Real opportunities for banks to shape sustainable future

Aotearoa New Zealand is facing the twin crises of climate change and biodiversity loss. This has significant implications for our collective well-being across generations.

As the risks of climate change become more widely known and accepted, so does the idea that banks can act as a catalyst for everyone to reduce emissions and preserve our natural environment by allocating capital to environmental and social outcomes.

Like many industries, banks have been working hard to understand the potential impact of climate change on their businesses.

Most banks – including ANZ – are working to understand climate risk and as more data is captured, are becoming better placed to act and influence change. This work will continue to improve as the risk becomes better known and policies are developed to mitigate that risk.

Banks are exposed to climate-related risks through their lending and investments. As we begin to better understand these risks, we are in a key position in society to help people and businesses understand their own climate challenges. But hand-in-hand with this is the growing realisation that there are opportunities for banks to play a role in shaping a more sustainable future.

Initially, the connection between business and climate change might not seem obvious – as bankers, we have traditionally been good at dealing with financial risk.

We understand data and risk intimately, we are good at having conversations with our customers about their financials and where their risks and opportunities lay. Climate Change is now widely acknowledged as a key financial risk.

"Globally the business model is shifting from one of shareholder primacy to one focussed on wider stakeholders. This means that along with commercial returns, businesses need to deliver an environmental and social impact return."

- ANZ New Zealand CEO Antonia Watson

ANZ is New Zealand’s largest bank - we have a relationship with one in two New Zealanders. That gives us an enormous opportunity to effect change by leveraging those relationships, having skin in the game and helping people transition.

Promoting environmental sustainability is now firmly one of our key priorities, and ANZ’s climate strategy focusses on three areas:

The first one is by far the most important. We’re supporting customers to identify the risks associated with their situation, and planning to minimise the risk or transition to a more sustainable business model. We’re also looking at the physical risks of climate change, such as extreme weather events, and how they impact both businesses and individuals, including how this will impact property owners in different geographic areas in New Zealand.

At ANZ New Zealand, we know 20 of our existing customers are named on ANZ’s global ‘Top 100 Emitters’ list and we’ve already engaged with all 20 to get an idea of their plans for transitioning to a net zero economy, as well as managing their climate-related risks and opportunities.

We’ve identified a further 15 companies that we’ll be engaging with outside this list. We believe honest and meaningful engagement with transitioning industries will grow our economy and help facilitate the change that we all need to make to varying degrees.

In many cases we’re finding that this transition creates new opportunities, and we’re helping customers identify and make the most of those too.

For example, the conscious consumer is driving significant changes in demand for products and services. Consumers want to support producers who are ‘doing good’ as well as delivering quality products and services.

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‘Doing good’ is often aligned to the sustainability of the product and the associated supply chain.  Covid-19 has accelerated this trend, heightening consumer demand for products that are healthy, sustainable and traceable.

New Zealand is well placed to meet those changing demands, and good management of our natural resources and improving on-farm environmental practices could provide a significant strategic advantage.

Green, or sustainable finance, is another important part of the sustainability equation, and is becoming a key tool for companies to meet their sustainability objectives.

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 social inequity.

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

At its most basic level, green finance is raising money to invest in projects that have a positive impact on the environment and aim to contribute to a more sustainable economy.

Green Bonds are the most common method of raising money in the green finance world.  It follows a similar process to a traditional bond, for a similar price and risk profile. They allow the issuer to diversify its investor base, and help it to demonstrate its sustainability credentials to aligned investors.

Projects can include renewable energy, sustainable resource use, conservation, clean transportation and adaptation to climate change.

Our role is to partner with progressive organisations and match their green investment opportunities with the capital market.

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We have already stamped our mark as a leader in this space, with a 37 per cent market share in sustainable bond issuance. Since 2017 ANZ has acted as sustainability Coordinator and/or Joint Lead Manager on 23 transactions totalling over NZ$2.4 billion, with more to come. By contrast, less than 0.2% of our lending is to fossil fuel energy generation.

Some recent examples include acting as the arranger and green bond coordinator for Kiwi Property’s seven-year bond and partnering with Kathmandu to establish a syndicated A$100 million sustainability-linked loan (SLL) facility, at the time one of the largest syndicated SLL in the New Zealand market, and being the first major bank to pledge finance for the Community Finance investment platform that brings together investors with Community Housing Providers to build affordable homes.

This has been a really important step in the development of the market and I’m proud of the contribution we’ve been able to make so far.

But equally important is the social change and education required to fundamentally change the way we do business for the better.

Partnering with others is essential for meeting larger social and ecosystem challenges. That’s why ANZ is a founding partner of Mōhio, the climate innovation lab, which develops academic research to encourage the development of financial products to fund solutions that address climate change.

ANZ is also a proud founding partner of the newly established The Aotearoa Circle Centre for Sustainable Finance, alongside the other major banks. The initiative will focus on 11 key recommendations to achieve a sustainable finance system, including more education and training around sustainable finance, working closely with public and private sector leaders and improving data collection and reporting, to name a few.

Over the next nine years to 2030, huge system change and transition is required. The earlier we move the better – for our people, our economic resilience, and our global environment.

This article was originally published by The Aotearoa Circle.