The Reserve Bank has affirmed its Climate Change Strategy through the investment of US$100 million of green bonds.
The investment was made via the Bank for International Settlements’ USD Green Bond Investment Pool (BISIP G1), which was launched in response to growing demand for climate-friendly investments among central banks, says Reserve Bank Governor Adrian Orr.
“The green bond investment pool was developed with the objective of promoting investments in green finance, aligning well with the Reserve Bank’s own Climate Change Strategy that we launched last year.
“As a long-term focussed Reserve Bank, we are committed to acting as a leader in the finance sector in fostering responsible, sustainable investment with long-term benefits.”
Green bonds are defined as any type of bond instrument, including privately placed green bonds, where the proceeds will be exclusively applied to finance or re-finance projects with clear environmental or climate-related benefits.
The Reserve Bank has funded the investment from its foreign reserves portfolio. We hold foreign reserves that can be liquidated at short notice to support our functions – including monetary policy objectives and the maintenance of orderly markets. At 30 August 2019 the Reserve Bank had a foreign exchange intervention capacity of US$6.8 billion (NZ$10.7 billion).
The BISIP G1 invests in green bonds issued by sovereign, agencies, supranational and covered bonds issuers under the BIS Investment Pool structure. Bonds must meet the Green Bond Principles and Climate Bond Standards as well as comply with a minimum issuer (or covered bond program) rating of A-.
The initiative is part of the BIS’s broader commitment to supporting environmentally responsible finance and investment practices, in line with the Bank’s participation in the Central Banks and Supervisors Network for Greening the Financial System.
Commenting on the launch, Peter Zöllner, Head of the BIS Banking Department, says: “We are confident that, by aggregating the investment power of central banks, we can influence the behaviour of market participants and have some impact on how green investment standards develop.”
The BIS estimates the average return from the green bonds will be at a positive spread above the current 5-year-US Treasury bond.
The Reserve Bank launched its Climate Change Strategy in December 2018, seeking to contribute to the Government’s objective of a sustainable, productive and inclusive economy.
The Bank also seeks to facilitate, where possible, a smooth transition to a low carbon economy, ensuring that this transition does not diminish or adversely impact the financial system’s soundness and efficiency.
Our climate change strategy focuses on the channels through which the Bank can contribute to efforts to mitigate the effects of climate change. These include managing our own direct impact on the climate, reflecting climate risks within our core functions, and contributing to wider efforts to identify, monitor and manage climate risks domestically, and as part of the global regulatory community.