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The shape of sustainable finance post COVID-19

In a difficult period for markets globally, there are some shining lights.

While debt markets struggle to find liquidity, in Europe, electricity giant Eon has issued a €750 million, 5.5 year green bond, showing interest and opportunity in sustainable finance even in these trying times.

This is heartening to see, because maintaining growing momentum will be an important challenge for the sustainable investment community in the immediate aftermath of the COVID-19 crisis.

Indeed, these hugely disruptive events have diverted attention and critical funding away from sustainable investment around the world. Success – in both a financial and impact sense - will be found by those who can find the opportunity in the crisis.

The precise scope of the impact is impossible to quantify until the crisis has passed, although what is clear already is many in the sector are currently distracted, if not outright diverted from their roles – including your correspondent. Once the storm clears, there is work to be done.

So far, reports have been encouraging. Early news indicates some sustainable instruments are outperforming during a period of huge volatility for markets - much as they have in some regions for years.


"There is significant risk these hugely disruptive events will divert attention and funding away from sustainable investment around the world."

In the New Zealand market the evidence of green bond performance is still to be established. In Australia, ethical superfund Future Super recently described green bonds as a “safe haven” through the crisis in a letter to clients.

In Europe, the Financial Times reported that the MSCI Europe ESG Leaders index had at one point outperformed the benchmark by 180 basis points in 2020.

Globally, there is talk sustainable finance sector could play a key role in stimulating the beleaguered economy. According to Reuters, pressure is rising to utilise sustainable bonds in any recovery effort, with United Kingdom government adviser Chris Stark reporting urging governments to “look to green stimulus”.

Whatever the outcome, it’s clear sustainable finance has a role to play in the global recovery.


The impact of the crisis comes just as the sector had built an irresistible level of momentum. As my colleague Katharine Tapley wrote in February, 2019 set a new record for sustainable debt issuance around the world.

The total sustainable market size hit $US1.15 trillion across bonds and loans according to Bloomberg New Energy Finance.

Green bond volumes totalled $US271 billion in 2019 and sustainability linked loans hit $US121.5 billion, almost three times the level seen in 2018.

There's no doubt investor focus and interest has picked up. That’s clear from both a global perspective and here in New Zealand.

Challenges remain in developing an impact-investment market. Progress to date on green and sustainable bonds has been pleasing but there are challenges in establishing a market where the investment pays a financial and impact return. ANZ recently encountered this when completing a pilot social impact bond aimed at reducing youth reoffending in South Auckland.

One issue is mandates. Many fund-manager mandates were drawn up well before sustainable finance products were even envisaged and, as a result, are quite strict in terms of what they allow.

If it is a debt product, the need for a credit rating is common.

Some managers face strict financial return hurdles. But the impact of the investment is not considered. One wonders if that is due for an update, particularly in the wake of a crisis which has wiped so much wealth from these funds.

It’s not uncommon to encounter a fund manager interested in a sustainable-finance product, from both a financial and impact perspective, but unable to participate as their mandate only allows them to consider risk and return metrics. It’s an ongoing debate.

The other pool of money attracted to sustainable finance sits in philanthropic foundations. These groups traditionally operate through grants and there is large pool of funds keen to invest in sustainable, impactful products.

The issue philanthropic groups have is ultimately there isn't a lot of product diversity in the market. There certainly is in the bond space, but these groups are looking to move on from that into something that delivers a very clear environmental or social impact.

There definitely is, I believe, a big opportunity to bring these pools of money together. Linking the philanthropic and traditional investment management communities, and finding products that would work for both, would go a long way to drive significant sustainable outcomes. It will be a challenge, but one I think the sector will be up to in the future.

Governments globally are committing to deliver fiscal stimulus to support their economies. The opportunity is to embrace sustainability goals and ensure that spend is connected to sustainable outcomes.

The private sector will be measured against the environmental, social and governmental frameworks many have previously committed to. Staying true to purpose in times of crisis is what stakeholders will be looking for.


Right now, like in many areas of the market, uncertainty reigns. Across the sector it may be inevitable that areas many had hoped would progress, may slow. Certainly the deal flow has dried up and some of the planned pipeline in the sustainable space stalled.  A large loss of work is unlikely, although a delay would appear inevitable.

The decisions we make in the sector as we come out of the crisis will be significant for the medium and long-term direction of sustainable finance.

A key question is: can some of this innovation be funded in a way which would allow us to get things off the ground faster? We are hearing of potential pilots out there that could make a real difference. How much will they be impacted if everything slows to a crawl?

As a sector, hopefully we can find an opening for capital that can fund innovation, and get new developments out to market quickly. That would actually drive some real impact – on both the financial and sustainability fronts – in the future.

Dean Spicer is the recently-appointed Head of Sustainable Finance at ANZ New Zealand

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