While this is a global phenomenon, the issue is of particular relevance to NZ, where our greatest asset is our environment and it is that asset that directly drives our two biggest export earners - dairy and tourism.
ANZ is NZ's largest financial institution and our purpose as a company is help shape a world where people and communities thrive. Here in NZ, infrastructure and the environment will both be key to shaping such a future, and cannot be considered in isolation from each other.
We believe ANZ and others who operate in the financial and capital markets have a role to play in the integration of economic and environmental decision-making for today and for future generations.
One area where ANZ can drive tighter integration is in relation to "green finance", linking the capital markets with green investment opportunities.
Simply put, green finance uses instruments or investments (equity or debt) to finance or re-finance projects that have a positive impact on the environment.
Green bonds are one of the most developed financing instruments within the green finance world and they're being used to fund climate-friendly projects globally.
While there's no legal criteria as to what qualifies as "green", investors typically expect some form of independent review of a borrower's assertion of greenness.
That can be in the form of an opinion, assurance or reference to guidelines or standards such as the Green Bond Principles or the Climate Bonds Initiative (CBI).
For instance, the CBI is a not-for-profit which works to mobilise debt capital markets for climate action.
I liken the comparison of their accreditation to a "Fair Trade" labelling scheme for debt instruments.
Their assurance guidelines are broad and apply across various industries. Some of the best examples of these are in infrastructure assets across energy generation, transport and buildings.
It is incredible to think the Organisation for Economic Co-operation and Development (OECD) recently forecast the global green bond market could exceed US$5 trillion in less than 20 years.
Governments around the world are continually making more resources available for climate finance and have committed to raising US$100 billion per year by 2020.
The feedback we have received suggests green finance will grow here to mirror global trends, albeit at a smaller scale. With this in mind and to help NZ's shift to a lower carbon economy, ANZ partners with customers to create financial solutions with a green lens. We've been a pioneer in this area.
In August ANZ jointly led the first green bond in NZ for a member of the World Bank Group, the International Finance Corporation (IFC).
As it was a kauri bond - issued by a foreign company in NZ dollars - it has been an important start in opening up green and sustainable investing opportunities in NZ. IFC was one of the earliest issuers of green bonds globally, funding private sector investments that address climate change in emerging markets.
This bond is no different, financing projects in renewable power, energy efficiency, sustainable agriculture and green buildings.
Its issuance was worth NZ$125m, investor feedback has been positive and we expect further issues from a range of NZ companies.
In September we worked with Contact Energy, one of NZ's largest electricity generators, to develop their NZ$1.8b Green Borrowing Programme.
Contact Energy has reduced their greenhouse emissions by 50 per cent over the past five years, an impressive commitment to reducing their carbon footprint, and wanted their finance to reflect this.
With Contact's long-life renewable generation assets now producing around 80 per cent of the electricity Contact delivers to households and businesses in NZ, they have been able to have their borrowing programme certified green by CBI.
We helped from the start of this "greening" process, working to draft the underlying framework that governs how their green borrowing programme works and meeting independent assurance and certification from CBI.
Helping Contact achieve their world first was completely consistent with ANZ's purpose of helping shape a world where people and communities can thrive and is something of which we are really proud.
Contact Energy has demonstrated excellent corporate leadership and we would love to see their lead followed by more NZ companies.
It is not just ANZ and Contact Energy that have this vision. Investment in green bonds around the world has increased from US$3b in 2012 to a forecast US$130b this year.
With that sort of appetite for green investment it is clear there is a significant opportunity for the infrastructure sector in NZ.
While the market in NZ is still relatively new, customers have been interested in working with us because the solution broadens their potential investor base, with pricing in line with traditional bonds.
It's a powerful way of advancing a sustainability strategy and proceeds can be used to recycle capital, including refinancing of existing projects. We assist throughout the whole process, from identifying qualifying assets and writing the green bond framework, to marketing and pricing the new issue.
To see the scale of the opportunity we need only look to the US, Sweden, Norway, Finland, Canada and Australia to see the success of climate-aligned infrastructure being funded by green bonds.
They are being used as a solution for fiscally constrained local government organisations together with private sector players, public-private partnerships and development banks to access low-cost capital to finance cities' green infrastructure projects.
For instance, the City of London has just established a "Green Finance Taskforce" to work with banks and other financial institutions to encourage green finance in its infrastructure.
Just last year Mexico City issued a US$50m green bond financing drinking water, wastewater, energy efficient public lighting and metro transport.
In our own backyard I can think of two key infrastructure projects that could be considered for green financing because of their environmental benefits.
Watercare's Central Inceptor project aims to reduce the pollution in Auckland harbours by building a sewerage tunnel that will run between Western Springs and the Mangere Wastewater Treatment Plant by 2025.
It is envisaged this will reduce the annual average overflow volume by a staggering 80 per cent.
The Central Rail Link - the largest infrastructure project undertaken in NZ - will also influence the future of Auckland's commuters and their environmental footprint. It is estimated 30,000 people an hour will be able to use Auckland's trains at peak times.
They will be faster and more frequent, and more people will consider leaving their car at home. Green finance could be explored in both these cases.
In NZ it is the private sector that will, in my view, have to take primary responsibility for driving green finance; however it is also going to take the public sector to be open to these large investment opportunities.
Making sure those projects are investable from the private sector's perspective will be important if we are to truly link the green investment markets with our large infrastructure projects.
It's encouraging to see the formation of the New Zealand Advisory Group on Infrastructure Sustainability but there's more to be done.
Green bonds and green financing will become an important component of the NZ market as investors and lenders are more focused on the impact of their investments as well as the traditional return matrix.
Society demands economic and environmental outcomes be considered as a complete package, ensuring we make better decisions and help deliver a future where future generations of New Zealanders can thrive.
Going green
• The global green bond market could exceed US$5 trillion in less than 20 years.
• Governments have committed to raising US$100 billion per year by 2020.
• Investment in green bonds around the world has increased from US$3b in 2012 to a forecast US$130b this year.
- Paul Goodwin is Managing Director Institutional, ANZ.
