Wind Farm Funded by NZ's Largest Green Bond Issue

New Zealand’s largest corporate Green Bond issue has closed, raising $200 million to help finance the construction of a 60-turbine wind farm near Palmerston North.

The Green Bond issue - arranged by ANZ New Zealand for Mercury NZ Limited – will help fund the Turitea wind farm.

When completed in 2021 the farm will provide about 2% of New Zealand’s electricity needs.

The bond issue follows the launch in August of Mercury’s green financing framework.

Mercury’s Acting Treasurer Geoff Smits says the initiatives “reflect Mercury’s desire to promote renewable energy and achieve positive environmental and economic outcomes. We want New Zealand to make the most of its renewable-energy advantage and to realise a low-carbon future for all.”

“That includes helping transitioning the country’s vehicle fleet to electric and reducing our dependence on imported fossil fuels.”

“There has been a significant pickup in investor demand for sustainable bonds, including Green Bonds.”

Dean Spicer, Head of Sustainable Finance, ANZ New Zealand Ltd.

The Turitea wind farm will help progress that goal. Once it’s commissioned Turitea will generate enough electricity to power 375,000 electric vehicles.

ANZ’s Head of Sustainable Finance NZ Dean Spicer says “the green bond generated an ‘electric’ response from investors and this was in part due to its green bond features.”

Since 2017 ANZ has acted as Green Bond Coordinator and/or Joint Lead Manager on 14 transactions totalling over NZ $1.7 billion.

“There has been a significant pickup in investor demand for sustainable bonds, including Green Bonds,” says Spicer.

“This highlights the increasing focus of investors on Environmental, Social and Governance (ESG) factors. They expect issuers to deliver a strong financial performance as well as delivering within their sustainability strategy.”

Green Bonds are like a traditional fixed-interest bond, except the proceeds are earmarked towards environmentally-friendly projects.

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These projects have included renewable energy projects (wind farms, solar and geothermal power), green buildings, water purification, sustainable transportation and pollution prevention.

In 2008 the World Bank issued the first bond specifically labelled as “green”. That was after a group of Swedish pension funds said they wanted to invest in projects that helped the climate.

Fast forward eleven years and around USD$272 billion (NZD$401 billion) worth of green bonds were issued globally in 2019 (BNEF).

Although sizable, that represents only about 1% of the total bond market and an indication of how much scope the sector still has to grow.

As well as specifying the types of projects they intend to finance, bond issuers also commit to regularly updating investors on the progress of the projects and their environmental impacts.

That makes green bonds increasingly attractive for investors who want to diversity their bond portfolios whilst also helping direct capital towards environmentally-friendly projects.

“People are increasingly focussed on the providence of the goods and services they are buying. This has extended to the financial services sector where investors expect the funds to ‘do good’ as well as deliver an adequate financial return” explains Dean Spicer.

“Green Bonds align the bond proceeds to certified Green Assets under internationally recognised frameworks.  It allows bonds managers to meet the sustainability expectation of their clients in a robust manner.”

“People are increasingly focussed on the providence of the goods and services they are buying. This has extended to the financial services sector where investors expect the funds to ‘do good’ as well as deliver an adequate financial return.”

Dean Spicer, Head of Sustainable Finance, ANZ New Zealand Ltd.

To confirm the integrity of the Green Bonds as a “green” investment, Mercury has ensured that the Green Bonds comply with the Green Bond Principles and the Climate Bonds Standard.

The Green Bond Principles are voluntary process guidelines for issuing green bonds published by the International Capital Market Association. The Association has established principles for how bond issuers use the proceeds of their bonds, how issuers select projects and how the outcomes of those projects are monitored.

The Climate Bonds Initiative (CBI) is an international organisation established to promote investments that will deliver a global low-carbon and climate resilient economy. It has implemented the Climate Bonds Standard, which sets out technical criteria to verify the use of the proceeds from the bond.

Dean Spicer says the benefits for the issuers extend beyond the funds that are directly raised by the bonds.

“Many companies who have issued green bonds have had positive feedback from across the stakeholder group.  Staff engagement has been improved, with capital providers and customer connectivity being enhanced.”

“The common view is the process of establishing a Sustainable Financing Framework aligns the company’s purpose and strategy to its financing activities.  Increasingly the focus is on integrated financial reports that communicate the financial and sustainability outcomes of the company in one report.  Green bonds and loans are embedded within that approach.”

The growing popularity of green bonds internationally has led to a new generation of ‘labelled’ bonds, including Sustainability and SDG (Sustainable Development Goals) bonds, Social bonds and Blue (marine conservation and sustainable fisheries) bonds.

In New Zealand, Crown agency Kāinga Ora has lead the way on sustainability bonds with its ‘Wellbeing Bond’ issues that are used to finance social housing. It has issued around $2.3 billion of the bonds, which are aligned to the Treasury’s Living Standards Framework.

New Zealand has also seen its first sustainability linked loan. Synlait entered into the four year, $50 million, ESG linked loan with ANZ. It was the first loan in New Zealand which encourages the borrower to further improve its reporting performance against ESG benchmark criteria.

It is likely the market will see a much wider, more diverse range of issues come to market. But green bonds are likely to remain at the forefront of the sustainable financing movement.