A sustainable market takes shape in New Zealand

New Zealand's green, social and sustainability (GSS) bond market grew substantially in 2019 but is still concentrated around a few repeat issuers. At the KangaNews-Westpac New Zealand Sustainable Finance Summit in Auckland in November 2019, market participants discussed developments in the GSS market and the wider application of sustainability.

"It would be fair to say that 2019 has been a tremendous stepping stone and potentially a tipping point for civil society, government and business on sustainability and the broader need for horizons, investment considerations and business strategies to change."

"We have a huge number of suppliers and we have to think carefully about what our commitments mean to them. We have spent a lot of time working on our supplier code of conduct – working out how those ships can turn with us and not sink."

"It's important to take a tactical approach when a company is in the earlier stages of engaging with sustainability, rather than trying to solve everything in one go. That gets too hard for management, and it's more important to mbed programmes for the long haul."

"As a director, if you don't think a company you are invested in is pushing aggressively enough on sustainability you should ask for a report on sustainability and put it on the 'matters arising' schedule. If something is on that schedule, it tends to get done."

"Sustainability is now sufficiently important that I want to see a five-year sustainability strategy from every company for which I'm on the board. Companies are at different stages of maturity on this, though. You have to work with them according to where they are."


"At some point, loosening monetary policy further is not going to help. Lower interest rates work by bringing forward spending from the future. But what happens when the future eventually arrives?"

"Building up reporting frameworks may sound boring, but it allows a corporate culture to grab hold of real factors. We started with two of the UN SDGs where our business could make a difference and focused our board conversation around specific areas where we could contribute to these factors."

"We have to justify investments, even sustainability ones – and this means having a framework in place for reporting on their value. We used integrated financial reporting for the first time this year, and I think it is our job as a business to tell the story on the value of sustainability to our shareholders."

"When we meet investors around annual results, we might get one or two questions a day on ESG concerns – in a schedule that covers 50-60 investors over two or three days. We encourage these questions and they are increasing in number, including around our community support and employment activities, diversity, remuneration and C02 reduction targets. But it is off quite a low base.

"We are responsible for promoting fair, efficient and transparent financial markets in New Zealand, and the same objectives apply equally in the ESG space. We want to ensure that, on the sell side, products do what they say with transparency and, on the buy side, that fund managers are true to the mandates or investment philosophies they are offering."

"When we talk about the value drivers of sustainability, investors are among our key stakeholders. We need to understand where sustainability is emerging in the shareholder conversation."

"Our sustainability strategy was born from a need to rebuild our social licence. But while the strategy came from a social goal, it quickly became clear that climate action was a big way to rebuild trust in our community."

"Boards are having to be really courageous when it comes to supporting what their organisations want to achieve. We have to recognise this and, therefore, do what we can to provide boards with the right facts and figures to support the brave decisions they need to make."


"We have been having detailed conversations with our board about sustainability for at least the last three years. This includes a lot of work around global megatrends and how they will affect our business model in the short and longer term. The environmental and social aspects of these megatrends are accelerating quickly."

"We have a range of programmes around social sustainability in our business, often driven through our diversity and inclusion programme. The one I am most proud of is the living-wage accreditation, because we have also championed this throughout our supply chain. It really means something when cleaners at work tell you the extra few dollars they are earning make a real difference to their lives."


"The listed green-bond market is underdeveloped at this stage, with just three issuers and NZ$800 million outstanding. We need to enable the market to develop. We have great companies with desire to issue and there is investor demand Ð this is a potential competitive edge for New Zealand and we need to take advantage of it."

"Climate change is no longer an ethical consideration you can take or leave according to your politics. It is a financial consideration that applies, at least in theory, to everyone. If material, it must be taken into account."

"There has been a recent academic study, along with two different surveys of the global investor community, on reasons for investors integrating ESG into their investment decisions. Overwhelmingly, these show that it is because of the associated risk-and-return benefits."

"If ESG metrics are part of an active fund manager's analysis, arguably the manager should be entitled to charge a higher fee for this service. But I'm uncomfortable with charging more for an ethical product, even if consumers are used to paying more in the real economy – like they do for an organic avocado. It doesn't feel ethical to charge more for an ethical fund."

"The most important thing is that ESG risks don't affect all entities within a sector equally. They manifest very differently, depending on an entity's business profile, financial structure and how it reacts to the presence of a risk factor."

"Our fundamental analysis shows a very strong correlation between companies that are well governed, have diverse boards and take social aspects seriously, and strong credit-spread performance and longevity. This is why, as we explain to our clients, we have always been rigorous in looking at these factors."

"The concept of a sustainable financial system is steeped in views of intergenerational perspectives and equity. Maori make great natural partners to participate in this. I don't mean doing the mihi and the cultural elements – I mean really partnering. We have to help design and deliver this financial system and become fully enabled participants in it, because the current system has plenty of inequities."

"Areas such as intergenerational equity and intergenerational perspectives – things that are crucial to a conversation about sustainability – are starting to become more mainstream. But these are concepts Maori have been living with and considering forever."


"We spent a lot of the first half of 2019 asking hundreds of our members to tell us how they would define living well in 2050. From this, we identified eight priorities, or themes, that will drive our strategy. Number one was cultural identity. This told us that connection to culture and self-determination are very important precursors to wellbeing for Maori."

"In my view, the move to using the word sustainability and thinking about ESG in this context moves the discussion forward. It brings a greater level of ambition to what we would like to do within our portfolios, as do the new data and metrics we can use to work out how to tackle big issues like climate change and fossil-fuel transition."

"The financial system might not be intergenerational but our equity is – everything we put in place with our structure and investment plan is based on the concept of intergenerational equity. I dont know what is going to happen with climate change and lobster farming, say – but we have to create the capability to do this thinking within our management teams and our people."

"Coming from a jurisdiction like New Zealand, it can be difficult to find assets to meet international standards that were not set up with us in mind – like the EU taxonomy. But the market and the standards are evolving all the time. Ultimately, we have to issue what our investors want. For domestic issuance, it is important to focus on what works in New Zealand and, wherever practicable, follow international standards."

"It was relatively straightforward to update our programme. Wellbeing bonds are sustainability bonds with the added feature of aligning with Treasury's living-standards framework, and we thought it made sense – and sent a strong message – to re-label all our outstanding bonds."

"One of Auckland Councils largest businesses is public transport, so issuing green bonds was a simple marriage for us. We are investing hundreds of millions, if not billions, of dollars in transport infrastructure and we were able to elevate awareness of our investment plans to capital markets. It is also pretty obvious that appetite for this type of security is growing in global markets."

"The Maori economy is a developing economy that sits within a developed one. This poses a significant opportunity for us to flip the script. The terrible metrics we see about Maori outcomes are a symptom of systemic failure, rather than a characteristic of us as Maori."

"We have to wonder whether different regional taxonomies will make GSS products harder for investors to understand. More importantly for New Zealand, if we continue to focus on regional criteria we still need to ensure we get much-needed international capital into New Zealand."

"A significant amount of what we do is in the private-market space. The reason we don’t participate in the USPP market as much as other private markets is price and relative value – not because we cannot accept the tenor or lower liquidity."

"Under the auspices of the Aotearoa Circle, we have been working on the question of how we can reshape the New Zealand financial system to do its part to preserve natural capital while continuing to direct financial capital throughout our economy."

"We are a small part of the world economy but, unfortunately, we punch above our weight when it comes to greenhouse-gas emissions. To date, market short-termism, failure to price social and environmental inputs and outcomes properly, and lack of data and awareness mean capital has potentially been mispriced and misallocated."


"As the insurance industry undergoes transition it creates its own externalities, in particular around affordability and people not being able to recover after disasters. The work we are doing is based on the idea that, while we might think we are doing a good job pricing risk and sending signals that drive change, this has real social and economic consequences."

"ESG disclosure is key, and there is a lot going on at the moment – including the FMA’s consultation on green bonds and other responsible investment products, the government’s review of KiwiSaver default providers, and the TCFD proposals. What disclosure should look like will be an important ongoing theme for our market."

"The key differentiator with a loan that is linked to sustainability, other than being connected to our corporate purpose, is that proceeds can be applied to anything. Its not like a green bond, which has to be applied to a particular activity, but part of our standard revolving finance. It was far more flexible, efficient and effective – and we get a discount if we reach a threshold."

"Contact has cut greenhouse-gas emissions by nearly 60 per cent since 2012. We now have some of the most aggressive verified targets for a power company globally, which come in well below the 2-degrees scenario. Sustainability-linked loans offer an opportunity to match this type of dynamic ambition for ever-improving ESG outcomes."

"If we don't get brown moving towards green we are in real trouble. Labels matter, so maybe we need to call this type of financing transition bonds rather than green bonds. But we have to have the debate, and we need all market participants to engage with it."