Sustainable Finance A Force For Good

2020 was a record year for the global sustainable finance market, and 2021 is set to be another as new ways of allocating capital are developed to help solve major challenges, like climate change and poverty.

New issuance in the global sustainable finance market leapt by 30% to a record US$730 billion (according to Bloomberg New Energy Finance data) in 2020. The total global sustainable debt market now stands at US$2.3 trillion.

Here in New Zealand we saw NZ$2,725 million of sustainable (green, social and sustainability) bonds issued, and 2021 is already looking even busier, with interest from a range of sectors assessing how they can align their sustainability strategies and financing plans.

"Investors increasingly want to see their money put into investments that not only offer a good return, but also support sustainable initiatives and responsible investment."

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

As an example, in late April the World Bank (International Bank for Reconstruction and Development) issued NZ$1 billion of New Zealand dollar-denominated bonds to institutional investors. The issuance, for which ANZ was one of the Lead Managers, will help the bank’s sustainable development mission to end extreme poverty and boost prosperity internationally.

Closer to home, Kāinga Ora returned to the market and issued NZ$600 million of 7.5-year wellbeing bonds to fund social housing initiatives in New Zealand. ANZ acted as joint lead manager for this transaction. Kāinga Ora is the largest New Zealand issuer of sustainability bonds.

This month, the Asian Development Bank issued a New Zealand Dollar gender bond. The NZ$375 million, 10-year bond, jointly lead by ANZ, will be targeted to finance projects in the region that promote gender equality and women’s empowerment.

Affordable child and family support, education, improving participation in decision making and leadership and improving the resilience of women against risks and shocks from climate change and disaster, are all within the scope of the financing programme.

Several factors are driving the rise in sustainable finance and offering opportunities to explore new ways of bringing issuers and investors together.

A major factor is that investors increasingly want to see their money put into investments that not only offer a good return, but also support sustainable initiatives and responsible investment.

Environmental concerns have risen for many investors in recent years as the world steps up its transition to a low-carbon economy.

The New Zealand Government has introduced legislation that will require financial service providers to report the impact of climate change on their businesses.

The aim of the legislation is to ensure climate change is central to the companies’ decision making, but it also means large organisations will have data they can then use to support their sustainable financing initiatives.

There are other initiatives like the Climate Change Commission’s report, the New Zealand Sustainable Finance Forum and the Climate Change Response (Zero Carbon) Act. Collectively, these initiatives have driven engagement from companies in terms of what it means for them and how they will comply.

Sustainable finance also offers investors and philanthropists new ways to help fund projects that are addressing some of society’s biggest economic challenges.

One example is Community Finance, an investment platform established to help provide the funding for community housing projects.

It has launched The Aotearoa Pledge, with the aim of raising NZ$100 million this year to build affordable homes. ANZ is among the institutions that have already committed to the pledge.

More than NZ$51 million has been raised so far from several financial institutions and philanthropic organisations.

This financing will give Community Finance the ability to expand the potential funding sources that are available to community housing providers.

ANZ has been a pioneer in the New Zealand green bond market, jointly leading the first green bond for the International Finance Corporation (a member of the World Bank Group) in July 2017. We have since partnered to deliver a number of key transactions including:

·         First New Zealand corporate green bond for Argosy Property in February 2019;

·         First domestic green bond issue for Auckland Council in June 2018; and

·         New Zealand’s first Sustainable Linked Loan with Synlait Milk in September 2019.

These innovations have been important stepping stones in our markets development and created significant momentum building into 2021.

We have also been the Sustainable Finance Co-ordinator on around 85% of the sustainable finance frameworks publicly released in New Zealand, and acted in a lead manager capacity for all of the green bond issues that have come to market so far.

The size of the deals varies, but what they have in common is a desire by all participants to deliver outcomes that provide economic, environmental and social benefits, aligning their corporate purpose and sustainability strategy with their debt financing.

This article first appeared in NZ Herald