The New Zealand market for sustainable debt products has grown rapidly, with $2,725m in Sustainable bonds issued this year to date. This development is driven by investor demand and companies seeking to connect their sustainability strategy to their funding requirements.
ANZ has lead the development of the market in New Zealand and this year completed a number of market firsts including NZ’s first Inflation Indexed Bond for Housing New Zealand (NZD300m, 15yr), NZ’s largest Corporate Green Bond for Mercury NZ (NZD200m, 7yr), and NZ’s first 30 year Green Bond for Auckland Council which was also the largest Green Bond issued to date in the NZ market (NZD500m, 30yr).
Both Australia and New Zealand require significant investments in green infrastructure and assets to transition to a low carbon economy in line with international commitments. A green-labelled corporate loan market in Australia and New Zealand has emerged in recent years and seen strong growth, with 14 labelled green loans since the first in 2018.
Katharine Tapley, Head of Sustainable Finance at ANZ recently stated that “The market is rapidly moving towards greater awareness and product sophistication, and the new-found interest in green loans is a sign of just how far green financing has come."
Australia and New Zealand Banking Group Limited (ANZ) has pledged to fund and facilitate at least AUD50 billion by 2025 towards sustainable solutions for customers. ANZ also announced new carbon initiatives in October 2020, confirming its commitment to help address climate risk, one of the world’s most pressing sustainability challenges. Activity and targets such as these will boost credit supply for green loans, which along with strong stakeholder and institutional investor demand, could expand the market for green loans.
Qualifying categories for green loans are continuing to evolve, bringing irrigation assets in scope, subject to meeting certain criteria. For example, the installation or upgrade of high efficiency water irrigation system can qualify under the CBI Water Criteria, subject to meeting climate mitigation and adaption criteria.
The climate mitigation component of the CBI Water Criteria is intended to provide transparency over the degree of mitigation that will be delivered over the operational lifetime of the project or asset. Issuers must disclose and justify that their water assets or project do not increase greenhouse gas emissions compared to business-as-usual baseline.
The adaption component of the CBI Water Criteria applies if the asset has an expected or remaining operational lifespan of more than 20 years. In this case an assessment of potential climate risks is required. If these are found to be significant a corresponding adaption plan is required, setting out management responses noting how identified climate risks will be addressed.
Looking ahead, the financing of sustainable business needs to be intrinsically linked to each company’s purpose and its stated sustainability strategy. Investors view green or sustainable debt products the same way any consumer buying a sustainable product would. This means asking does a company have a clear pathway to a carbon neutral future and does it have a social licence to operate?
What is evident is that sustainable financing is here to stay, supported by macro global trends and regulatory requirements. It offers a new and flexible financing source for companies willing to incorporate sustainable principles into their businesses, including operators of irrigation assets. Irrigation operators looking for funding should examine closely whether sustainable finance is suitable for them.
This article was first published by Irrigation New Zealand.