NZ lagging behind in ethical investments
AUCKLAND: New Zealand is falling behind the rest of the world in its use of sustainable finance, putting at risk our chances of attracting international investment while domestic investors are missing out on the chance to have more say in what companies are doing, a legal specialist is warning.
Sustainable bonds — debt raised by companies to meet a specific climate change or social goal — have hovered around $2 billion$3 billion a year in New Zealand for the past three years.
Globally it has risen from $US326 billion ($NZ512 billion) in 2019 to $US1.03 trillion last year, and is set to hit $US1.5 trillion in 2022.
Luke Ford, a partner at Chapman Tripp who specialises in sustainable finance, said that meant New Zealand finished 2021 further behind in the world rankings than in 2017 when the first green bonds were issued in New Zealand.
‘‘Sustainable finance across its various forms . . . is on a growth trajectory in New Zealand. But other countries are setting a cracking pace, leaving us still in their dust.’’
Mr Ford said a reason New Zealand lagged behind was because there had not been the uptake of social and green bonds in 2019 such as that overseas. Part of that was because New Zealand had a very large retail (small) investor base, he said.
‘‘It’s our greatest strength but can also be a weakness in our ability to move quickly.
‘‘As we bring in more retail investment the focus on regulation becomes stronger and it also becomes difficult for any one single investor to be heard.
‘‘It really requires a wide range of investors to be stepping up and also for a lot more work to be done to make sure disclosure and regulation requirements are met and that really has to some degree slowed us down.’’
While sustainable bond issuance has been static there has been growth in sustainabilitylinked bank loans where the interest rate can come down if the company meets certain goals.
The number of New Zealand companies using sustainability linked loans was just one in 2017 but grew to 13 last year compared to the 11 companies that issued sustainable bonds.
But sustainability linked bank loans look set to grow with BNZ launching New Zealand’s first agribusiness sustainability linked loan product for farmers.
Mr Ford said New Zealand still needed to do more or it risked falling further behind.
‘‘We could lose our access to international investors which we have slowly been increasing over the last 10 years.’’
He said overseas investors could bypass New Zealand companies who were trying to raise debt as they were not doing the right engagement or reporting.
‘‘I think domestically we also risk losing the opportunity to have debt investors and KiwiSaver and people’s investments generally make a statement beyond just the financial returns.
‘‘The ability to engage, which they haven’t traditionally had, in the direction of the business and one that we are seeing more and more internationally with more activism — just engagement beyond the traditional shareholder.
‘‘It’s one we risk missing out on if we don’t build up a market in this in the same way it has occurred internationally.’’
Some KiwiSaver providers have moved to invest in social and housing bonds but Mr Ford said more could be done.
‘‘I think they are certainly going in the right direction — we are seeing more specialised funds. I do think the next steps are continuing to expand that product range and actively going out of their way to give investors a voice.’’
Mr Ford said providers should be telling their members what they were investing in and holding businesses to account.
‘‘Overseas a lot of changes are being driven by institutional investors that may be representing a mix of money from different people but it is giving a voice to people who are investing through them.’’
Mr Ford said there were three elements to a successful market.
‘‘It needs support from government, strong investor engagement and businesses that are willing to move into this new area . . . To some degree we have all of those elements but the key will be increasing that link between investors and businesses.’’ — The