Financing Zero

Making the shift from our current average level of 17 tonnes of greenhouse gas emissions per person in New Zealand to net zero by 2050 will be a monumental challenge. The Climate Commission is being set up to advise on carbon budgets over five-year periods, but plans won’t get us there. It will need action across many fronts – public action, institutional reform, a decent carbon price, changes in land use and our agricultural system, and government leadership through regulation.

Inaction should not be an option – the growing impacts of climate change at the current level of only 1˚C global average temperature rise shows the scale of climate chaos in a 4-5˚C world.

Source: Trajectories of the Earth System in the Anthropocene Steffen et al.

It will also need a huge shift in investment, both public and private. The government’s new Green Investment Finance will play a catalytic role, leveraging its capital of $100 million, but far more will be required.

Getting to zero will mean re-shaping our food systems, electrifying our energy use, re-designing our buildings, re-thinking mobility, strengthening community resilience against more frequent climate-related disasters and moving to a circular economy. That will take massive investment. The key will be to shift the $44 billion in Kiwisaver funds and the other $118 billion of financial assets under management so that finance becomes part of the solution.

Climate change is only part of the story. A just and sustainable transition to low emissions needs to take people and the environment into account. We also face the challenge of moving towards sustainability – a more equal society that leave no-one behind, and a healthy environment. These issues come together in the Sustainable Development Goals – 17 goals for our future. New Zealand and virtually all nations have signed up to implement the SDG targets.

Our challenge is to shift towards sustainable finance – a financial system that provides the regulations, incentives and institutional structures that promote sustainability and resilience, instead of the polluting and exploitative economy.

Other nations are already moving along this path. The European Union used a High-Level Expert Group on Sustainable Finance to develop an Action Plan which is now being implemented. The UK has a Green Finance Taskforce, France has a Strategy for Green Finance, Canada has an Expert Panel on Sustainable Finance, Norway has a Roadmap for Green Competitiveness in the Financial Sector and China’s State Council has produced guidelines on sustainable finance.

There are some common elements. These include more disclosure on climate emissions and risks, through implementing the recommendations of the Task Force on Climate-related Financial Disclosures; requiring financial advisers to “ask the ethical question” when advising clients; requiring Directors and Trustees to consider sustainability issues over the longer term; alignment of direct government investments and policies to support sustainability; and stronger standards for labelling retails funds as ‘responsible investment’.

The call has been given profile by heavyweights from the responsible investment sector meeting in Sydney in 2018. Their attendees manage over $10 trillion of financial assets. Groups including the Principles for Responsible Investment, Investor Group on Climate Change and UN Environment Programme Finance Initiative issued a strong statement, calling on the Australian and New Zealand governments to develop a sustainable finance roadmap.

In New Zealand. a first step towards answering that call has been taken. The Productivity Commission draft report on the low emissions economy has called for a low emissions investment strategy. Broadening the scope to encompass other aspects of sustainable finance would allow the inclusion of the social and environmental aspects of sustainability.

The government has a number of related initiatives on low emissions and sustainability, including well-being indicators, the proposal for a Zero Carbon Act, public transport investment and a range of other supportive policies. However, the finance sector needs to be included. The scale and urgency of the transition will not be achieved without a coordinated roadmap for finance.

This process has now started. The Aotearoa Circle has established a Sustainable Finance Forum to draft a roadmap for consultation and policy-making. Mindful Money (through its CEO, Barry Coates) is represented on the Working Group. Ethical investment is a crucial part of the way forward.

Issues of climate change, sustainability and resilience need be put at the heart of financial decision-making, not as isolated initiatives to greenwash business as usual. A sustainable finance strategy is the way to coordinate policy across banks, finance companies and insurers, align their activities to support the transitions ahead, and regain the trust and confidence of the public. An action plan for sustainable finance would be an important step towards turning finance from being a barrier to sustainability to becoming a positive lever for change.

Barry Coates, Founder and CEO of Mindful Money www.mindfulmoney.nz