The role of private finance in the transition to net-zero emissions

OPINION: New Zealanders are already taking into account the impact of our climate change. Severe weather is increasing in frequency and severity, leaving our cities vulnerable to flooding and storm damage.

Thousands of our coastal properties could become more difficult to insure at a reasonable cost over the next 10 years as insurers reconsider the increasing likelihood of rising sea levels and extreme weather events.

Our companies are also affected. One of our major food suppliers has had to relocate fish farming infrastructure to cooler waters to reduce fish mortality rates as our oceans warm. Melting arctic glaciers, extreme weather conditions, and drier soils are all changing the way we move, grow and build.

New Zealand business and political leaders agree: we need to transform our economy. In fact, the most imaginative of us are already rethinking the physical, digital, financial and ideological infrastructure that underlies it.

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The 2030 Roadmap of the Sustainable Finance Forum is one example.

As providers of private capital, our role in keeping the global temperature rise below 1.5 ° C is quite clear. The government cannot fully fund the low-carbon transition within the necessary timeframe.

By some estimates, the private sector will provide up to 70 percent of the required investment over the next 25 years as we do our best to avoid the calamitous effects of our new climate normal.

There is no shortage of available capital, but the task ahead is complex. We need a fundamental shift in mindset about the role of private investment as we plan our transition.

For many investors, 25 is just too far away to make sense. But for those with foresight or wanting to perform convincingly under scrutiny from our children and grandchildren, there is a tremendous opportunity.

Already, 130 trillion US dollars (190.3 tons NZ) has been committed to decarbonize the world economy by 2050 at the latest. These funds are held by the world’s largest fund managers, banks and asset owners, who are the primary providers of capital to the New Zealand industry.

They are transforming their investment strategies and priorities, realizing that to achieve zero net greenhouse gas emissions by 2050, we must be on track over the next 10 years.

Even if New Zealand companies, fund managers and asset owners did not embark on a low emission transition, we will be drawn into these global tides. Or we will be excluded from world markets.

We need to take a longer-term view and become familiar with considering the impact of investment and capital decisions from a social, environmental and cultural perspective, as well as from a financial perspective. and economical.

To do this, however, accurate data is at the heart of sound decision making.

Creating a definition of what “looks like” helps banks and fund managers lend and invest more sustainably. This is important for all aspects of our economy that require private capital, including technology, energy, education, health, infrastructure and, of course, housing.

Equally important is the data and information we need to calculate risk. Our government has a vital role to play here.

Over the past 12 months, we have taken steps locally to create our own definitions. The Sustainable Agriculture Finance Initiative (SAFI) is a voluntary guideline developed in collaboration between ASB, ANZ, BNZ, Rabobank, Westpac, The Aotearoa Circle, EY and the Ministry of Primary Industries to promote agricultural loans and investments more durable.

We need a lot more initiatives like SAFI in other sectors and industries to create definitions of sustainability for Aotearoa New Zealand that work for us. The best way to do this is to include more of us in the conversation.

We need to move towards multi-stakeholder models where the perspectives of consumers, employees and citizens are included in decision-making. An important aspect of this is to create alignment with what we mean by ‘sustainable’.

Along with government and iwi / maori, organizations like the Sustainable Business Council and Toitū Tahua: Center for Sustainable Finance have a key role to play in defining and funding sustainability outcomes for Aotearoa in New Zealand. .

No organization can do it alone. The nature of work demands that we all be active in decision-making processes.

When it comes to mobilizing private capital for the transition, there is cause for optimism. Our major banks are working with their clients, including Pamu, Genesis, and Kathmandu, to learn how to link loan pricing to business sustainability performance.

Crown financial institutions must now operate within a responsible investment framework, which will align with zero net worth by 2050, and from 2023 our largest financial institutions will be required to disclose their financial exposure to financial institutions. climate-related risks.

But transforming our economy requires much more than these individual efforts. Together, we must rewire our financial system so that sustainability results are incorporated into lending and investment decisions.

We need fundamentally different mindsets and datasets when we calculate the risk of inaction today versus the rewards for future generations. We need to work together at the pace and scale of the problems we face, and compete for solutions, not resources.

In response to the recent government discussion paper on reducing emissions, Toitū Tahua: Center for Sustainable Finance and the Sustainable Business Council made a clear and unified appeal to our political and public sector leaders to stand by our sides.

Now is the time to design, build and implement an inclusive, equitable and sustainable economy that works for everyone. We don’t have a moment to lose.

– Bridget Coates is Chair of Toitū Tahua: Center for Sustainable Finance, Chair of Fonterra’s Sustainability Advisory Group to the Board of Directors, and Chair of Koi Tu (a think tank based at the University of Auckland). She is also President of the Real Estate Institute of New Zealand and Director and Director of Mindful Money, a charity that focuses on encouraging responsible investing.