"Its current mandate is to promote the prosperity and wellbeing of New Zealanders while contributing to a sustainable and productive economy. Currently, its specific responsibilities are defined in terms of financial and economic objectives.
"Historically, the Reserve Bank hasn't considered sustainability as part of its monetary policy decision making. Nor has it considered risk weightings of assets and capital requirements in the banking system. That's an example of where there could be possible regulatory change."
The current regulatory settings don't exclude sustainability, but she says if it becomes an explicit part of them, it removes the ambiguity and adds to the focus.
Sheerin says in contrast, the governing legislation for the Financial Markets Authority (FMA) describes its purpose as to promote and facilitate the development of fair, efficient and transparent financial markets.
"To date this hasn't crossed into sustainability. There's a question of whether the mandates of financial market regulators and policy makers need to be explicitly revised to make sustainability outcomes part of their purpose, their objectives and their performance metrics."
That's the big picture. Sheerin suggests there may also be a need to drill down to a more granular level.
"The FMA recently put out a guidance note around greenwashing. It looks at green bonds and other investment products," she explains.
"They have noted the growing demand for responsible investment products and want to provide greater clarity for the market around their expectations. They also want greater clarity for investors to understand exactly what they are being offered and what the risks are."
This brings in questions about fair dealing when it comes to the claims made for these products and to make sure they are substantiated. There are also questions around what kind of disclosure needs to be made so people are not mislead about the product characteristics.
She says; "At this stage the FMA is not prescribing what is green, ethical or responsible, it is more about disclosure of what is being offered. But they are targeting that and asking questions of the market.
"While it's not their mandate, the FMA has noted the Government is reviewing default KiwiSaver provider arrangements.
"In the document there is express consideration of the extent to which responsible investment should apply in default funds".
Though much of this sounds complex and requires hard work, Sheerin says there are potential quick regulatory wins. She says the FMA work on green bonds didn't talk about a class exemption.
"They could issue this quite readily. This is where they exempt organisations from compliance with the Financial Markets Conduct Act. This would make issuing green bonds a lot easier in New Zealand.
"One of the things holding people back is that green bonds are not being treated as the same class as existing listed bonds.
"That's a problem because there is relief under the Act for products that are of the same class as those that are already listed. Because green bonds have some different terms and features they are not of the same class as an ordinary bond. The FMA could provide an exemption. This would increase the speed to market and reduce costs."
There's a danger regulation could become heavy-handed. Sheerin says: "Regulation as a stick doesn't work. You need leadership and you need buy-in from market participants."
Sheerin says Chapman Tripp has seen an increasing interest in sustainable finance from its clients across the board. "We see it with wealthy families and in the private client space with their investment decisions.
"In my area of expertise which is financial services and wealth management, we see fund managers thinking about it in terms of the products they offer. We see it in the debt area with green bonds coming through and lending around that."
It's not only individual investors. Chapman Tripp handled the recent ANZ-Synlait deal which had a responsible investment focus. Sheerin says this also comes up in her work in the iwi sector as well.
Read the Sustainable Finance Report here.
