Herald: Why are banks so focused on sustainability?
Tong: There is a keenness and commitment from the bank to support our customers to have greater positive environmental and social impacts. But there's also a pull factor from our customers. It is very much like pushing on an open door.
Ford: I think it's the investors and all our customers as well that are driving the change. Across Agri and natural capital we have been trying to help our customers understand — and our farmers understand — what's changing in their world and share stories of farmers who are farming successfully in a sustainable way and how they have transitioned.
Herald: How do you incentivise customers to make changes or meet particular targets?
Tong: You can't really embark on this with a customer that hasn't even started to think about what their impacts are. But you can engage, and we are engaging with our customers, about what are their material impacts in terms of society, in terms of people and in terms of the environment, and you can select a couple of those most material impacts.
And agree within the constraints of a bank facility what goals and targets would be ambitious that you would agree to sign up to, and we would agree to accept. And if you achieve those targets, then you will receive a specific pre-agreed reduction in the price on your facility. So you can take something that ordinarily doesn't necessarily have a dollar sort of impact on it, and put a black and white number on it.
Say we're talking to one customer and one of those potential KPIs is waste reduction, the bank can support them by reducing pricing if they achieve some targets.
And they will also receive a reduction in the costs that they incur when they take their waste to landfill. So you can build up benefits.
Herald: Why would banks help businesses drive this behavioural change?
Tong: It really is all about risk. And it's nice that it also aligns with doing the right thing. There's not perfect data and methodologies about that exact correlation, but your customers with better ESG (environmental, social and governance) credentials are lower risk. Even the NZ Super Fund the other day cited their out-performance by 60 basis points because they have moved to decarbonise their portfolio.
Ford: The other market helping drive it is the investor market. If you look over to Europe, that is far exceeding the sort of activity here.
But it's quickly coming here - you talk to one of our investor sales people who used to work in London; she said only four years ago it wasn't part of the conversation. Now when you go up there, it is the conversation.
Herald: Can New Zealand replicate the growth that we have seen offshore in this area?
Tong: Yes. In terms of green bonds, the ambition is there, what's probably holding it back is the investment. The most obvious, outside of building more renewable energy, is decarbonising transport.
We're only at 20-odd thousand EVs, and they are the best thing to drive. Maybe, there's an incentive that the government puts in place.
And we're actually collaborating with another entity on perhaps an affordable EV leasing structure.
Ford: All of our stakeholders want it. So you do it, because then you'll attract better employees, because employees are picking who they're going to because of how you act.
When you do customer surveys, they give that sort of feedback: 'I'm really happy, but my children will want to know that this is what you're supporting or not supporting'.
I don't think it's banks alone.
Tong: We recognise that Agri is key to NZ's economy. It comes with some environmental impacts at the moment but there is a pathway to a more sustainable approach. We're not about pulling the rug out from under customers. We're about supporting them to address their impacts. We have a focus on the natural environment, and a just transition. And then we have a focus on the social pillar — people supporting people, in particular, to be in warm, dry homes. Offshore, there's a lot of focus on energy efficiency in homes, and really in New Zealand, it's that energy is an affordability issue.
Supporting people to be in warm, dry homes. Support for digital and financial literacy is another.
Ford: There's huge potential to be released. I can see it in our pipeline and the long list of conversations I'm having with a broad range of customers.
Tong: The reason I joined the bank is because banks have this amazing reach across our economy, into homes, businesses and the primary sector.
Not-for-profits, universities, government organisations — it's a huge reach within one organisation.
What the bank does and how it does it can be very impactful.
We need to be aligned by addressing our footprint, converting our fleet to electric.
But it's really the footprint that is the thing that is most impactful.