Recent headlines of floods, heatwaves, and social unrest are stark reminders of our changing world, along with the scale and pace of change needed to address climate change and the broader environmental and social challenges facing us. While such news is cause for concern, there are promising signs that local and global institutions are taking proactive steps to build a more sustainable future.
Governments (including ours) are stepping up with NetZero commitments which require ambitious emission reduction pathways and a collaborative approach to get there. The financial sector globally has taken up the mantle, with 115 banks (including BNZ) signing up to the NetZero Banking Alliance (assets totalling USD 70 trillion) and 74 institutional investors signing up to the NetZero Asset Owners Alliance (assets totalling USD 10.6 trillion). How and where capital is deployed is undoubtedly changing. The shift away from high emitting and high-risk industries is gaining momentum but is it enough?
Achieving the targeted reductions will require innovative solutions at scale. But innovative solutions at scale need capital. So, how do we ensure capital flows to the businesses driving innovation capable of fundamentally improving our world for future generations?
The good news is that we don’t have to look too far; New Zealanders are known for developing solutions that address real-world problems. New Zealand is an economy of small businesses, but there’s a large amount of innovation happening within this cohort, particularly in areas such as clean technology, green hydrogen, electrification, robotics, waste reduction, and agriculture. Just as interesting are some emerging clever business models, such as shared ownership, joint ventures, and pooling of capital for sustainability projects. But there’s more to do.
A July 2021 report from the Callaghan Institute, NZ Climate Tech for the World, looks at the ability of New Zealand innovators to raise capital. The report notes, “a lack in volume of private-sector financing risks presenting innovators with shorter lifelines to growth, subsequent financing, and an overall aversion to innovation in capex intensive sectors.” As a result, New Zealand innovators have a greater reliance on government funding compared to other similar-sized economies.
The rise of Sustainable Finance products such as Green and Sustainable Linked Loans has seen large amounts of capital flow to projects or companies focused on improving our environment. However, as investors and finance providers, we also need to consider how we can support the innovations within smaller businesses that we believe are capable of affecting real change. The provision of adaptive and non-dilutive debt solutions that match the needs and wants of these businesses at each stage of their lifecycle could see more innovators succeed. Being targeted in our approach and thinking about the impact of the funding we provide will be a vital enabler of the change we need.
We don’t need to wait for the world to change in worrying ways before we spring into action to do something about it. Drawing on partnerships and collaborative approaches to capital could diversify the capital pool and uncover connections, networks, and expertise to help form the ecosystem needed for sustainability-focused innovations to survive and thrive for generations to come.
This article is solely for information purposes. It’s not financial or other professional advice. For help, please contact BNZ or your professional adviser.
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