Sustainable Business and Finance: A bold vision for our future

Jo Kelly.

Opinion

OPINION

It’s 2035. The world has bent the curve on emissions and is on track to avert the worst effects of climate change. Global collaboration and massive economic reforms introduced during the previous decade in Europe, Australia and the US have underpinned climate policies that became more stringent over time. This subdued physical risks, unleashed innovation, creativity, and technology. The global financial system remained relatively stable. Capital is flowing effectively to support sustainable economic activity.

Aotearoa NZ is thriving

We reflect on the extreme weather events of 2023 that cost the economy billions and brought the realities of climate change into stark focus. Some were paralysed by the enormity of the task. Others were galvanised. Iwi, public and private sector leaders got together and developed an ambitious and comprehensive framework for reducing barriers and driving investment into sustainable activities.

The Australians went first. On November 2, 2023 its Treasury released its first national sustainable finance strategy, strategically positioning Australia as a renewable energy superpower in the race to a net-zero economy. Alongside Singapore, which had released its own Finance for Net Zero Action plan that year, the three aligned to position the region as a robust market and credible destination for investment. This led to substantial flows of international capital making its way to Aotearoa.

What did we do right?

· Bold vision and decisive action

Political leaders laid out a compelling, bold vision for the future of the country. They understood the role of global capital markets in achieving the vision, and the role of government in enabling capital markets to drive long-term outcomes.

Iwi, public and private sector leaders took decisive action to avoid exponential future costs, developing ambitious, coordinated, science- based policies and plans to transition the economy. They built robust environmental information architecture and co-invested strategically into green infrastructure, sustainable land use, technology and innovation. This created jobs, supported resilience and maintained the country’s international reputation.

· International alignment

Aotearoa NZ’s reporting frameworks kept pace and harmonised with global developments. Climate risk disclosures flowed through large companies and financial institutions, which in turn required smaller companies to provide environmental/social data. Regulators and capital providers used this information to determine which companies were likely to be viable in a low-emissions economy.

Beginning in 2023, the International Sustainability Standards Board and the European Corporate Sustainability Reporting Directive drove the convergence of global metrics.

Directors saw the writing on the wall. They accepted that their businesses depend on nature and people, and the stability of our planet. This became a matter of fiduciary duty.

· Reducing NZ’s risk profile

In the early stages of retreat by the insurance industry, 2024 saw iwi, public and private sector leaders come together to prepare for uninsurable markets and align on principles for adaptation and managed retreat. From here, financial institutions began to price climate-related risk more transparently.

Major banks set sector-level decarbonisation pathways and developed products encouraging climate mitigation measures such as home fit-outs, electric cars and business transition projects. Eventually, green mortgages, such as those offered in the UK, provided house buyers preferential terms when their property met certain environmental standards. In turn, this improved societal resilience and adaptability to extreme weather events. While “sustainable finance” was still a small proportion of overall finance. the tide was beginning to turn in global capital markets.

· Trade and capital flows

Recognising its own key net-zero transition sectors, Aotearoa New Zealand developed definitions used by major banks for lending to sustainable and regenerative agriculture.

This gave banks and investors a common understanding of what is sustainable. Financial products were developed and capital flowed toward building a resilient, competitive agriculture system. The country’s primary economic drivers shifted. By lining up with international taxonomies and expectations, Aotearoa NZ gained an advantage in international trade relationships.

· Investing at home

The Government avoided sending billions of dollars to other countries to meet its Nationally Determined Contributions to the Paris Agreement. We identified many low-emissions opportunities in energy, transport and agriculture, and our local public and private capital providers participated fully in these opportunities, alongside our global capital partners.

Big-picture initiatives, such as Recloaking Papatuanuku, uplifted communities, created jobs, improved biodiversity and optimised land use through a set of visionary strategies developed in partnership between iwi, business and community leaders.

Did this really happen?

Not yet. But it has started. In 2021 the Sustainable Finance Forum’s 2030 Roadmap for Action identified 11 recommendations to develop a more equitable, inclusive financial system that drives sustainable outcomes for Aotearoa NZ.

It was developed in consultation with more than 200 market participants. The Centre for Sustainable Finance was established by financial institutions and philanthropic funders to maintain and track progress toward the Roadmap.

As its chief executive, I see encouraging developments every day that are moving us in this direction.

But progress is much, much too slow. The glass half-empty scenario is increasingly likely.

In December the United Nations Global Stocktake will assess progress since the 2015 Paris Agreement to limit global temperatures within liveable limits. Aotearoa New Zealand’s international obligations will continue to grow, while our domestic response has stalled.

Without an ambitious vision for the future and a credible plan to fund and finance it, Aotearoa NZ will be left behind by its international counterparts. We are at a turning point.

There is plenty of capital available. We need our leaders across Government, businesses, iwi and communities to help us all step positively and firmly into a better future for our country and our planet.

· Jo Kelly is the chief executive of the Centre for Sustainable Finance: Toitū Tahua.