The New Zealand Government plans to start issuing Green Bonds in late-2022, joining the wave of sovereigns and corporates issuing debt to fund climate-friendly initiatives.
Treasury’s Debt Management Office will unveil details of the Green Bond programme in mid-2022, “subject to market conditions” and all going to plan.
The programme won’t see the Debt Management Office increase its debt issuance programme. Rather it will represent a change to the way some bonds are issued.
Finance Minister Grant Robertson said, “Projects financed by the bonds will be subject to additional scrutiny and, over time, the project selection, evaluation, and reporting requirements will help to ensure high-quality projects with robust environmental outcomes are delivered.
“This is particularly important given the significant amount of investment that will be required by the Government to support the climate transition.
“There’s now a substantial and growing investor demand for sovereign Green Bonds, reflecting an increase in the number of investors with a mandate to invest in Green Bonds.”
Indeed, the UK Government’s order book was 12 times oversubscribed for a 32-year green bond it issued last month. Together, with its first green bond issued in September (a 12-year bond), it has now issued £16 billion of green bonds.
Covering the issuance on October 21, Bloomberg reported, “Pricing was set at 1 basis point below comparable bonds. Investor interest in green debt is typically so high it commands a price premium of “greenium”, versus conventional bonds.”
New Zealand might equally be able to pay less to issue green debt, although the price difference between green and regular bonds is expected to narrow over time.
It is yet to be seen exactly how the Debt Management Office’s Green Bond issuance programme will marry with the Government’s budget process, through which it allocates funding to different initiatives, and how this might change if Robertson follows through on plans to reform the Public Finance Act.
Climate Change Minister James Shaw said, “Reforming the financial system has been at the centre of our vision for building a low carbon economy since we came into Government. From the start we have known that we simply cannot address the climate crisis if capital is flowing in the opposite direction to where the world is heading.
“The creation of a Green Bond programme will add a new financing tool we can use to deliver the low carbon projects we need to meet our climate targets.”
30 Comments
This is true to a point. However, if the bonds are a replacement for other government bonds which would not have been labelled a "green" bond, those other bonds may be used to fund climate damaging projects. If a green bond is used for something like building a wind farm (where a non green bond might have been for say, building a road), then they are useful. Because while both draw down future resources, one is used in a way that will be less damaging going forward and changes the direction of what future drawdown is used for.
But you are mostly right, it's changing the flow of the river, when we actually need to dam it.
Lookup table is?
Damaging = 'Not Green [Red?]'
Less Damaging = 'Greenish [Yellow?]'
Not Damaging = 'Green'
How about a road that doesn't increase any traffic volume, but instead facilitates less idling time and less emissions. Or is for bikes only. vs. a windfarm that is used only to power a factory churning out toy widgets?
"Projects financed by the bonds will be subject to additional scrutiny and, over time, the project selection, evaluation, and reporting requirements will help to ensure high-quality projects with robust environmental outcomes are delivered."
So we've started something new without project selection, evaluation, and reporting requirements in place to ensure high-quality projects ?
Doesn't sound like Labour at all.........
Apart from the fact that, in an environment of growing inflation and sharply rising interest rates (with big surprise on the upside in store for the near future) I would not touch bonds, I would be even less keen on getting less return just because these instruments have been greenwashed.
Commercial banks have $30bn trapped in their settlement accounts at RBNZ earning 0.5% interest. When Govt starts to spend the $40bn sat in their current account, this will increase further. There is no question that banks will happily swap trapped cash earning 0.5% for Green (or purple) Bonds paying a couple of per cent. Who wouldn't? Especially if investors and pension funds need these green bonds to demonstrate their green credentials.
The real question though is why bother? Why not just let RBNZ take these special 'green bonds' onto their balance sheet directly? It is how we built thousands of houses in the 1940s - were the 1950s a disaster as a result?
The political purpose of these green bonds is of course symbolic - a nice green 'debt' that can be more easily badged as an investment in the future. The operational purpose is to provide a safe financial asset for investors and to ensure that the billions that Govt will spend on green infrastructure can be drained from reserve accounts.
There was a COP 26 news item on the BBC showing locals in Madagascar felling tree's to mine precious stones and how this was contributing to the climate emergency. Of course, no evidence of how or why (except chopping down a few trees). There have been no stories showing the actual effects of climate change, generally they usually dig up some flood footage or a storm somewhere. Now they don't even bother with that charade.
Collectively we’re all behaving like Madagascan miners. Carbon sinks like forests removed, replaced by suburbs, roads, farms, etc., powered by mined energy that releases additional CO2 when burned. Net effect is more heat trapping gasses and liquids in the atmosphere. Not a problem for the planet in the longer term but an enormous problem for us as (a) The net energy available to us declines as all the easily accessible finite buried fuel has been used first, and (b) The stable climate we’ve relied on for 10,000 years changes rapidly.
It’s like there are 8 billion Madagascan miners. Probably worse.
Eeewwww bonds. Literal trash, the worst asset anyone can invest in. And to make things even worse there are over 14T$ in negative interest bonds, and thats nominal rates! take into account inflation and bonds are yielding all time lows.
Greg Foss is the man when it comes to Bonds, a 30 year bond trader:
https://rockstarinnercircle.com/wp-content/uploads/2021/04/Why-Every-Fi…
https://www.theinvestorspodcast.com/bitcoin-fundamentals/bitcoin-and-bo…
It makes no difference what name you put to the bonds as the governments finances will still operate in just the same way. The government always spends first and then taxes and borrows afterwards as it is the only legal source of our NZ Dollar Currency.
Borrowing has nothing to do with financing the government, it is a monetary procedure to prevent interest rates from falling and it does so by controlling the levels of commercial bank reserves that have been created by the governments spending.
Economist L.Randall Wray has this to say, "The Government does not, indeed, cannot borrow its own currency in order to run a budget deficit. When government sells bonds it simply debits bank reserves and credits the purchaser with a treasury (essentially just reserves with higher interest); government does not obtain anything to use as a medium of exchange--it merely changes the form of its liability". https://www.levyinstitute.org/pubs/Wray_Understanding_Modern.pdf
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.