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New Zealand is currently a not-so-fast follower in global terms for sustainable finance. Even though on an upward trajectory, other countries are setting a cracking pace, leaving us falling further behind.
“The question”, says Chapman Tripp sustainable finance expert and partner, Luke Ford, “is whether we can turn this around and what that would take.
“There is significant cause for optimism about the market’s growth capacity – particularly in light of the Government’s commitment in the first Emissions Reduction Plan, to grow the sector in order to provide ‘capital and investment in every part of the economy’.
“But it would be a mistake to just sit back and wait for it to happen. A more purposive response is needed.”
He was commenting on the release of the firm’s publication, Investing for Impact – Trends & Insights 2022 which looks at what is happening now in sustainable financing, the factors which are driving change and where to from here.
Environmental Finance Data figures show sustainable bond issues have almost doubled globally in each of the last three years, jumping from US$326 billion in 2019 to US$1.03 trillion in 2021 and projected to reach US$1.5 trillion this year.
Here, by contrast, they have hovered at around NZ$2 billion, with the result that we finished 2021 further behind in world rankings than we were in 2017.
“But the picture is not as bleak as this figure would suggest as, over the same period, sustainability-linked bank loans have become more widely-used among New Zealand corporates and are now rivalling the bond in popularity. And there are a number of reasons to suggest that demand for sustainable financing options will pick up sharply in the near future.”
Government initiatives, in place or in prospect, include NZ Green Investment Finance, the upcoming Sovereign Green Bond programme, the Crown Responsible Investment Framework, and the multi-billion dollar spend anticipated in the newly released Aotearoa New Zealand Infrastructure Strategy 2022 to 2052.
“Change will require commitment and resources beyond the State, and in the private sector also there is a lot going on.
“The latest benchmark report from the Responsible Investment Association of Australasia (RIAA) has the proportion of fund managers who have achieved Responsible Investor Leader status almost doubling – which accords with Chapman Tripp’s experience that the industry is investing more effort in its ESG (environment, social and governance) policies.
“And targeted “impact investment” – being investment made with the intention to generate positive, measurable social and environmental impacts alongside a financial return – continues to grow. Typically these investments are made at community or local level, and in Aotearoa New Zealand, they are often Māori-led or informed by te ao Māori values.
“ESG is also about to get a kick-along through the introduction of mandatory climate-related disclosure (a world-first) for listed issuers and large financial/insurance institutions, beginning in financial years on or after 1 January 2023.”
The combination of climate change, COVID-19 and galloping inflation has put us – and the rest of the world – at a crossroads. We know the future will be different, we just don’t yet know how different and in what ways. We can be sure, however, that there will be a much bigger role for sustainable finance. The task is to create the conditions which will release its full potential.Luke Ford, partner
Investing for Impact – Trends & Insights 2022 features articles across a number of focus areas for sustainable finance in New Zealand.
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