Continuous Disclosure: How green finance actually works

This article originally featured on NZ Herald and was written by Jenée Tibshraeny.

"Green finance" has become something of a corporate buzz phrase in recent years, as banks and governments increasingly link debt products to sustainability initiatives.

The New Zealand Government is even planning to issue "green bonds" later this year, that will see it promise investors debt raised will be used for green investments.

Proponents of green finance argue it's a way of lowering debt servicing costs and encouraging the sorts of investments we need to lower our carbon emissions. Sceptics worry it's a greenwashing fad.

The Herald put the issues to Kiwibank's head of sustainable finance Tom Williams on the Business team's Continuous Disclosure podcast.

Kiwibank on Monday announced it will launch a sustainable loan product for businesses on September 26.

Businesses that commit to using the funds to lower their emissions may qualify, and benefit from interest rates 50 to 100 basis points lower than if they took out a regular business loan.

Williams said the interest rate discount Kiwibank will offer will depend on the business – ie its credit score, the type of loan the business is after, whether it's secured, and how long the business has been in operation for.

"We don't want to be providing finance that's setting a customer up to fail, regardless of how good their idea is," he said.

The sorts of investments that would qualify for green loans could include those aimed at improving energy efficiency, generating or storing renewable energy, electrifying equipment, decarbonising process heat, or using low-emission charging infrastructure.

Investments in electric or hydrogen vehicles, buildings with high New Zealand Green Building Council or Homestar ratings, and sustainable packaging, waste infrastructure and carbon capture or storage could also qualify for sustainable finance, as could businesses with B Corp certification.

Asked about the availability of internationally recognised frameworks for what constitutes a "sustainable" investment, Williams said, "the challenge with a lot of the frameworks is that they are really focused on ... big businesses that have large teams. They've got a sophisticated sustainability strategy already in place.

"So what happens is, we leave behind the small businesses that want to make meaningful changes as well, but can't necessarily tick every single one of those boxes of those frameworks."

Kiwibank, which is a relatively small player in the business lending space, is targeting these small to medium-sized businesses.

Williams maintained consumers are increasingly asking businesses questions about their impacts on the environment regardless of their size.

"At the core of it, sustainability is about innovating. It's about doing more with less, or doing something better," he said. 

Williams said businesses are already making lower-emissions investments.

"All we're doing is being more explicit and trying to identify when a deal is more sustainable than another," he said.

Massey Business School associate professor Claire Matthews believes green finance is good in general when it comes to encouraging sustainable investment.

But she was wary of lenders talking up green debt, all the while continuing to lend a lot for non-green initiatives.

"There are two sides to it," she said.

Mindful Money founder Barry Coates noted there wasn't much transparency around what's in banks' green loan agreements.

He believed it was hard to know what investment was truly green.