Labelled sustainability bond issuance

Funding with a sustainability label has been a little-explored avenue for New Zealand banks. Treasurers say demand is far from overwhelming, though they still hope the supply-side equation builds momentum in favour of issuance over time.

LEVY Covered bonds with a UN Sustainable Development Goals label are particularly sought after by European investors at the moment, to the extent that orderbooks for greenlabelled covered bonds are typically twice the size of unlabelled issuance. What are New Zealand issuers’ experiences in the local market?

LUCAS New Zealand investors tend to look at ESG [environmental, social and governance] factors from a holistic perspective. Our feedback from offshore investors is broadly the same – that they are interested in banks’ performance across the ESG spectrum. For ex-ample, whether there are governance issues to be concerned about or if there an appropri-ate environmental and social framework.

DELL There are very few dedicated green-bond funds in New Zealand and fund managers appear to view the market on a more holistic basis. There is certainly an evolution occurring in this space, including mandatory climate reporting coming in for large New Zealand firms this year.

ZHANG It is important that we continue ‘greening’ the balance sheet and help our custom-ers along their journeys. Over time, this should provide a platform for sustainable bond fund-ing options.

We welcome recent initiatives by the FMA [Financial Markets Authority] to provide disclosure exemptions to bank issuers that already comply with disclosures via the disclosure statement process and filings under NZX listing obligations.

CRAIG Do ESG-related questions always come up in conversations with offshore investors or do they become second order, or overall less prevalent, given more pressing concerns, for example the macroeconomic environment?

DELL ESG is certainly a common theme in Europe but it is also fair to say that it has be-come less topical than it was 2-3 years ago as economic uncertainty has increased over the last couple of years. Investors are more focused on the macro, on credit risk in the portfolio or on REITs and commercial real estate.

ROSS On the other hand, we hear that it rarely comes up with US investors.

LUCAS We include ESG information in our investor packs and US investors are usually sat-isfied with this level of information and disclosure. We have received more enquiries from US-based investors on labelled issuance over time. It is becoming part of the conversation, but it is not as prevalent as it is in Europe.

New Zealand is known globally as a country with sustainability at its core – for example through renewable energy and the like. It is relatively easy for investors to get comfortable on this basis.

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