The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko - is considering a class exemption that would allow listed companies to bring certain green, social, sustainable, and sustainability-linked (GSSS) bonds to market more quickly and without incurring most of the regulatory costs of a full retail investment offer. This would operate on a similar basis to the same class exclusion* available in the Financial Markets Conduct Act 2013 (FMC Act), that allows companies that are already-listed to raise further capital using simple, streamlined disclosure.
The FMA is seeking feedback on whether to grant an exemption to allow issuers to offer bonds that have identical rights, privileges, limitations and conditions to existing quoted bonds, except for a different interest rate, redemption date, and GSSS status, without having to prepare a Product Disclosure Statement (PDS)**. This would be on the basis that the new GSSS bond is sufficiently similar to an existing quoted bond that appropriate information is already available to enable the quoted product to be effectively priced by the market, and for investors to make confident and informed decisions. The exemption would be subject to conditions, including that the issuer must make available to investors information about the GSSS features of the bond.
'Green', 'social', 'sustainability', and 'sustainability-linked' are labels commonly applied to bonds that have a component that offers investors a non-financial benefit, relating to advertised environmentally or socially responsible aspects of the product. For example, this could include an intent to use the proceeds of the bond in an environmentally friendly or socially responsible way, or commitments by the issuer against certain sustainability performance targets. Bonds that do not offer these additional non-financial benefits are colloquially known as 'vanilla' bonds.
Because green and other kinds of sustainable bonds claim to offer investors an additional non-financial benefit, they are not the 'same class' as vanilla bonds, even if all terms are identical. This means GSSS bonds cannot be offered off the back of existing quoted vanilla bonds under the same class exclusion.
The approach proposed in the consultation may help to reduce regulatory burden on issuers raising capital, and increase opportunities for New Zealanders to invest in products that align with their values and/or deliver non-financial benefits. This fits in with the purposes of the FMC Act, including:
- to promote the confident and informed participation of businesses, investors, and consumers in financial markets
- to provide for timely, accurate, and understandable information to assist investment decisions
- to avoid unnecessary compliance costs
- to promote innovation and flexibility in the financial markets.
Liam Mason, FMA General Counsel, Executive Director Evaluation and Oversight said: "We have heard from the industry the need for a more efficient route to market for these green, social and sustainability bonds. The consultation is looking for feedback on whether our proposal provides the right balance of allowing issuers to get to market quickly and cost-effectively, while still ensuring that investors are given information that they will find timely, accurate, and valuable in making investment decisions. We're keen to know where we can remove potential barriers, and work with industry to enable innovation and flexibility."
