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NZ lagging in creating climate-related investment opportunities, says new report

Friday 13th April 2018

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New Zealand is lagging behind other countries, and well behind Australia, in creating opportunities to invest in combating climate change, says a preliminary survey of the country's 'climate finance landscape' released by Climate Change Minister James Shaw.


Prepared in mid-2017 by Mohio, a research collective, for the Ministry for the Environment, the report makes 10 broad recommendations for how New Zealand could accelerate the development of economic instruments that would give investors incentives to support climate change initiatives.


They range from regulatory interventions such as more robust disclosure and reporting of climate-related financial risks and liabilities in the public and private sector through to the creation of a Green Investment Fund.


“The government is already working on several of the report’s recommendations, including establishing a Green Investment Fund, fixing the emissions trading scheme to provide effective carbon pricing, and I have asked officials to look at options for disclosure and reporting of climate-related financial risks,” Shaw told a symposium on climate finance at Auckland University of Technology.


A postscript in the Mohio report noted that the election of a new government with an intention to include measurement of natural capital in its policy-making, the publication of the first set of official environmental-economic accounts, and the issuance of the country's first  'green bonds'.


The ANZ and International Finance Corp raised $125 million in a joint Kauri bond in August, the same month Contact Energy committed to a $1.8 billion green borrowing programme. Last month, Auckland Council said it would establish a green bond framework and intends issuing its first green bonds this year. The New Zealand Superannuation Fund also held 40 percent of its investments in a low-carbon global passive investment fund and was one of six sovereign wealth funds that last year established the One Planet Sovereign Wealth Fund Working Group.


With Australia already a world leader in climate bonds, those moves take New Zealand a small distance towards developing a green finance market, but a number of issues were holding it back, the Mohio report said. 


"The relatively small size of the New Zealand market creates challenges for implementing solutions that require scale, such as bonds to provide debt to low-carbon projects," the report said. "New Zealand’s unusually high proportion of renewable energy reduces the eligibility for many potential energy efficiency and fuel switching projects as climate finance projects, because electricity in New Zealand already largely derives from low-emissions sources.


"This high level of renewable energy also reduces the potential for a carbon price to function effectively as an economic (dis)incentive. There also appear to be poorly understood cultural factors which appear to hinder the uptake of grants and other kinds of financing for climate-aligned objectives."


While the New Zealand government was already directly investing in climate change action through various agencies and funding initiatives, it could do more to act as an investment manager, market maker and trailblazer. 


As an investment manager, the government could "emphasise the importance of financing pipelines for climate-aligned projects and companies to nurture innovation to maturity, to provide growth capital for ideas that work", the report said. As a market maker, it could act as a first or large-scale purchaser of climate-aligned goods and services.


"A trailblazer role would recognise the New Zealand government’s capacity to lead the way globally, especially in those sectors where New Zealand has unique mitigation opportunities, such as land use and transport powered by renewable energy."


A specific recommendation relates to the potential for large-scale permanent native and exotic forest planting, backed by permanent forest bonds.


These would see the Crown pay a pre-set rate of return for the plantation and maintenance of forests that would offset the country's greenhouse gas emissions liabilities, agreed under international treaties.


"From a Crown perspective, its principal economic benefit is to reduce forward liabilities by reducing the number of foreign carbon offsets it needs to purchase to meet New Zealand's emissions targets," Mohio said.


The option was attractive also because it could deliver large-scale bond issuance programmes, reflecting the large land areas identified in New Zealand as likely to benefit from the establishment of permanent forests because they were steep or erosion-prone.


While there was scope for bonds to be issued against plantations of native forest, there would also need to be provision for the planting of permanent exotic forest species as well, since they are faster-growing and would sequester more carbon more quickly than native forests would be able to do.


The existing Afforestation Grants Scheme and Permanent Forest Sink Initiative "do not yet reach the scale of the problem identified," the report said. "Moreover, commercial forestry will not bridge the gap because much of this steep and remote land is marginal for production forestry as well as agriculture.



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