bond in NZ for a member of the World Bank Group, the International Finance Corporation (IFC). As it was a kauri bond – meaning it was issued by a foreign company in NZ dollars – it has been an important start in opening up green and sustainable investing opportunities in NZ.

IFC was one of the earliest issuers of green bonds globally, funding private sector investments which address climate change in emerging markets.

This bond is no different, financing projects in renewable power, energy efficiency, sustainable agriculture and green buildings. Its issuance was worth $NZ125 million, investor feedback has been positive and we expect further issues from a range of NZ companies.

While the market in NZ is still relatively new, customers have been interested in working with us because the solution broadens their potential investor base, with pricing in line with traditional bonds. It’s a powerful way of advancing a sustainability strategy and proceeds can be used to recycle capital, including refinancing of existing projects.

Review

At ANZ, we know stakeholders are increasingly interested in a broader view of how businesses operate - a more-holistic story about how we are creating value over time and the opportunities and challenges impacting our future.

With this in mind, we’re moving towards more integrated reporting and we’ve replaced our Shareholder Review with a new Annual Review.

The report provides not just broader detail about how we have performed in fiscal 2017 but case studies demonstrating how we support our customers, people and community.

In NZ it is the private sector which will, in my view, have to take primary responsibility for driving green finance. But it is also going to take the public sector to be open to these large investment opportunities.

Green bonds and green financing will become an important component of the NZ market as investors and lenders are more focused on the impact of their investments as well as the traditional return matrix.

Society demands economic and environmental outcomes be considered as a complete package, ensuring we make better decisions and help deliver a future where future generations of New Zealanders can thrive.

Paul Goodwin is Managing Director Institutional at ANZ NZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.