On October 26, New Zealand’s central bank said that it plans to reduce its exposure to bonds from countries like Australia that have a higher carbon footprint. In that announcement, the Reserve Bank of New Zealand outlined its action to manage the economic risks associated with climate change.
In a news conference that was meant to launch its 2021 Climate Change report, Governor Adrian Orr said that the Reserve Bank of New Zealand‘s (RBNZ) carbon footprint in its balance sheet is above a simple benchmark of a G7 weighted bond holding because it holds more Australian and Canadian bonds.
Orr said that the Canadian and Australian bonds give higher yields to the bank than it gets elsewhere. He commented:
“So yes, we would need to think hard around how we can achieve the same effect in our balance with a lower footprint. That’s exactly the choice facing so many investors globally right now.”
The Governor pointed out that the Swedish central bank felt that greenhouse gas emissions in Canada and Australia were too high prompting it to sell off bonds from the oil-rich Canadian province of Alberta and parts of Australia in 2019.
Earlier this month, the Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle warned that if Australia is not seen to be doing more to address climate change, it could face rising costs of capital and divestment by offshore funds.
RBNZ will look to be more proactive and consider investing more in green bonds, according to Orr. He added:
“Nothing is stopping us from receiving green bonds and nothing stopping institutions from issuing more green bonds that we could receive.”
RBNZ investment in the Bank for International Settlements’ (BIS) U.S. dollar Green Bond Fund in 2019 totaled US$100 million.
