The road map to a sustainable finance future, detailed last November, is now being brought to life with the opening of an "agile and independent" centre in Auckland.
The Centre for Sustainable Finance, operating in Wynyard Quarter, was launched yesterday to co-ordinate the implementation of recommendations from the Sustainable Finance Forum, established by The Aotearoa Circle. The centre will accelerate the transition to a sustainable financial system by 2030.
The function was attended by 150 guests including representatives of the founding and associate partners (funders) the ASB, ANZ, BNZ, HSBC and Westpac, NZ Super Fund, Kāinga Ora — Homes and Communities, insurer IAG, professional services firm EY, and The Tindall Foundation.
Bridget Coates, new co-chair of the Sustainable Finance Forum, said the centre will be agile and independent. It will have the ability to co-ordinate, advocate and create momentum to ensure success of the Roadmap for Action.
The Sustainable Finance Forum, comprising a voluntary leadership group co-chaired by Karen Silk and Matt Whineray and a 24-strong technical working group, spent nearly two years conducting research and workshops.
More than 200 stakeholders were engaged and 95 per cent of those surveyed felt the current financial system is not sustainable or inclusive. The road map with its 11 recommendations and actions was delivered last November, with a directive to establish the Centre for Sustainable Finance to keep things moving.
The centre will press for the allocation of resources to investments that protect and enhance the environment while addressing emerging inequalities and stalled productivity; and to provide the finance to transition to a low-emissions economy that is dynamic and future-fit.
Coates said "we have to work within planetary and societal boundaries and integrate environmental, social and cultural outcomes into investment decisions. We are destroying our natural capital (such as soils, air, water, plants and minerals) and we have to stop it.
"Our responsibility is to leave the planet to our children and grandchildren in a condition that is not worse than when we inherited it.
"New Zealand has an incredible (clean and green) brand to live up to and we have a big opportunity to be a leader in sustainable practices — which global consumers care deeply about. There are global changes in the way business and financial markets operate, and our role is to help New Zealand adjust to this."
Fellow chair Ross Pennington said the time period for implementing the road map is three to five years, so that's the number one priority.
"We want to change the mindset, get the message out about sustainability and transform the finance system. The centre will bring people together, define barriers and accelerate relevant initiatives.
"We have a $1 trillion financial system and we need to change the status quo of asset allocations. For example, by having longer-term finance with longer pay-off periods to achieve sustainability practices."
"There is a significant risk of misallocation of funding, given $604 billion of New Zealand bank assets are allocated according to current mindsets and principles.
"The centre can become a clearing house for developing innovative and structured financial products and instruments," Pennington said.
The centre's business model is the same as The Aotearoa Circle where time is all donated. The Leadership, Governance or Advisory group members are not paid and instead are in place to get work streams underway so the centre can operate on a low-cost, efficient budget.
The centre is similar to those established:
• In Britain — the independent, commercially-focused Green Finance Institute, led by bankers and launched in July 2019 with government and City of London seed funding;
• In Australia — the Australian Sustainable Finance Initiative, led by representatives of financial institutions with an advisory council of government, regulators, industry bodies and civil society representatives, and working with universities;
• In Canada — the Institute for Sustainable Finance, a collaborative hub housed at Ontario Queen's University Smith School of Business that combines academia, private sector and government with the singular focus of increasing the country's sustainable finance capacity.
Coates said the initial funding support for the centre has come from the private sector and "we have a strong base to work from. The public sector will no doubt come on board in time and it's good to show the Government that there is support for this venture.
"In the eight months since the road map was launched, the pride, energy and momentum that has gone into sustainable finance has been extraordinary. The private sector, particularly financial institutions, has stood up and supported it, and there is a sense of being ahead of the play.
"We've already had KiwiSaver changes, and there's a lot going on to bring sustainability principles to bear on financial markets.
"We are keeping abreast of what is happening in the rest of the world, and we are responding to the massive global changes in banking, insurance and investment by working with domestic and international providers to create locally relevant sustainable finance standards and guidelines."
She said the centre will not undertake projects on its own. Instead, it will co-ordinate and facilitate work streams through collaboration and agreement, and engage a third party to complete the work.
The centre is governed by a Leadership committee of:
• Co-chair Ross Pennington, a lawyer and specialist adviser in capital markets, infrastructure financing and delivery, Fintech and bank regulation. He was a commercial analyst at the Treasury and partner of law firms Chapman Tripp and Russell McVeagh.
• Co-chair Bridget Coates, a Chartered Financial Analyst and Chartered Member of the Institute of Directors. She is a former director of the Reserve Bank and governor of the NZ Super Fund, and presently chair of Fonterra's Sustainability Advisory Panel and Koi Tu, a think tank based at Auckland University. She is also chairwoman of the Real Estate Institute of New Zealand and a director of Tegel Group Holdings. Bridget was the inaugural chair of The Icehouse business accelerator and ArcAngels, an investment group focusing on women-led growth companies, and former director of SkyCity Entertainment, Fisher & Paykel Appliances, NZ Trade and Enterprise, NZ Apple and Pear Marketing Board and Auckland Uniservices.
• David Woods, deputy chair of NZ Green Investment Finance and NZ National Advisory Board on Impact Investing; director of Whai Rawa Fund, Te Puna Hapori and of Hiringa Energy; trustee of The Gift Trust, and former Chair of the Impact Enterprise Fund, and Deputy Chair of the NZ National Advisory Board on Impact Investing. He also sits on two overseas boards for the Aga Khan Foundation as an independent director for First Microfinance Bank Afghanistan and First Microfinance Company Egypt.
• Simone Robbers, Reserve Bank assistant governor and general manager of governance, strategy and corporate relations. She is also responsible for leading and co-ordinating bank-wide strategies including climate change, Te Ao Māori and South Pacific remittances. She worked at Financial Markets Authority and Securities Commission.
• John Duncan, deputy chair of Kāinga Ora and Public Trust; executive director of Auckland Investment Office; and an advisor to Auckland Council on funding, risk management, balance sheet and capital issue.
• John McCarthy, manager of the Tindall Foundation with a 30-year background in social and health service delivery and management in the NGO sector.
The leadership committee, not wasting any time, already has some work streams under way.
The Sustainable Agriculture Finance Initiative, led by ASB, ANZ, Westpac, BNZ, Rabobank and Ministry for Primary Industries, is best practice guidance for use by the finance sector.
The aim is to provide a consistent framework for investing in the rural sector, and taking into account water and soil management, animal welfare, farm infrastructure, and regional council regulations, as well as financial flows and profit.
The guidance will be posted on the centre website soon after it is launched.
The centre is planning an educational programme on the Task Force on Climate-related Financial Disclosures (TCFD) to improve and increase reporting of climate-related financial information and risks so they can be integrated into business and investment decisions.
The External Reporting Board is developing standards and the comply or explain approach to climate-related disclosures will be mandatory for listed companies, Crown financial institutions, large insurers, registered banks and investment fund manager with more than $1 billion in assets. These reporting disclosures could be required in 2023.
McCarthy and Woods are leading a financial inclusion project to assist communities that are suffering from poverty, and find (novel) ways of alleviating and restructuring people's debt burden.
They are determined that people should escape from the clutches of payday lenders charging 25 per cent interest and be trapped in their lives.
The centre will also add a Momentum Tracker to its website that highlights and celebrates sustainability success such as green bonds, impact investing and new measurements.
Coates said "good sustainable initiatives go below the radar screen and we can bring them to light, and excite and energise other people."
The work programme of the centre will align with the sustainability agenda of the Government, such as the Climate Change Commission's advice on emission reductions; legislative changes including the Zero Carbon Act; the Treasury's Living Standards Framework; the Commission for Financial Capability national strategy and other agencies' safer credit and financial inclusion strategy; the National Climate Change Risk Assessment plan; Kāinga Ora Wellbeing Bond programme; and the pledge to achieve a carbon-neutral public sector by 2025 and bring forward the goal of 100 per cent renewable electricity generation to 2030.
A ROADMAP FOR ACTION
Centre for Sustainable Finance's mission
"Our current financial system is contributing to environmental degradation and entrenching inequality across many measures. We are rapidly consuming finite goods or natural and social capital to produce financial capital. Simply put — this is unsustainable and if left will cause issues far more costly to address.
"This requires change from a broad range of financial system participants and ultimately must be built on common data and common infrastructures. The Roadmap for Action seeks to achieve a financial system that provides for environmental, social and economic prosperity, and meets the needs of all stakeholders, present and future."
The Sustainable Finance Forum's recommendations
1. Responsibility: Explicitly require financial system participants to consider, manage and account for environmental and social risks, opportunities and real-world impacts within their fiduciary duties.
2. Capability: Raise capability in sustainable finance through education and training for directors, management and trustees; and incorporate sustainable finance into the formal education system.
3. Governance: Improve public and private sector governance and accountability for sustainability. Introduce a Stewardship Code for financial institutions, linking to the licensing requirements of KiwiSaver and managed fund providers.
4. Improve data and information quality and availability: Including the use of financial technology that will enable climate-related financial disclosures.
5. Disclosure: Improve and extend external reporting and disclosures to asset owners, fund manager and large private companies, as well as improving the uptake of third-party verification and assurance.
6. Co-ordination: Establish and fund an agile and independent Centre for Sustainable Finance.
7. Value: Integrate environmental, social and cultural outcomes into investment decisions to ensure we operate within planetary and societal boundaries — including introducing market mechanisms and fiscal incentives; Government procurement; and broadening financial regulation to integrate and encourage positive environmental and social outcomes.
8. Inclusiveness: Recognise that financial services and products are a utility and create an inclusive financial system. Such as, removing account and transaction fees for vulnerable customers; provide affordable digital access to everyone; provide support for innovative impact products and services targeted at underserved groups; scale financial mentoring, advocacy and budgeting programmes to all requiring access.
9. Government leadership: Develop a whole-of-Government strategy (both central and local) for sustainable finance, applying a tikanga or traditional values lens to rethink the purpose of the financial system.
10. Resiliency: Improve prudential regulation over environmental risks, such as monitoring systemic climate risks through mandatory testing of banks and insurers; reflect long-term risk in capital adequacy requirements; and prepare for uninsurable markets.
11. Standards and Pathways: Develop standards and pathways that encourage investments which deliver positive environmental, social and economic outcomes. Remove barriers to sustainable finance and investment including liquidity requirements for KiwiSaver; same class exemption for green, social and sustainable bonds; and utilising public sector investment as a vehicle for transformative change.
Jo Kelly, formerly sustainability and corporate responsibility senior manager with Deloitte NZ, is the centre's interim chief executive. She was a member of the Roadmap for Action's technical working group.
Kelly managed the establishment of the B Team organisation in New York and became its content and then communications director. The B Team was established by global leaders including Sir Richard Branson to press for the ambitious climate agreement at Paris COP21 and raise awareness of the role of business in meeting the goals of net-zero greenhouse gas emissions and limiting global temperature increase to below 2 degrees Celsius above pre-industrial levels.
• The Aotearoa Circle is a partner for the Herald's 2021 Sustainable Business report.