Climate reality and finance’s role in accelerating the NZ economic transition

BNZ Head of Sustainable Finance Adam Coxhead explains why taking action on climate transition should be a top priority for all in 2023.

Climate change and economic impact

The Intergovernmental Panel on Climate Change (IPCC) says greenhouse gas emissions must peak by 2025 and then decline by half during this decade if we are to limit future heating to 1.5°C above pre-industrial levels. Confronted with this reality, much of the financial sector has already moved from the ‘why’ to the ‘how’ of financing the transition.

BNZ’s role is to support customers to transition their businesses to a net zero future. During 2022 BNZ was assessing and engaging with our highest emitting customers, to understand their transition planning and how we can support them on that journey. 

We’ve discovered that overwhelmingly NZ businesses are committed to addressing climate change.  Yet too few have a publicly available transition plan with adequate detail to demonstrate their emissions will reduce in line with a 1.5°C pathway. The development of credible, science-aligned transition plans needs to be a priority for businesses in high emitting sectors, with many international frameworks available to help businesses understand what good looks like.

“...businesses that take the opportunity to transition, will reap the related competitive advantages and enable a smooth transition for the NZ economy.”

We anticipate that businesses that take the opportunity to transition, will reap the related competitive advantages and enable a smooth transition for the NZ economy.   

The SME Challenge

While larger businesses are more likely to have the resources to develop transition plans, many SMEs may struggle to find the capacity to do so. There’s an important role for banks to support SME customers with tools and by delivering insights to help them navigate their transition to a net zero future. A great example of this is the Climate Action Toolbox, which is a tool to help businesses measure their emissions and build an action plan to address them. Banks and investors need to do more of this in 2023 and beyond to enable faster change.

Catalysing the transition through investment

The flipside of climate risk is climate opportunity. We are entering a phase aptly named the “Great Reallocation of Capital” as financial capital increasingly flows towards green, low carbon businesses and projects.

Banks can support this reallocation of capital by providing products that help incentivise investments in transition, like Sustainability-Linked Loans, Green Loans, and Green Bonds. In 2022 we saw the Government launch its Green Bond Framework and issue its first sovereign green bond – we expect this to catalyse further demand for sustainable investments in New Zealand. An ongoing trend in 2023 will be the continued innovation around these types of products, broadening their availability to a wider range of customers.

Going further, together

An oft-quoted maxim is “if you want to go fast go alone, if you want to go far go together”. Businesses can choose to go fast themselves, however the challenge in transforming the global economy to a low emissions model is immense. We continue to believe that achieving this kind of systemic change requires collaboration and partnerships across government, the private sector and civil society. Excellent examples underway in NZ include the Aotearoa Circle, the Centre for Sustainable Finance: Toitū Tahua and the recently announced Government and Food & Fibre Industry Joint Venture addressing agricultural supply chain emissions. For businesses wanting to show leadership and shape the future of their industries, this sort of collaboration is essential.

Time for Action

The ‘Tragedy of the Horizon’, a term coined by Ex-Governor of the Bank of England, Mark Carney, describes how the impacts of climate change will be felt beyond the traditional horizons of 5 or 10 years – imposing a cost on future generations that the current generation has little incentive to fix. The paradox of this is that once climate change becomes decisive for a well-functioning economy it may already be too late. The message is clear, it’s now or never, 2023 needs to be a year of action for banks and their customers alike: develop credible transition plans and start making decisions and investments required to achieve them. 

This is part of the Centre’s Partner Perspective Series on the theme: “Why sustainable finance matters more than ever in 2023”.