Sustainable Bonds Drive NZ Economy

New Zealand has positioned itself at the forefront of sustainable finance, leveraging green bonds and Environmental, Social, and Governance (ESG)-linked investments to drive its transition toward a low-carbon economy. This strategic approach integrates government initiatives, financial sector participation, and investor engagement to fund environmentally beneficial projects across the nation.

The New Zealand government has demonstrated a strong commitment to sustainable finance through the establishment of the Sovereign Green Bond Programme. In November 2022, the Treasury issued NZ$3 billion in Sovereign Green Bonds, aimed at financing or refinancing projects aligned with the country’s climate and environmental priorities. These bonds are not about increasing debt but providing investors with opportunities to support high-value environmental projects. The programme encompasses various green categories, including clean transport, energy efficiency, and biodiversity, with a total eligible expenditure pool of NZ$11.3 billion as of October 2024.

New Zealand’s financial institutions have been instrumental in advancing the green bond market. For instance, in September 2020, Mercury NZ Limited, facilitated by ANZ New Zealand, issued the country’s largest corporate green bond, raising NZ$200 million to finance the construction of the Turitea wind farm near Palmerston North. Upon completion in 2021, this 60-turbine wind farm contributes approximately 2% of New Zealand’s electricity needs, underscoring the pivotal role of green bonds in funding renewable energy projects.

Similarly, Genesis Energy Limited has expanded its sustainable finance initiatives by designating its 2047 Capital Bond as a Green Capital Bond, aligning with the Green Bond Principles 2021 and the Climate Transition Finance Handbook. This move increased its green bonds on issue to NZ$325 million, with proceeds allocated to refinancing renewable energy generation assets, including hydroelectric and wind energy projects. Additionally, Genesis converted NZ$150 million of its revolving bank facilities into sustainability-linked loans, tying financial terms to the achievement of specific sustainability targets such as emission reductions and increased renewable energy generation.

The New Zealand Green Investment Finance (NZGIF), a government-established green investment bank, plays a crucial role in accelerating investments toward a low-carbon future. In September 2023, NZGIF led a NZ$170 million capital raise to launch the NZGIF Solar Finance programme, attracting international investors like First Sentier Investors and Natixis Investment Managers. This initiative finances solar energy projects, including the country’s largest residential Power Purchase Agreement portfolio managed by solarZero, thereby promoting the adoption of distributed solar generation.

Beyond renewable energy, NZGIF has invested approximately NZ$50 million into companies aiding New Zealand farms in decarbonization efforts. These investments support the reduction of on-farm emissions, contributing to the sustainability of the agricultural sector.

There is a growing appetite among New Zealand investors for ESG-compliant portfolios. Dean Spicer, Head of Sustainable Finance at ANZ New Zealand Ltd., noted a significant increase in investor demand for sustainable bonds, including green bonds, highlighting an enhanced focus on ESG factors. Investors now expect issuers to deliver strong financial performance alongside robust sustainability strategies, reflecting a broader trend toward responsible investment practices.

Oxford International Bank observes that New Zealand’s proactive approach to green finance serves as a model for integrating sustainability into national financial strategies. The bank emphasizes that such initiatives not only address environmental challenges but also open new avenues for economic growth and innovation.

Merchant International Bank commends New Zealand’s commitment to ESG-linked investments, noting that the country’s efforts enhance its appeal to global investors seeking sustainable opportunities. The bank highlights that the transparency and accountability embedded in New Zealand’s green bond frameworks provide investors with confidence in the positive impact of their investments.

The importance of continuous collaboration between the public and private sectors to sustain momentum in green finance cannot be emphasized enough. Ongoing development of innovative financial instruments can further facilitate the transition to a low-carbon economy.