FMA guidance coming on green bonds

27 September 2019

The Financial Markets Authority (FMA) is consulting on proposed guidelines for green bonds and other responsible investment products.

This is timely as we expect demand to increase with the passage of the zero carbon legislation and as public anxiety around climate change increases.

Submissions close on 24 October.

The FMA considers that the resulting guidance will be particularly relevant for:

  • issuers of green bonds (wholesale and retail)
  • managers of managed investment schemes, including KiwiSaver, that have responsible investment objectives (the predominant focus of the FMA questions)
  • retail and wholesale investors in these products
  • financial advisers, and
  • any other financial service provider or issuer promoting itself of its services as responsible.

FMA General Counsel and Acting Co-Head of Capital Markets Nick Kynoch said, “We are satisfied the current law is flexible enough to accommodate responsible investment products. But in an area like this, with a lack of consistent, agreed-upon definitions, we are keen to benchmark what good conduct and good disclosure look like to ensure issuers focus on meeting investor needs”.

Scope of proposed guidance

Current legal requirements – these products are covered by the provisions in the Financial Markets Conduct Act relating to regulated offers.

What makes the product justify the terms ‘green’, ‘ethical’ or ‘responsible’. And, in the case of green bonds, is there anything to prevent the issuer from trading away this greenness. The FMA plans to use specific examples for this section.

Chapman Tripp comment

New Zealand is trailing behind comparable jurisdictions in our use of these instruments and it may be that part of the reason for this has been a lack of regulatory engagement. So we welcome this move.

Chapman Tripp considers that, although not specifically discussed in the proposed guidelines, feedback on and guidance for same class offer and limited disclosure documents class exemption should be specifically considered by the FMA.

The main question here is how much demand there is to offer through those formats.

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