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Regulation needed to support 'green' bonds

Wednesday 14th November 2018

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Urgent investment required to help meet climate change targets is more likely to happen if the government drops its hands-off approach to regulating so-called ‘green’ bonds, Auckland law firm Chapman Tripp says.

In a report on the emergence of ‘impact investing’ as a new form of philanthropy, the firm takes issue with the Productivity Commission’s finding that there is no need to regulate for bond issues that seek to raise funds intended for environmental purposes.

“The evolution of green bond markets in other jurisdictions has benefitted from more active regulatory involvement,” the report says.

In other countries, issuers are required to demonstrate the integrity of their green bond offerings by disclosing the target company’s environmental, social and governance risk management, standards for carbon efficiency and datasets, and regionally focused green bond standards.

The report suggests such regulation is important to give the new investment class greater profile and investor appeal.

“Affirmative statements from the regulator, which could include its expectations around disclosure, accountability and best practice, would also support KiwiSaver and other institutional investors’ engagement in the green bond market.

“We consider that regulatory measures could have a significant impact in propelling the market forward,” Chapman Tripp says.

Green bonds are in their infancy in New Zealand. Contact Energy has a certified green borrowing programme underpinning $1.8 billion of geothermal power station development.

Auckland Council also raised $200 million in June from selling green bonds to fund electric trains and associated infrastructure.

“New Zealand is underdeveloped by comparison to equivalent jurisdictions, potential investor interest and the government’s ambitions,” the report says. “But every indication is that we are about to experience a growth surge.”

It notes the global Climate Bond Initiative’s recent finding that Australia and New Zealand’s ambitious greenhouse gas emissions reduction targets under the 2015 Paris climate change pact will "ultimately rely on more substantive policy support for green projects and green finance”.

Globally, the report says green bond issuance stood at about US$221 billion at the end of last year, only a fraction of total global bond issuance of some US$100 trillion.

Chapman Tripp cited “enormous untapped demand” globally and domestically for environmentally credible investment options. New Zealand’s infrastructure investment pipeline has "never been larger and climate change effects are generating a new urgency” to improve the resilience of essential national infrastructure, the report said.


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