Keeping our future generations in mind

Vittoria Shortt, CEO, ASB

I like the definition of ‘sustainability’ as making sure we meet our needs today in a way that doesn’t limit the ability of future generations to do the same. It’s a very simple and powerful statement, broad enough to apply to all sectors of society and the economy.

How do we ensure we are laying the right foundations for resilience and prosperity, given what we know of the challenges ahead? Is the finance sector operating in a way that will help future generations enjoy the freedom and resources we have today?

When we envisage a sustainable future, it’s crucial to consider social aspects alongside environmental. Only months ago, we were seeing student climate protests and were shocked at the scale of Australia’s bushfires. Now, it’s impossible to talk about a sustainable future without considering our collective response to the pandemic – in both social and economic terms.

ASB’s purpose is to accelerate Kiwis’ financial progress, which encapsulates our responsibility to play our part in supporting businesses, whanau and communities to be financially resilient. The Sustainable Finance Forum’s interim report highlights financial inclusion as a key priority. One of the ways we’re addressing this at ASB is through the establishment of a community advisory panel to help ensure we take into account the perspective of customers in vulnerable circumstances when making key decisions about services or products. This has helped illuminate how different the experience can be for those who are socially or economically excluded and the things we can do to make their journey that little bit easier.

All of this is happening in the context of an urgent need to decarbonise the economy. The challenges of climate change have not been put on hold just because we have another pressing crisis to tackle.

At ASB, we are conscious that we – along with the whole finance sector – have an important role to play in supporting and enabling investment in sustainable, low carbon solutions. While many of our business customers are understandably preoccupied with issues around cashflow and liquidity, they are still mindful that future capital investment needs to take account of climate change.

When we discuss ‘sustainable finance’, it’s important that this isn’t limited just to investment that aims to reduce carbon emissions. Adaptation is equally important. Our business customers are attuned to the scale of the challenge, and it is important that we listen to their needs and work alongside them.

One of the key planks that needs to be in place is industry-wide definitions of exactly what ‘sustainable investment’ means, and the onus is on the finance sector to work collectively to agree these principles.

Launched earlier this year, the EU Taxonomy for Sustainable Finance is a really valuable tool for investors and issuers, designed explicitly to direct finance to climate-friendly investments. Equally importantly, it reduces the risk of ‘greenwash’ and gives investors confidence by setting out clear criteria. It’s satisfying to see work underway locally, to create a set of standards aligned with the EU Taxonomy that will help the encourage the flow of capital to projects with demonstrable environmental and social benefits.

ASB is playing an active role in the Sustainable Agriculture Finance initiative, one of the first projects to follow the Forum’s interim report. This will create a common standard for sustainability in the farming sector that is comprehensive and robust enough to have global recognition.

Our corporate clients in the primary sector are seeing increased appetite for ‘green’ credentials from investors locally and globally. Several of our clients are requiring higher environmental standards from on-farm suppliers, or actively incentivising them to make sustainability improvements.

ASB has several long-standing partnerships in the primary sector – including through Te Hono, which is focused on helping Kiwi producers transition from volume to value and embed sustainability. Since 2013 we have been directly supporting farmers to make environmental improvements, with low cost finance.

The COVID-19 pandemic has thrown into even sharper relief how critical local food production is so it’s appropriate that this is the first ‘cab off the rank’ in terms of developing a sustainable finance framework. There is real potential for our food producers to differentiate themselves and gain a competitive advantage in attracting global capital. An Aotearoa-specific framework that aligns with the EU Taxonomy will be a powerful lever.

While it’s important to have reliable verification to provide investors confidence and eliminate ‘greenwash’, you don’t need much experience of a Kiwi farm to imagine how complex an exercise this is.

It’s far easier to prove the environmental credentials of a single large capital project – say, converting from fossil fuels to renewable energy – than to validate thousands of separate farming operations. Particularly when ‘sustainability’ includes factors as varied as carbon, water quality, animal welfare, and biodiversity. There’s also the potential compliance burden and existing environmental requirements - which vary region to region.

This complexity underlines the importance of collaboration, and the need to draw on expertise from multiple sectors. Addressing our environmental and social challenges will take a genuinely collaborative approach; and I think there’s a true spirit of partnership and sense of common purpose, not just in the finance sector but with government and other industry partners.

The standard for sustainable finance in agriculture is one example, but there are other important projects on the horizon that will require cross-industry input. For example, access to high quality environmental and social data, will be important to accurately value assets and investments across all industry sectors.

While addressing the urgent concerns of businesses struggling with liquidity, and whole regions and industries striving to redefine themselves, we can also look beyond the medium term to see where there are opportunities to drive a truly sustainable recovery and use it as a means to further our environmental and social agenda. It’s been energising to be part of recent discussions between business leaders about practical actions – particularly in the energy, transport and food sectors – that will enhance New Zealand’s natural and social capital.

We know that our children’s and grandchildren’s generations will earn their living in a world with far less stability and constancy than we have enjoyed. We know that the impacts of climate change will be felt more acutely by people who are already financially disadvantaged. It’s important to ensure that our transition to a low carbon economy creates opportunity right across the social spectrum.