New Zealand green bonds and infrastructure 2019 August 2019 A global example on climate leadership Since our 2018 report, New Zealand has It has created a negative outlook for the New Sustainable Finance Forum continued its global leadership on climate O&G industry, causing developers to look In early 2019, the New Zealand Sustainable action. Despite its small size, its policies more closely at renewable energy Finance Forum was established under the and climate targets see New Zealand generation particularly wind and solar Aotearoa Circle to deliver a sustainable remain in the vanguard of high ambition given that the best geothermal and hydro finance roadmap.4 nations. sites have mostly been developed already. Proponents include banks, insurance Zero Carbon Bill 2019 Improvements to ETS proposed companies, corporates, civil society and In May 2019, the Government introduced Changes have been proposed to the academia. draft legislation to cut net emissions to Emissions Trading Scheme (ETS) to It aims to present a set of zero by 2050. The Zero Carbon Bill improve effectiveness and provide recommendations and a roadmap for proposes to set up an independent climate certainty, flexibility and incentives. action by mid-2020. change commission to review and set Changes may include: emissions budgets on a 5-yearly basis.1 Climate Leaders Coalition launched • a phase down of industrial allocations, In July 2018, the Climate Leaders Coalition The Bill does not have any regulatory teeth • coordinating decision on supply over a was launched to promote business at this stage. One criticism of the Bill is that oyear rolling period (i.e. a cap), leadership and collective action on climate methane emissions from waste and change. agriculture are not included in the target • developing a price ceiling to replace the but have a separate target of 24-47%, current fixed price (implemented As of now, 113 Chief Executives have joined below 2017 levels by 2050. through auction), by committing to taking voluntary action on climate change. Despite any shortcomings, the Bill sets a • introducing auctioning units to align the clear direction for industrial, economic, and NZ ETS with climate change targets, This includes measuring and reporting other relevant policies for greenhouse gas GHG emissions, setting an emissions limiting use of international units (GHG) emissions. This Bill is just one of • reduction target and working with their as through international carbon markets, supply chains to reduce emissions. one of only a handful of countries in the • revised forestry rules.3 world with a strong focus on climate change. Green and sustainability debt from NZ entities has reached NZD3.7bn New offshore O&G drilling ruled out Auckland Council In 2018, the New Zealand government Argosy Property NZD350m ruled out new offshore oil and gas (O&G) NZD100m drilling exploration as part of its vision of a carbon-neutral future.2 Housing New Zealand While onshore drilling will continue, it NZD500m sends a strong message to both fossil fuel and renewable energy sectors. Contact Energy* NZD1,800m Acknowledgements This report was produced by the generous support of the main Westpac NZD844m sponsors: Australia and New Zealand Bank, Commonwealth Bank of Australia, Bank of New Zealand, Westpac and supporting sponsor KPMG *Note: This figure reflects the initial value of the Green Borrowing Programme at execution. The June 2019 value of the portfolio is NZD1.4bn. Momentum on green bonds is Green loans offer growth potential growing Westpac has been an active issuer in the While market growth has been While the New Zealand green bond market Australian market, but this was the first encouraging to date, given the small size of remains small, in comparison with the size time its New Zealand arm has issued a the New Zealand bond market and limited of its overall bond market it green bond. The bond will finance a range number of potential issuers, green loans of project types, as summarised below. could be a potential area of future market New Zealand exchange, NZX, is growth. supporting green bond market Green Borrowing development, stating that in the future, it Programme was established in 2017. It This market segment has been gaining some traction internationally, including may also: a) have a separate segment for created an opportunity for lenders and green bonds that meet certain criteria, b) investors to invest in a broad range of New Zealand where develop green bond listing guidelines, c) Certified green debt instruments including Green Borrowing Programme which support green bond indices, and d) US Private Placement Notes, retail and comprises of green loans. Most green loans promote market education. wholesale bonds, commercial paper and are not traded but are labelled to bank debt facilities. demonstrate the credentials of the Since our previous report, there have been borrower, who may not be able to tap the four new green bonds issued by New At the time of execution, it was the largest green bond market. Green-labelled loans Zealand issuers, including two new issuers programme to be Certified under the can also help lenders to easily identify (Argosy Property and Westpac New Climate Bonds Standard (NZD1.8bn at portfolios for their green bonds. Zealand). The current market is made up of execution, NZD1.4bn as of 30 June 2019). four green bond issuers, of which three Discussion is growing around how have accessed the NZD market and one The proceeds are earmarked against borrowers might receive preferential rates has accessed the offshore market. A further Contact's renewable generation assets based on the greenness of their assets. NZD500m sustainability bond has been initially comprising assets that meet the There are early signs of this being offered issued to finance social and affordable Sector Criteria for Geothermal Energy. at the retail level through green mortgage products and, at a much larger scale, in housing and green buildings. Auckland Council China where the performance of green green bond issuer followed up with a Argosy Property issued its first green bond loans may be incorporated into the macro- in March 2019. The bond was well received second Certified Climate Bond in July 2019 prudential assessment framework, so that under the Low Carbon Transport Criteria. by the market and reached the maximum banks with more green loans have a better subscription of NZD100m, up from Auckland is now a programmatic issuer score.6 NZD75m initially offered. The bond under the Climate Bonds Standard, finances buildings and upgrades that target indicating there may be more green We expect the New Zealand green bond or obtain 4-Star ratings under the New transactions to come. and green loan market to continue to grow as potential issuers such as cities, local Zealand Green Building Council (NZGBC) The market also saw its first-ever governments and corporates respond to Green Star certification scheme. sustainability bond from Housing New Zealand in 2019. It will finance social, Westpac New Zealand made its first foray Some of the candidates for issuance are into the green bond market with a green and affordable housing and is identified and explored in this report. EUR500m deal in June 2019 under its Euro indicative of an ESG market looking for a Medium Term Note funding programme.5 wider array of investments. New Zealand green bonds Issuer Deal format Amount issued Deals Use of proceeds External review Westpac New Senior unsecured bond EUR500m 1 Projects include energy, pollution Second Party Zealand prevention, transport, green buildings, Opinion adaptation, water and wastewater Argosy Property Senior secured bond NZD100m 1 Green buildings Assurance Contact Energy Including bank facilities, 11 Energy (geothermal energy generation) Certified commercial paper, retail Climate Bond NZD1.8bn* bonds USPP Notes. Auckland Debenture NZD350m 2 Low carbon transport, electric trains & Certified Council cycle ways. Climate Bond 7 *Note: This figure reflects the initial value of the Green Borrowing Portfolio at the time of Certification. The value of the outstanding debt, as of 30 June 2019 is NZD1.4bn. New Zealand sustainability bond Issuer Deal format Amount issued Deals Use of proceeds External review Housing New Sustainability bond NZD500m 1 Social and affordable housing, green Second Party Zealand buildings Opinion New Zealand green bonds and infrastructure report 2019 © Climate Bonds Initiative 2 Green infrastructure provides investment opportunities The New Zealand Treasury estimates that Green infrastructure pipeline Methodology NZD129bn is required to be spent on capital This section builds on the inaugural Green This report is a summary of an extensive projects from 2019 through 2029 to keep up Infrastructure Investment Opportunities pipeline of infrastructure projects that has with population growth and aging Australia and Zealand report released in been compiled for New Zealand (available on infrastructure. August 2018. It provides updated content Climate Bonds website) as drawn from public sources. The main sources of information are Auckland will be a major focus of investment. specifically for New Zealand to help meet the the Australia and New Zealand Infrastructure It is already three times larger than New growing demand for green investment Pipeline (ANZIP), the National Infrastructure s next largest city and the population opportunities, including green bonds, as well Unit, New Zealand Infrastructure is expected to grow almost 50% by 2030. Commission, New Zealand Wind Energy Projected capital spending between 2015- low-carbon economy. It is intended for a Association and the New Zealand Green 2025 is NZD18.7bn. wide range of stakeholders in New Zealand, including domestic superannuation funds and Buildings Council. National infrastructure plan and asset managers and their global The pipeline considers five key sectors: strategy counterparts, potential issuers, infrastructure renewable energy, low-carbon transport, In early 2019, the establishment of the New owners as well as relevant government sustainable water management, sustainable Zealand Infrastructure Commission was ministries.