Can the team of five million now apply its mind to the economy it wants to become in the future?
Tim McCready
Professor Sir Peter Gluckman told attendees at this morning’s ‘Kickstarting the New Zealand Economy’ session from the Trans-Tasman Business Circle that we won’t go back to ‘business as usual’ following the pandemic:
“New Zealand needs to grow its R&D strategy, which is still designed for the 1980s and not for the 21st century.” He said our two biggest industries – tourism and agriculture – won’t be the same in the future due to the impact of Covid, along with climate change and other factors.
The panel, moderated by Fran O’Sullivan, all had a part to play in New Zealand’s success over the past year: former PM Helen Clark, Sir Peter Gluckman, and Rob Fyfe. They suggested there is a risk that New Zealand’s success in responding to the pandemic could very easily become an Achilles heel for the next phase of the recovery. “That safety can deal complacency and result in us being slow to move,” said Rob Fyfe. “That is a risk and a real challenge to move the mindset of the population to look to the future and will need a different risk profile.”
Engaging New Zealanders in a conversation about the future will be an important part of this, said former Prime Minister Helen Clark, in a similar way that New Zealanders pulled together to eliminate Covid and keep it out.
“Can the team of five million now apply its mind to that? This is what needs to happen now – engage New Zealanders in this conversation with as much as can be put on the table on what the scenarios are and confront the future.”
Said Gluckman: “We need to get beyond New Zealand’s traditional ‘she’ll be right’ approach – where we live off traditional sectors – to the point where we start to live more off our brains and innovation skills. That needs a fundamental shift.
It is the tenth anniversary of Sir Paul Callaghan’s keynote address at ‘StrategyNZ: Mapping our future’, where he challenged New Zealanders to think about the type of country we might like New Zealand to become. From today’s session, it is clear that more than ever there is a strong desire to rise to that challenge and ensure New Zealand has its say in planning for the economy it wants to become in the future.
Project Auckland: Construction bosses upbeat about the state of the industry (NZ Herald)
Project Auckland: Construction bosses upbeat about the state of the industry (NZ Herald)
When surveyed in September for the Herald’s Mood of the Boardroom, the country’s leading construction and infrastructure companies said they were scrambling to reset their businesses in the new world created by Covid-19.
There was huge uncertainty in project pipelines, with works significantly down due to the cancellation of jobs. CEOs told the Herald that the priority over the next six months would be to ensure specialist skills could be secured despite the border restriction constraints, and re-setting a “forward cost base within an uncertain demand profile”.
Six months on, CEOs are upbeat about the state of the industry, noting it has recovered well following the initial lockdown last March.
This is critical to Auckland’s future where the lion’s share of the infrastructure and construction build is taking place.
Peter Reidy, Fletcher Construction chief executive and co-chair of the Construction Sector Accord says it is was pleasing to see how well the industry adapted to Covid-19 protocols, noting that Fletcher’s biggest projects continued throughout Covid-19 alert level 3 and essential workers adapted to new ways of working safely in level 4.
“That speaks volumes to the emphasis we are all putting on safety in the workplace,” he says. But he raises concerns with local council infrastructure investment, with pressure on rates and a decline in developer contributions and local council investment returns pointing to big gaps in infrastructure capital investment to meet expected demand.
Reidy says it is pleasing to see that the Minister of Finance, Grant Robertson, is now also the Infrastructure Minister: “We look forward to continued investment to plug New Zealand’s considerable infrastructure deficit,” he says.
Downer chief executive Steve Killeen says the remarkable recovery from what could have been an 80s-style recession speaks to the resilience of the sector and the actions taken by the Government to ensure workload, liquidity and confidence remained intact. He says it was particularly reassuring that Downer’s clients — public and private — maintained dialogue about their project intentions and opted for simple, effective procurement mechanisms.
“I’m pleased to say the commercial building market recovered quicker than expected and we have now secured wins in education, health and defence that will see our revenues recover in the FY22 financial year.” However, he notes that the past year of uncertainty has reinforced the tendency of the sector and its client base to think short term, slowing down the focus and investment needed to resolve intergenerational issues that stand to negatively impact both the sector and the quality of life in the communities it serves.
Beca CEO Greg Lowe says that large infrastructure projects have started to build up momentum again following the Government’s commitment to the New Zealand Upgrade Programme, the investment in “shovel-ready projects”, and some urgent work needed around water supply and water treatment.
However, he says many private sector projects — particularly the vertical construction market (construction of high rise commercial and residential buildings, as compared to horizontal construction which relates to infrastructure and related construction) — have slowed right down.
“This is an area where small contractors and tradespeople are employed,” says Lowe. “However, more hospital and university projects are helping to fill this gap, and vertical projects driven by local councils are also helping to keep contract work and employment up.”
Fulton Hogan managing director Cos Bruyn says though he is seeing signs of improvement in the private sector now, it will still be some time before activity matches the level that existed pre-Covid. He says that short-term the workload is a good, but describes the medium- to long-term outlook as “murky”.
He puts this down to the challenges of getting work consented being as problematic as ever, the legislative reform being considered by the Government including RMA, and the implementation of National Environmental Standard for Freshwater 2020 — which he says is a big issue for the Auckland region and has the potential to sterilise new residential and commercial development land and quarry reserves.
The industry’s leading chief executives were asked about the biggest challenges they are now facing:
Peter Reidy, Fletcher Construction
The technical skills capacity shortage, particularly in core, frontline project delivery roles is a major challenge.
We are starting to see the real impact of border closures on labour and skilled technical capability. There is competition for these skills domestically and labour costs are increasing in the infrastructure and commercial construction sector.
There is a lot of time and effort going into apprenticeship and graduate programmes in the industry, which is great to see, but you just can’t train in a short space of time for roles which require very specialist skills or international experience.
As an industry we need a much greater focus on inclusion and diversity in our workforce. The number of women attracted to and entering construction is still far too low and we have to do something about that. It’s great to see a real focus on apprenticeships and graduates and what we can do there but ensuring our workplaces are genuinely inclusive for everyone — culture, gender, age and sexuality — is still a priority.
Plenty of challenges today.
The challenge for tomorrow is attracting the new skills needed for the future of the industry, including a more digitally-enabled construction eco-system.
Steve Killeen, Downer
I guess my biggest personal challenge is facing the reality that I may finish my career in a sector that is no better, and in some cases worse, than when I started in the 80s. A sector typified by a lack of sufficient skilled resource, failure to adopt technology, mixed quality and efficiency and very alpha male in the way it goes about business.
I’m still committed to making a difference and have given a lot of thought to the root cause of the sector’s challenges – I believe there are three nuts we need to crack:
• How do we provide confidence in the pipeline of work and ultimately level the workload?
• How do we get the best creative, technical and practical minds around our immediate and future social and economic infrastructure needs?
• How do we focus on long term cost-efficiency rather than price?
Covid and the restrictions it imposes could well be described as the greatest current challenge to the construction industry. However, it is my view that it purely magnifies immediate issues and reduces our focus on the long-term challenges in the sector.
Cos Bruyn, Fulton Hogan
Availability of skilled labour is of growing concern and this is being felt now in the Auckland market. This is a big issue in Australia presently with high demand in a number of states given the strong infrastructure build materialising now. NZ will be targeted as a labour resource pool adding to the challenge.
There is a distinct lack of major project work in the South Island and this will have long term ramifications in retaining resources and key skills.
Overall, the sector along with the rest of NZ will have to contend with the ongoing uncertainty the Covid response brings; recent decisions to lock down have been made with little notice and reduce our ability to plan or mitigate the impacts. This is impacting on the mental wellbeing of our staff and all New Zealanders.
We are also starting to see significant cost increases in imported materials and availability. We have yet to see the worst of this.
Bitumen is a high-volume and high-cost input in the roading sector. Production of domestic bitumen at the Marsden Point Refinery has closed, so the NZ market is 100 per cent reliant on imported bitumen. This may lead to supply chain resilience issues and cost increases.
Greg Lowe, Beca
Predicting start times for design work on large projects is an ongoing challenge. Across many sectors there is a long delay from being advised of bidding success, to then getting contracts in place and work starting. This can leave people intended for projects sitting “on the bench” for longer than needed.
With low unemployment and a need to bring more resources into the sector to ensure projects get to construction as early as possible, staff capability growth is key. We focus heavily on graduate recruitment, staff development and attracting Kiwis back to New Zealand, but longer term this won’t be enough. We will need more skilled labour from offshore to augment staff development here.
Border restrictions are still a challenge with high demand on managed isolation and quarantine. We have three main challenges — getting overseas Kiwis we have recruited a confirmed place in MIQ, getting critical workers needed for projects who are not Kiwis through MIQ, and getting a plan in place for our people who are needed on site on our overseas projects.
Overseas sites have considerable restrictions in place and it’s tough work, meaning people want to know they can get home for a break. This is important because this is export services revenue for NZ — we do work here on overseasprojects, then need to send Kiwis overseas to the site for implementation. This generates export revenue, which is currently on hold. We need a way to book people into MIQ say six months out so our staff have the confidence to go on overseas assignments.
Deloitte Top 200: Beca wins Sustainable Business Leadership award (NZ Herald)
Deloitte Top 200: Beca wins Sustainable Business Leadership award (NZ Herald)
Beca is motivated by its purpose to “make everyday better” and a values-driven culture to deliver transformational solutions with its clients and rise to the challenge of sustainability.
Beca is one of Asia-Pacific’s largest independent advisory, design and engineering consultancies. It has over 3300 employees in 21 offices around the world, and has delivered projects in more than 70 countries. It says the most positive impact it can have on the planet is to work with its clients, its people and its communities to help deliver transformational solutions and succeed in a sustainable way.
The Deloitte Top 200 judges commended Beca for putting sustainability at the centre of its operations; even recognising sustainability’s importance 10 years ago when it wasn’t mainstream. The judges said it is clear that Beca recognises how crucial building resilience to climate change is to its business, and this is one of the key reasons the firm has been chosen as winner of the Sustainable Business Leadership award.
“Sustainability requires both mid-term foresight and a critical assessment of its current practices,” says Top 200 judge Ross George who is managing director of Direct Capital. “Beca balances these two elements and has the ability to encourage clients to do so in their projects as well.”
The award highlights businesses that are working towards the creation of long-term environmental, social and economic value. The judging criteria covers governance, long-term perspective, integration of ESG (Environment, Social, Governance) considerations and projects to support sustainable development.
In Beca’s most recent sustainability review, Chair David Carter and CEO Greg Lowe say: “The global challenges facing our world present numerous opportunities for Beca and our clients to mitigate risks, adapt, evolve, innovate, and thereby make everyday better for future generations.”
Beca was one of 60 founding signatories to the New Zealand Climate Leaders Coalition that commited to voluntary action on climate change.
The firm set a carbon target, committing to reducing its emissions 32 per cent by 2030 from a 2018 baseline — consistent with the need to keep planetary heating below two degrees. It has adopted an absolute emissions reduction approach, to include those emissions Beca has direct control over, as well as indirect emissions from its full supply chain. This includes building energy efficiency, its global supply chains, the vehicle fleet, business travel and even how its employees get to and from work.
Initiatives introduced by Beca include recommending its staff to use public transport to visit clients, reducing the number of vehicles it has and replacing them with more fuel-efficient models. Its Hamilton office even has a worm farm on-site, which converts food scraps from the kitchen to bottled fertiliser.
Beca has made a strategic response to the critical challenges New Zealand’s most populous city faces. Beca says it wants to help Auckland grow sustainably, and is working with clients including Auckland Council, Auckland Transport, Watercare, Panuku and NZ Transport Agency to deliver sustainable solutions to the challenges the city faces.
One example is New Zealand’s largest wastewater project, the Central Interceptor. It is an integral part of Watercare’s long-term wastewater strategy for the region. The 13km tunnel is expected to decrease wastewater overflow by approximately 80 per cent.
Beca says an important focus for the Central Interceptor is maximising opportunities for long-term sustainable outcomes. Its services include the integration of sustainability requirements into all project areas to support the eventual delivery of an ‘Excellent’ rating under the Infrastructure Sustainability Council of Australia (ISCA) Infrastructure Sustainability Rating Tool. One key requirement of this is to complete a carbon footprint baseline for the project, from which carbon reduction initiatives from the design and construction phases will be measured.
Beca’s sustainability team recently put together a think piece on how New Zealand’s post-Covid recovery and rebuild opportunities could support decarbonising New Zealand and contribute to a future of sustainable prosperity.
The think piece says, “The scale of investment we are making and the legacy of this for future generations, means it is critical that we take this opportunity to significantly accelerate the decarbonisation of our economy. By taking this approach, our recovery will support a more prosperous, equitable and sustainable society.”
It identified eight key transitions that would best enable New Zealand to rapidly shift to a low-emission economy, while simultaneously creating jobs, addressing many of New Zealand’s critical challenges and moving to a prosperous, circular and equitable economy. These include transport, electricity, agriculture and forestry and social infrastructure.
The judging panel commended Beca for not only encouraging sustainability and climate change within its own organisation, but for working alongside its clients and communities to continually challenge and improve sustainable outcomes.
Finalist: Kathmandu
Kathmandu Holdings is a global outdoor, lifestyle and sports company. As a group, it owns outdoor adventure brand Kathmandu, North American hand-made footwear wholesaler Oboz and Rip Curl surfwear.
This year, the group launched its first combined sustainability report. Inside, Kathmandu chair David Kirk and CEO Xavier Simonet say despite the impacts of Covid-19, all three brands have made significant strides in sustainability this year.
“Covid-19 threw many challenges to our brands, but each of them have found ways to learn from these challenges and make the most of the opportunity to rethink the way we operate,” they say.
The Top 200 judges commended Kathmandu for boldly making sustainability commitments and note the firm has begun putting actions in place to embed sustainability right throughout the organisation. This is one of the key reasons it was chosen as a finalist for the Sustainable Business Leadership award.
Last year, Kathmandu Holdings’ original brand and namesake Kathmandu became the largest Australasian retailer to achieve B Corp certification — the stringent certification process as part of the Certified B Corporations movement.
B Corps implement the Global Reporting Initiative, an independent standards organisation that helps businesses, governments and others understand and communicate their impacts on issues such as climate change, human rights, governance and social wellbeing. Kathmandu will need to re-certify every three years to maintain the status.
In its 2020 Sustainability report, Kathmandu says that being a B Corp comes with a lot of responsibility, but acknowledges that without that responsibility right at the top, it can be easy to overlook.
By 2025 it aims to become a leading Global B Corp and integrate circular economy principles within its business.
Back in 2014 Kathmandu also became the first Australasian company to join the internationally renowned Fair Labor Organisation as part of a commitment to enhance its social compliance programme and use ethical suppliers.
“These accreditations confirm Kathmandu’s commitment to balancing human, environmental, transparency, and profit considerations,” says judge Ross George.
Across its other brands, other advances from Kathmandu Holdings this year include Oboz launching its first range of footwear containing recycled materials and algae boom insoles and Rip Curl celebrating its 20th anniversary of its planet day.
Inside this year’s sustainability report, Kirk and Simonet say that Kathmandu Holding’s brands will be able to leverage their strengths to work together for an even greater positive impact.
Finalist: Vector
Vector is New Zealand’s largest distributor of electricity and gas.
It owns and operates networks which span the Auckland region.
Vector says its approach to sustainability is to deliver innovative, long-term solutions for its shareholders, customers, partners and suppliers to build shared resilience, reduce its carbon footprint and help regenerate the environment.
It has been taking an active leadership role in how it decarbonises and electrifies transport while maintaining the reliability and affordability of energy.
Energy systems in New Zealand and globally are under pressure to respond to the uptake of new consumer energy technology, electrification of transport, demands for decarbonisation, increased consumption of renewable energy and energy poverty.
The judges say Vector’s business is centred in the middle of a digital and technological revolution and that this puts it in a great position to look at a cleaner energy future.
“Vector is not frightened of facing disruption during a time where decarbonisation is accelerating and its customers are increasingly aware of this,” says judge Ross George.
While some energy companies are taking a “wait and see” approach, Vector has introduced its “Symphony” strategy to address this disruption and create a new energy future.
Vector says this strategy enables it to drive better environmental, social and economic business outcomes such as energy affordability, decarbonisation and the circular economy, aligned to the UN Sustainable Development Goals.
Vector is an active participant in the Aotearoa Circle, Sustainable Finance Forum, Sustainable Business Council and Climate Leaders’ Coalition.
In the past year it has reduced its carbon footprint by 23.6 per cent.
Earlier this year, Vector’s renewable energy business Vector PowerSmart worked alongside Watercare to deliver New Zealands’s first floating solar array on the Rosedale wastewater treatment pond.
The array was opened in October and features more than 2700 solar panels and 4000 floating pontoons.
It will generate 1486MWh per year — the equivalent of 200 average New Zealand homes and enough electricity to power a quarter of the energy plant — with zero emissions.
The Battery Industry Group (BIG) is another sustainability initiative led by Vector.
Launched last year, BIG is a cross-industry collaboration to design reuse and recycling solutions for large batteries, commonly found in electric vehicles or in stationary energy storage.
BIG now has more than 140 organisations and individuals as members across energy, waste, transport and battery industries.
Opinion: Covid-19 provides impetus for fundamental change (NZ Herald)
Opinion: Covid-19 provides impetus for fundamental change (NZ Herald)
It has been three years since Prime Minister Jacinda Ardern called climate change “my generation’s nuclear-free moment”.
While the previous Government was unable to declare a climate emergency in the last term — believed to be because Labour’s coalition partner New Zealand First blocked it — she has now made it a priority with a declaration of a climate emergency.
Since Covid swept the world, it has done a lot to emphasise the social and economic inequalities that exist globally. The harsh reality of the lockdown exposed that, even in New Zealand, women and low wage workers were most impacted by job losses and reduced work hours.
Similarly, the relationship between climate change and inequality will see those who are disadvantaged suffer disproportionately from the adverse effects of global warming. The need for action to achieve New Zealand’s vision of a thriving, climate-resilient, low emissions future is widely understood.
The same areas that New Zealand used to successfully respond to the Covid-19 outbreak are needed to address global warming: listening to scientists, public policy and international co-operation.
When US President-elect Joe Biden spoke with Ardern for the first time since the US election last month, he spoke positively about her handling of the pandemic and said he looks forward to working closely with her on common challenges, including tackling climate change. Biden has named ex-US Secretary of State John Kerry — one of the leading architects of the Paris climate agreement — as his climate envoy.
“America will soon have a government that treats the climate crisis as the urgent national security threat it is,” said Kerry.
This break from the Trump administration’s climate policy will put our Government to the test, and necessitate that our ambition reflects our action.
Speaking recently at the Institute of Financial Professionals in New Zealand (Infinz) conference, Climate Change Commission chair Dr Rod Carr said the commission’s current programme of work is to produce the first emissions budget out to 2035 — and to the extent that we are not on track to achieve our domestic targets and global obligations, advise on a reduction plan that will reduce those emissions having regard to a wide range of impacts.
“It is important to understand that climate action is now mainstream conversation, and understand what is to be done, by who, and by when,” he said.
New Zealand emits about 80 million tonnes of carbon dioxide-equivalent greenhouse gases every year, and under the international accounting rules sequesters about 10 million tonnes, largely through forestry. Nearly half of those emissions come from agriculture.
The challenge for New Zealand, says Carr, will be that although our form of pastoral agriculture may be one of the most efficient ways of producing meat and milk protein in pastoral agriculture, there may now and in the future be ways of producing meat and milk proteins with an even smaller greenhouse gas footprint.
Of the remainder of our greenhouse gas emissions, transport makes up about 40 per cent. It is a growing contributor, with household transport emissions increasing by 15 per cent between 2011 and 2017.
Carr says this will be one of the major challenges that will go to the heart of both the allocation of capital by private vehicle owners, fleet operators and government infrastructure providers.
“Converting ground transportation to low or no emissions is a 100 plus billion-dollar investment challenge over the next 30 years,” he says. “Known technologies exist. They largely require electrification, and that electrification needs to be provided from renewable energy sources, unless it is to continue to contribute to greenhouse gas emissions.”
Navigating our economic recovery from Covid-19, while finding solutions for our climate change challenges will require a substantial and coordinated response. This will mean making sure capital is deployed to support the new age, new technologies, and new and necessary ways in which we conduct business.
Covid-19 exposed major weaknesses in our society. But it has also given us the impetus to make fundamental changes that will address inequality and fuel an economic recovery that is long-lasting and sustainable. Without a handbrake on the Government — and with a renewed impetus from international leadership to deliver — now is the time to make sure New Zealand isn’t left behind.
Sustainability is a necessity now
The Covid-19 crisis has not sated the appetite for investing
When the Covid-19 pandemic struck, some suggested that investing sustainably is something best-suited to a bull market — a “luxury good” or “nice-to-have” — but among the first areas to be cut back when times are tough and the economy is receding.
Internationally, it seems that investors have not just stuck with sustainable investing, but have embraced it. Instead of a luxury good, sustainability is seen as a necessity and an idea whose time has come.
The new reality the world is facing has forced investors to consider risk differently, and has highlighted the interconnectedness between social, environmental and economic challenges.
JP Morgan ESG & Sustainability heads Jean-Xavier Hecker and Hugo Dubourg say: “Over the long run, Covid-19 could prove to be a major turning point for ESG investing, or strategies that consider a company’s environmental, social and governance performance alongside traditional financial metrics.”
Indeed, a survey run by JP Morgan asked 50 global institutions (representing US$12.9 trillion in assets under management) how they expect Covid-19 to impact the future of ESG investing. It showed some 71 per cent think it is “rather likely”, “likely”, or “very likely” that a low probability-high impact risk like Covid-19 would increase awareness and actions globally to tackle high impact-high probability risks such as those related to climate change and biodiversity losses.
More immediately, the pandemic has seen investors turn to sustainable and responsible investments as a form of safe haven. This is because companies with strong records on employee relations, environmental sustainability and corporate governance tend to do well over the long-term.
Closer to home, the Aotearoa Circle’s Roadmap for Action identified some of the domestic social inequalities that have been highlighted by the Covid-19 crisis, including:
· Those on lower wages, and females, have been more impacted by job losses and have less certainty about when their jobs may return.
· Those on lower wages have less capacity to absorb financial shocks, meaning their wellbeing has been more impacted by Covid-19.
· Those without digital access or capability have been further excluded from accessing essential health and other services.
· Those with essential jobs are the people we rely upon during a pandemic. Yet they receive little compensation above the minimum wage. This has led to the stark realisation that we need to value these people differently and need to re-think our ideas of value.
The Aotearoa Circle says the rapid behavioural change in response to the pandemic has shown how innovative and adaptive we can be.
It suggests that governments stepping in to become some of the largest consumers via various stimulus programs presents a crucial opportunity to serve two purposes: economic recovery and a climate change crisis recovery.
The Roadmap for Action says: “Our recovery needs to look to reduce the social and environmental imbalances that disrupt our society, and make our economy more resilient for the next generation.
“If the huge stimulus does not simultaneously contribute towards a more resilient, sustainable economy, or worse, sets us back in our response to those issues, there are real risks we leave ourselves further exposed, and we are putting ourselves at a higher risk of funding shortages to achieve such a transformation in future.”
Co-chair of the Sustainable Finance Forum and New Zealand Super Fund CEO Matt Whineray says while the pandemic and the consequential economic destruction looms large, the existential crisis that is climate change is not going away — and will continue to worsen.
“Responding to the pandemic in a way which exacerbates the climate crisis, would be a global policy failure,” he says.
While New Zealand may have lagged behind some of the large international markets, investment in areas that reduce global carbon emissions and address essential social services is rapidly growing.
For example, New Zealand’s sustainable bond issuance is becoming a relatively significant asset class of its own. ANZ/ Bloomberg’s analysis of sustainable bonds in New Zealand by year shows a dramatic rise in issuance from $106m in 2017 to $2.125b in 2020. Over the past three years, some $2.7b in wellbeing bonds have been issued by government housing provider Kāinga Ora to fund sustainable and affordable social housing.
There is also a growing expectation from New Zealanders that their KiwiSaver providers focus on responsible and ethical investment opportunities that deliver positive outcomes aligned with their values.
Further compounding this demand is the rapid growth in millennial investors. This will become even more significant as the largest ever intergenerational transfer of wealth occurs in the near future, putting some US$30 trillion under the control of millennials in the US alone.
A 2019 Morgan Stanley report says 95 per cent of millennials are interested in sustainable investing (compared to 85 per cent of the general population). The report also showed that 85 per cent of millennials believe it is possible for their investment decisions to influence the amount of climate change caused by human activities and 89 per cent say their investment decisions can create economic growth that lifts people out of poverty.
As the government and large corporates in New Zealand ramp up the delivery on their productivity, social and environmental aspirations, the call from investors for increased sustainable investment opportunities will be answered.
Investors will likely embrace the opportunity to provide some of the significant capital flow that will be needed to help ensure New Zealand’s economic recovery is long-lasting and sustainable.
New Zealand Green Investment Finance has made three investments, and is eager for more, writes Tim McCready
New Zealand Green Investment Finance has made three investments, and is eager for more, writes Tim McCready
New Zealand Green Investment Finance (NZGIF) was established by the Government to help New Zealand achieve a transition to a lower emissions economy, as part of a global movement to finance ways to mitigate the effects of climate change.
The green investment bank has an initial capital fund of $100 million. It is tasked with stimulating a market in which private capital flows to investment in activity that reduces our domestic emissions.
NZGIF’s chief executive, Craig Weise, says one of the ways to do that is to lead the market by demonstrating not just the greenhouse gas benefits of its investment, but commercial and other benefits as well.
“I think that’s one of the big aspects of our mission that is really important, which at its core is about acceleration of investment in lower emissions activities,” he says.
Weise, who comes from a long career in private capital markets, says prior to taking the role at NZGIF, he knew how important it was to deploy capital in order to get the right environmental outcomes, and was waiting for the moment that would be able to occur.
“That’s when you can start to make a difference in a big way. I’ve always been excited about that opportunity,” he says.
Around the world, green investment banks have been established to catalyse private investment in domestic low emissions and other environmental projects.
“They are generally initially capitalised by governments but operate independently in the market to mobilise private investment.
Weise says internationally, green investment banks tend to focus on very different things to NZGIF because most economies are thinking about decarbonising their energy supply.
“For us, we looked at what they were doing, how they were structured, and what they were achieving — and then thinking about it in the New Zealand context, where we already have a lot of large-scale renewable energy, and it’s very well capitalised in terms of the gentailers.”
Broad investment mandate
So far, NZGIF has made three investments: Thinxtra, an Internet of Things network and service provider; Carbn Group, supporting the uptake of low emissions vehicles in corporate and government-owned fleets; and CentrePort, a transport and property infrastructure firm.
Each of the deals NZGIF has done to date are quite different, and Weise says that — to a certain extent — this has been a deliberate move.
The deals that have been done help to illustrate to the market the breadth of what NZGIF can do, as well as signal the areas it sees as being economic and investible.
“It is not just about us deploying our own capital — it is also about showing the market that these things are there,” says Weise. “It has been really important for us to go out and build institutional credibility in the market.
“Do the deals, let people understand us.”
A flexible approach
NZGIF can invest through a range of capital structures, from debt to equity, with mechanisms to mitigate risk for its partners.
It will be able to create solutions with the market that are hard for other institutions to do because of how it can use a balance sheet.
Its role will be different depending on what the need is. In some cases, it will need to aggregate sub-scale investments for bigger investors, because they may not have the incentive to write small cheques.
In other cases, NZGIF will get opportunities outside of corporate balance sheets that don’t make sense on their own, but make sense when you start to pool them.
It will also be able to de-risk some projects — for example where it is the first time something is being done in New Zealand. While a bank might get stuck on a particular risk, NZGIF can take the risk on more easily, unlocking a deal that might have huge carbon benefits for the country.
“One of the things about the market in New Zealand is that because we’re a small market from a capital markets perspective, some of those things are just a function of being a small market,” he says.
“It’s not only because there is an emerging understanding around low carbon and green investment — it’s because we’re a small market.”
Weise says this flexibility is one of NZGIF’s key points of difference as an institution. “We are not called a fund for a reason — because funds behave in very specific ways,” he says.
“That is very powerful for us in achieving our mission, but it’s also a bit confusing, because we have a lot more flexibility in terms of how we use the balance sheet, and we are operating over time horizons that are much, much longer than most funds would be thinking about.”
That time horizon is not necessarily around the duration of the finance, but defines how NZGIF is thinking: helping New Zealand get to net zero emissions by 2050.
The investments made to date further demonstrate NZGIF’s flexibility. The CentrePort deal is structured as a straightforward senior credit facility, where it is able to draw down money and pay NZGIF interest. The facility has a term, along with a set of rules around how the capital can be used and for what purpose.
The Carbn Group deal is an example of a hybrid investment. NZGIF has put both debt and equity into the company.
Weise says this is because the group is doing two different activities: one side of the business provides advisory services for government and corporates looking to optimise their vehicle fleets, the other side specialises in financing low emissions vehicles, with expertise in the economics of electric vehicles.
“With Carbn Group we saw a gap in the market that needed to be filled to help us to transition holistically,” says Weise.
“And we liked it in particular because a lot of vehicles come into the country via fleets, and then into domestic use later on. It’s a way to increase that uptake a little bit faster — coming back to our acceleration mission.”
A healthy pipeline
Weise says it is very encouraging that there continues to be a very healthy pipeline of opportunity: “You’ll see us continue to make announcements on a fairly regular basis.”
But he says beyond doing deals, NZGIF is very focused on bringing other capital providers along with it. It aims to work with a broad range of partners, including financial markets and investors, banks, private companies, local government and global green banking networks.
“NZGIF can’t do it alone, because the delta is much, much bigger than its own balance sheet,” says Weise.
“There are so many ways we can participate with the market.
“It’s quite exciting as a practitioner, because it is on you to have that sort of flexibility,” he says.
“We would encourage other institutions who see — or want — opportunity, to come and talk to us.”
Investments made to date
CentrePort: CentrePort is a transport and property infrastructure firm, built around its core port business on Wellington Harbour. It provides supply chain solutions and expertise including the CentreRail Service with KiwiRail, and a network of inland cargo hubs. CentrePort facilitates international and coastal shipping, the inter-island Cook Strait ferry services, and land and aviation fuel supplies.
CentrePort was NZGIF’s first investment, announced in June 2020. The green credit facility of $15m will be used to provide the finance needed to accelerate the deployment of low carbon projects, with the capital ensuring the projects remain a priority and are developed alongside the wider regeneration of the port. NZGIF’s lending will be exclusively used to fund low-carbon projects which will reduce CentrePort’s overall carbon footprint, such as the introduction of electric vehicles, on-site renewable energy generation and energy efficient upgrades. As well as assisting the port to achieve its climate goals, the investment in electrification, renewables and efficiency will provide an example for other firms in the port sector and beyond.
Carbn Group: Last month, NZGIF made a $5.8m investment in Carbn Group – the parent company of two subsidiaries that have been formed to support the uptake of low emissions vehicles in corporate and government-owned fleets. The Carbn Group addresses knowledge and capability gaps in the market for specialist low emissions vehicle transition, fleet optimisation and financing. Its goal is to accelerate transport emission reductions through the effective and efficient adoption of low emission vehicles.
In New Zealand, the transport sector accounts for around 19 per cent of GHG emissions. Transport is New Zealand’s fastest growing emissions sector and emissions have risen by more than 70 per cent since 1990. However, momentum is building for low emissions transport technology adoption.
Carbn’s services reduce the overall cost of a fleet and ensure continuous reduction of fleet carbon emissions by reviewing a company’s vehicle types and usage patterns to assist them to transition to a low emissions fleet. This aligns with NZGIF’s purpose and New Zealand’s wider aspiration to reduce vehicle emissions.
Thinxtra: In August, NZGIF announced a strategic equity investment in Thinxtra, an Internet of Things (IoT) network and service provider operating an established network across New Zealand, Australia and Hong Kong. Its investment formed part of the company’s latest funding round alongside other investors.
Thinxtra’s technology supports firms to improve efficiency and asset utilisation, with clear carbon benefits. It has built, owns and supports the 0G Network, powered by Sigfox technology, which is low-cost, resilient and capable of supporting high volumes of connected devices, using very little energy to run. These devices allow companies to, for example, use less power, travel less and save carbon.
One example NZGIF gives of how the technology could be applied is the NZ predator free programme. Pest traps could be remotely monitored, meaning traditional scheduled checks in remote areas can be made more efficient by a smart trap triggering a check only when a predator has been captured. The same OG Network can be used to provide better insights into assets in the area, geolocation and safety of people (rangers and volunteers) and the overall health of the environment.
NZGIF says IoT provides a significant opportunity to reduce carbon emissions, and its investment in Thinxtra will help support a dynamic market leader to accelerate the deployment of its technology in New Zealand and enable firms to reduce their emissions as well as save money.
Electrifying the economy
Transpower’s Alison Andrew tells Tim McCready the benefits of transforming New Zealand to a low carbon economy are significant
Transpower CEO Alison Andrew points to a future where technology will continue to play an ever more significant role in New Zealand’s transformation.
“Our electrified future means electric vehicles — whether that’s our own personal cars, corporate fleets or ride share,” says Andrew. “Many of us will have solar panels and batteries in our homes, to meet some of our own demand, and the ability to trade via the interconnected grid. We’ll have energy efficient, smart homes using intelligent energy management systems that optimise the use of devices, electric vehicle charging, battery use and grid supply, all without us having to worry about it.
Andrew says that will also play over into the work environments which will be similarly efficient and smart. “It’s an exciting and empowering energy future.”
The Herald asked Andrew: Has 2020 halted sustainability progress, or has it brought it front of mind for business?
Despite the disruption brought by 2020, I believe New Zealand businesses remains as committed to progressing sustainability as before. Stakeholders and investors are demanding that we all commit to action and make greater progress toward delivering on sustainable outcomes. We have a responsibility to our customers, communities and employees that we consider the social and environmental impacts of all that we do — and take steps to ensure positive outcomes.
Economically, it already makes sense. The price of wind generation is one quarter of what it was 10 years ago, down from $140/MWh in 2010 to $35/MWh now. The price of solar generation has dropped by more than 90 per cent in the last 10 years from $400/MWh to $30/MWh today in many parts of the world. Depending on your retailer, charging an electric vehicle off peak is already the equivalent of paying 40c per litre for your fuel.
As a nation, we have the opportunity to build sustainability into the very fabric of our economy as we adjust to life post-Covid. We cannot afford to bake yet more carbon into our economy through the decisions we make today but should instead see this as a turning point in our commitment to a net-zero carbon future.
What will be the agenda for business in 2021 in terms of sustainability, including new priorities in this regard?
Covid-19 has reminded us sharply that the welfare of our people is the most critical element of our success. Having highly engaged, skilled and capable people is central to all that we do and for Transpower and has enabled us to continue delivering our service despite the disruptions. We recognise that it is essential we make the most of the strengths inherent in having a diverse and inclusive workforce and culture. We are committed to the ongoing development of our people and our organisation.
To achieve the county’s net-zero carbon emissions, we need to electrify our economy. It starts by shifting the transport sector off oil and on to electric vehicles, trucks and buses. We also need to shift heat used in industry processes or for heating our large commercial and public buildings, from coal and gas, and on to electricity. Renewable electricity will power this transformation and will be the main part of the energy puzzle although biomass, direct geothermal heat, hydrogen, biogas and biofuels also have a role to play. At Transpower we have a key role to enable this energy transformation.
What role does Transpower have in helping New Zealand realise its ambition to be a low carbon economy?
As owner and operator of New Zealand’s national transmission assets, and operator of the national electricity market system, Transpower is a critical enabler of this change. We take a whole-of-industry view of the sector and a long-term view of what needs to change across our asset base and within the market system, to ensure New Zealand can meet its ambitions while continuing to power communities securely, safely and reliably.
Of course, transforming an economy needs a very good plan and Transpower has a significant role to play in supporting this to happen. We need a roadmap for how we can develop our energy resources and when; what technology and infrastructure is required; what policy and regulatory settings are needed. This is the work we have outlined in our paper Whakamana i Te Mauri Hiko — Empowering our energy future. The benefits of this transformation are significant and an opportunity to:
- Create thousands of new jobs.
- Meet our emissions reduction targets.
- Reduce average household energy bills by around 25 per cent by 2035.
- Improve our air quality with health benefits.
- Reduce our reliance on imported fuels thereby improving security of supply and our trade balance.
- And finally, to carve out a competitive advantage — improving our international brand and attracting international investors seeking green places to do business.
What challenges are Transpower facing (internal or external) over the coming year in making this happen and what approaches are needed to overcome them?
We have identified nine key areas of focus that will require collaboration across industry if we wish to achieve a net-zero carbon future. These include policy changes to remove barriers to low-carbon infrastructure and incentivise electrification and renewables, including RMA reform.
An immediate focus for Transpower is to streamline our connections process so new generation can be connected into the grid more effectively.
We are also focused on improved grid planning so we can be proactive in making this transition happen. We need to do this alongside industry and drawing from the collective knowledge that exists across the sector. The benefit for everyone is that we can all plan for the future, more effectively.
A more challenging nut to crack is ensuring we have access to the skilled workforce needed to deliver on this future. We need improved vocational training, greater workforce diversity and a stronger sector brand that attracts young people motivated by our goal of decarbonisation.