Sustainable finance continues to evolve

Indeed economies and their agents in the corporate, financial and even government sectors are increasingly directing capital into measures aimed at addressing crucial issues

“There is increasing focus on the supply chain as consumers seek out the provenance of products and services they consume. The supply chains of smaller businesses are coming under greater scrutiny as a result.”

The 5^th annual ANZ / Finance Asia Poll across over 100 investors and borrowers in Asia Pacific highlights a significant acceleration in sustainable finance with 2022 expected to be another record year.

The Green, Social, Sustainability and Sustainability-Linked (GSSSL) Bond markets continue to contribute to the growth in demand with Moody’s Investors Service forecasting US$1.35 trillion of issuance in 2022, following growth in 2021 of 64 per cent.

The ANZ/Finance Asia poll highlighted three key points:

• Many more investors than in the prior year are developing an ESG investment policy and now use third party ESG ratings to implement their strategy
• Of the two thirds of respondents already investing in Green, Social, Sustainability bonds and loans, renewable energy is the most prevalent sector followed by energy efficiency and sustainable transport
• Borrowers motivation to issue in a sustainable format was primarily driven by the ability to align to their sustainability objectives, followed by greater investor diversification and improved access to capital

New Zealand

In New Zealand there has been NZ$18.89 billion of GSSS bond issuance in NZD since 2014. A record NZ$3.75 billion was issued in 2021 and this year is on track to surpass that with more than NZ$2.3 billion issued as at 17 June, according to KangaNews.

Sustainable finance markets have also increased focus on social equity, diversity and inclusion. In New Zealand, the Genesis Youth Trust issued an innovative social impact bond with ANZ, focused on combining constructive services to promote positive lifestyle changes for at-risk youth and their families.

The transaction in its fifth year has proven to be highly impactful.

Kāinga Ora are the largest issuer of Sustainability (‘Wellbeing’) Bonds in the New Zealand market with proceeds funding sustainably constructed affordable housing and supporting socioeconomic advancement and empowerment.

While the New Zealand sustainable finance market is dominated by bond issuance it has seen a significant acceleration in product development as more companies align their sustainability strategies and targets with funding.

Following international trends, the emergence of Sustainability-Linked Loans and Bonds has given many different businesses access to the sustainable finance market. Through this structure funding costs are adjusted depending on whether the borrower has achieved ambitious sustainability performance targets or not.

Synlait was the first New Zealand company to borrow under a Sustainability-Linked Loan structure in 2019 and Spark Finance issued the first Sustainability-Linked Bond in the New Zealand market in March 2022 (both transactions managed by ANZ).

Auckland Council, the first New Zealand issuer of a green bond in 2018, became the first local government entity to complete a Sustainability-Linked Loan and a Sustainability-Linked derivative in March this year.

Smaller business

The relevance of sustainable finance is not limited to large companies. There is increasing focus on the supply chain as consumers seek out the provenance of products and services they consume. The supply chains of smaller businesses are coming under greater scrutiny as a result.

For example Modern Slavery legislation already introduced in many countries is currently under consultation in New Zealand and will increase the focus on working conditions.

Alongside supply chain transparency conscious consumers are also focussing on ways to improve sustainability in their day-to-day lives. This can be seen through increased interest in Plastic Free July and the rise of circular fashion.

People are also concerned about rising energy and fuel costs as well as environmental sustainability and looking to make changes.

Research shows many of those changes are connected to the homes. ANZ data show eight in 10 people have plans or would like to improve the energy efficiency of their homes. For those who wouldn’t cost was the main barrier.

New Zealand faces twin crises. Climate has taken front of stage however the equally important and related biodiversity crisis is gaining rapid attention. New Zealand’s economic success depends on our natural environment. It gives us a competitive advantage that underpins two of New Zealand’s key industries – tourism and primary production.

As these global environmental and social challenges evolve sustainable finance is using data and technology to deliver increasingly sophisticated solutions which are delivering meaningful impact.

For example, nature-based solutions can address biodiversity loss and provide resilience to climate-related impacts.

Some examples of projects underway to investigate nature-based solutions include:

• Impact on pāua from climate change and sedimentation in the Wairarapa pāua fishery (PAU2): This project brings together recent advances in marine science sedimentation and climate change knowledge with Māori pāua quota owners, sustainable finance and pāua fishery management. It combines expertise and insight from Terra Moana, NIWA, Paua Industry Council, Toroa Strategy and ANZ.
• The Wheatbelt project announced in March in Western Australia and initiated by ANZ plans to integrate native reforestation and carbon farming with the production of biomass for renewable biofuels. ANZ has partnered with Japanese energy company INPEX and Qantas. Landowners can benefit from drought-resilient cash crops and diversifying farm incomes while reducing the volatility of crop yields and cashflows. It will also provide exposure to the rapidly growing carbon and renewable biofuels markets.

ANZ has continued to invest in its sustainability strategy adding four people to our New Zealand sustainable finance team to complement the banks global team of 21. In February we also invested in and formed a partnership with Pollination Group, a leading global climate change investment and advisory firm.

The ANZ/Finance Asia poll demonstrates the weight of investment weight being aimed at the most pressing challenges facing our planet and our societies. ANZ knows it must be part of that effort.

Dean Spicer is Head of Sustainable Finance at ANZ New Zealand