MEDIA: NZ lagging in shift to sustainable finance system: report

Written by Cameron Smith for New Zealand Herald here.

Slow progress towards a sustainable finance system has been made in the two years since a roadmap on the subject came out, a new report has found.

Of 11 key recommendations published in the November 2020 Sustainable Finance Forum’s 2030 Roadmap for Action, only one is completed.

That was to set up the Centre to oversee and co-ordinate roadmap work – which was launched in July 2021 and has three full-time staff.

The Roadmap – which had input from more than 200 stakeholders including representatives from banks, insurance companies, Māori businesses and Iwi, academia and Government – laid out a plan for re-directing capital and resources to enable a smooth transition to a low-carbon, more sustainable, equitable and prosperous economy for all New Zealanders.

Today, the Centre for Sustainable Finance released its inaugural Sustainable Finance Progress Report tracking the progress of that roadmap.

The report found six other areas had seen some solid progress, but in most cases not enough to effect the change targeted by 2030.

The remaining recommendations had little or no significant progress made.

Centre for Sustainable Finance chief executive Jo Kelly warned New Zealand must not fall out of step with the international rise of reforms to enable sustainable finance.

“Regardless of New Zealand’s size, our unique emissions profile, or even how quickly global warming occurs, we have to get across this because our economy is inextricably linked to global shareholders, investors and consumers,” Kelly said.

“Building an efficient, sustainable financial system will help Kiwi businesses navigate a fast-changing world efficiently – all the more important in recessionary times.

“We simply can’t afford to drop the ball on sustainable finance, or let it become politicised.”

Kelly said investment also needs to be urgently directed into developing homegrown climate solutions.

“KiwiSaver funds, for example, are investing large amounts of our capital offshore where it is enabling the sustainability objectives of other countries.

“Our capital should be working here in New Zealand to aid our transition.”

Sustainable finance refers to the set of financial regulations, standards, norms and products that pursue an environmental objective, as well as the services that form it.

“Despite pockets of world-leading work – such as the introduction of mandatory climate-related disclosures – in general we are now lagging on our transition to sustainable finance compared to Australia and to many of our trading partners,” said Bridget Coates, Centre for Sustainable Finance chair.

“New Zealand exporters will increasingly face trade barriers and risk losing customers if they don’t meet fast-changing expectations around emissions reduction, as well as taking action on other environmental and social issues, such as modern slavery.”

Progress on the Roadmap:

The six areas that have seen progress, but in most cases not enough to effect the change envisioned in the Roadmap:

• Capability (including climate literacy): e.g. the launch of the Directors’ Guide to Climate Governance; the New Zealand launch of Chapter Zero by the Institute of Directors; the Climate Action Toolbox for small and medium businesses.

• Governance: e.g. the launch of New Zealand’s first investor stewardship code.

• Disclosure: e.g. introduction of mandatory climate-related disclosures and climate standards; proposed strengthening of the NZX ESG (Environment, Social and Governance) guidance.

• Government Leadership: e.g. the Emissions Reduction Plan, National Adaption Plan, Crown Responsible Investment Framework and Sovereign Green Bonds Framework.

• Financial system resiliency: e.g. the Reserve Bank of New Zealand incorporating climate-related risks into its routine stress-testing for banks and insurers.

• Standards & Pathways: e.g. the launch of new guidelines for impact investing in NZ.

Little or no significant progress has been made in the areas of:

• Responsibility: requiring company directors and other financial system actors to factor in environmental and social risks and opportunities, as well as the real-world impacts of doing business.

• Value: such that investment decisions ensure the economy operates within planetary boundaries.

• Data: improving quality and availability of climate and other sustainability data for better decision-making.

• Inclusion: if financial products and services are seen as a utility, no one should be excluded due to hardship.