Whether you know it as sustainable finance or the green economy, ethical and environmental issues are having an important impact on the New Zealand economy. As politicians and multinationals struggle to make sense of the new world, institutional investors are rapidly moving towards a more agile and greener economy. While strong growth continues to be the main objective, clever investors are increasingly looking for long-term opportunities that align with their vision for a zero-carbon future.
Increased awareness about the science of climate change has led to greater activism and changing consumer preferences across New Zealand. This is already having an impact on how people work, eat and shop, with the legal and insurance sectors also starting to adjust in response to extreme weather events and climate litigation. Instead of waiting for regulation, institutional investors are becoming more aware of these trends as they take matters into their own hands.
New Zealand will be widely affected by climate change, both on the most basic level and through economic changes via the agriculture, transport, tourism and property sectors. The EU Taxonomy has already established a classification system for sustainable investment activities, with local companies needing to be aware of their expectations if they want to seek international finance or set up a parallel domestic framework.
New Zealand has less opportunity to decarbonise its energy grid than many other nations, with clever investment solutions from the private sector needed to supplement government programs. Green bonds are one current example, with debt financing instruments having been used by the private and public sector across New Zealand. Green bonds have been used by the Auckland Council for its electric train fleet project, and by property company Argosy for its green building portfolio among other projects.
Sustainable linked loans are another form of green finance, with this relationship involving a loan between a borrower and lender for a particular green project. In this framework, greater sustainability means lower interest rates. These loans are part of Contact Energy's Green Borrowing Programme in New Zealand. Milk producer Synlait has also used this instrument to deliver greater transparency between its financial arrangements and environmental responsibilities.
Despite welcomed moves in the private sector, government incentives and regulations are still likely to play an important role. A $100 million green investment fund was set up last year to help New Zealand companies reduce their emissions while increasing their profit margins. According to Climate Minister James Shaw, "New Zealand faces a big job in upgrading our economy and infrastructure. New Zealand Green Investment Finance will help deliver financial backing to help ensure that the upgrade is fit for purpose... This fund will bring financial and technical emissions reductions and expertise together with the sole aim of increasing investment in low emissions projects."