Mark Peterson. Photo / Greg Bowker
NZX chief executive Mark Peterson is buoyed by the number of New Zealand companies — particularly those with a high exposure to offshore investors and customers — which are increasingly moving to disclose and discuss their approach to sustainability and how they are managing ESG risks and opportunities."
"We see the global push for greater transparency on non-financial performance as a huge opportunity for New Zealand businesses and brands," says Peterson. "A vital role for New Zealand's Exchange is to ensure capital can be invested with confidence into companies that provide opportunities for sustainable growth."
This has been mirrored in the increased issuance of sustainability-related financial products, such as Wellbeing bonds, Green Exchange Traded Funds (ETFs) and green bonds — responding to the growing international trend towards sustainable investment and investors who are now more conscious of where they put their money.
"We welcomed our first green bond to be listed on the NZX Debt Market in June 2018 and have seen strong growth in issuance over the past five years — with nearly $1 billion of green bonds listed in 2020 by issuers such as Mercury NZ supporting New Zealand's transition to a low emissions future, Auckland Council's green bonds driving the electrification of transport and cycleway projects, and Argosy, whose environmental strategy reflects an ambition to create vibrant sustainable workplaces for their tenants," adds Peterson.
"This will increasingly be complemented by other sustainable and ethical investment opportunities, such as the $500 million from Housing New Zealand (Kāinga Ora) supporting the development of sustainable, inclusive and thriving communities that provide people with good quality, affordable housing choices that meet diverse needs."
Market signals are also coming via major NZ-domiciled trading banks to their customers, and, vice versa. ASB chief executive Vittoria Shortt says the pandemic threw into even sharper relief how critical local food production is to the economy.
"New Zealand's food producers are top class. When we saw the global impact of the pandemic start to bite, affecting trade flows and border movement, we saw the huge benefit of being a net food producer. The world will always have to eat."
Shortt believes it is appropriate Agri is the first "cab off the rank" when it comes to developing a sustainable finance framework here. "At a national scale, obviously farming contributes to our national greenhouse gas emissions profile," she says. "Yet, kilo for kilo, our product is among the lowest-carbon of many producers. It's important that we communicate that well."
"The demand for green finance internationally is accelerating. We are hearing from rural corporate clients that they want to be able to demonstrate sustainability credentials to international investors and customers. There is an opportunity for New Zealand to lead in this space. Internationally, we have always been innovators in the primary sector and should aim to retain that position in relation to how we use green finance."
ASB was the first bank to launch a low-cost loan for on-farm environmental improvement, and, "we work closely with rural communities in other ways, for example partnerships to support financial capability".
Shortt believes the structured asset finance instrument (SAFI) project will create a common sustainable finance standard for Kiwi producers, to help them communicate value to global investors. But she cautions that, like any sector, finance is vulnerable to "greenwash" if claims are taken at face value and not verified.
"So there is a huge amount of work happening globally to create robust criteria and definitions, such as the EU taxonomy for green finance.
"The power of a locally defined green finance standard for our primary sector, is that it will align to these international frameworks, putting our primary industry front and centre when global investors are looking for quality investment opportunities that meet their environmental requirements."
In May, 2020 ASB achieved a major step towards meeting its climate objectives when the bank
achieved carboNZero certification from Toitū Envirocare.
"The value of being carboNZero-certified is that it sends a strong signal to our customers and our people about the seriousness of our commitment," says Shortt. "It was a good milestone to celebrate."
"But, to me, the more profound commitment for us this year was setting science-based targets to ensure our climate plans are aligned to the Paris Agreement.
"Taking action every day to cut real emissions and reduce our impact, is the critical element."
Sustainability is not far from being top-of-mind for company director Rob Campbell, who chairs SkyCity Entertainment Group and Tourism Holdings — two companies which were heavily impacted by the Covid-19 pandemic.
Campbell cites three factors:
"First, because we are people and our interest in planetary and community welfare is not checked in at the boardroom door.
"Second, because on any serious assessment of business value, a considerable proportion depends on continued ability to operate on current or improved conditions into an often extended future. Focus on sustainability in its broadest sense is management of the risk that, to be blunt, the business may not be here to realise earnings in that future.
"Third, because investors and other stakeholders increasingly hold us to that standard."
Campbell says sustainability is a whole-of-board issue but policy, strategy and implementation can usefully be developed and overseen through a specialist committee. "Increasingly I see this as being integrated with a risk committee, separate to audit which has a more limited but vital focus."
Asked how fundamental a sustainability focus is to an organisation's success, he replies "I can conceive of some businesses that profit in the short run from activity which is destructive and which may have directors, investors, lenders, staff and governments who do not care that the time may be short but rich.
"Armament manufacturers spring to mind, though even there repeat business is possibly desired.
"But for all but a very few the interests of the business must lie with a sustainable business model, market and environment."
As to whether the impact of the Covid-19 pandemic will make directors more conscious of sustainability commitments or whether they will see it become a "nice to have", his response is that directors' concerns about sustainability continues to increase along with intent to enhance reporting and enhancing corporate response. "The same is true of institutional investor activity on the issue which obviously does focus director minds."
"It is fair to say that 'ESG' issues can become a tick box exercise rather than a priority but I do not see this happening yet."
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