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Accelerating down the sustainability road(map)

Simon Pannett
Simon Pannett | Posted on Jun 29, 2021
  • The inaugural Australasian sustainability-linked bond was issued by Wesfarmers last week
  • Sustainability-linked borrowing links a company’s interest payments to measurable sustainability targets
  • Missing the targets would result in tangibly higher interest costs

Harbour participated in the inaugural Australasian sustainability-linked bond issued by Wesfarmers which settled last week. We are particularly attracted to this format of borrowing for the incentive it provides companies to act appropriately.

A small number of New Zealand companies, including Synlait Milk and Kathmandu Holdings, have borrowed under a sustainability-linked format.  This borrowing links a company’s interest payments to sustainability targets.  Kathmandu’s most recent borrowing, finalised in May, linked its interest rate to a number of targets such as greenhouse gas emissions, B Corp certification, and improving the transparency, wellbeing and labour conditions for workers in its supply chain. 

In recent years, banks have become more conscious of who they are lending to.  All of the major Australian banks have committed to either not advancing loans to any new clients involved in thermal coal extraction or exiting the sector entirely by 2030.  And it goes beyond who they are not lending to. All four major New Zealand banks have sustainable finance teams who are working to originate sustainability-linked loans, finance green energy projects and other wellbeing enhancing lending.  So far, they have been keen to keep this lending on their balance sheets as a demonstration of their credentials. 

A recent bond issue by Australian conglomerate Wesfarmers was the first sustainability-linked lending in Australasia to make it off a bank’s balance sheet to the bond market.  The terms of this borrowing stipulate that Wesfarmers’ interest bill will step-up if it fails to meet renewable energy usage targets in its retail businesses, which include Bunnings & Kmart, and if it fails to limit the intensity of its C02 equivalent emissions in its production of fertiliser ammonium nitrate.

While Harbour believes there is a place for exclusions when incorporating Environmental, Social & Governance considerations into investment decisions, we believe that engagement with companies is a more powerful method for effecting change.  For this reason, both the equities and fixed interest teams regularly engage with companies to influence behaviours.   We also see some benefits in green bonds, bonds that are backed by assets that are certified to have environmental benefit.  However, we have occasionally been sceptical of green bonds, particularly those backed by existing assets rather than financing new assets.  Like engagement, we see sustainability-linked loans as providing strong incentives for companies to act in the best interests of all stakeholders. For this reason, we were delighted to have participated in Wesfarmers most recent deal.

These sustainability-linked products represent innovation in the financial system to promote the acceleration of capital into sustainable investments consistent with the New Zealand Sustainable Finance Forum’s Roadmap and the United Nation’s Sustainable Development Goals.


Harbour Asset Management Limited is the issuer and manager of the Harbour Investment Funds. Investors must receive and should read carefully the Product Disclosure Statement, available at We are required to publish quarterly Fund updates showing returns and total fees during the previous year, also available at  Harbour Asset Management Limited also manages wholesale unit trusts. To invest as a Wholesale Investor, investors must fit the criteria as set out in the Financial Markets Conduct Act 2013. This publication is provided in good faith for general information purposes only. Information has been prepared from sources believed to be reliable and accurate at the time of publication, but this is not guaranteed. Information, analysis or views contained herein reflect a judgement at the date of publication and are subject to change without notice. This is not intended to constitute advice to any person.  To the extent that any such information, analysis, opinions or views constitutes advice, it does not take into account any person’s particular financial situation or goals and, accordingly, does not constitute financial advice under the Financial Markets Conduct Act 2013. This does not constitute advice of a legal, accounting, tax or other nature to any persons.  You should consult your tax adviser in order to understand the impact of investment decisions on your tax position. The price, value and income derived from investments may fluctuate and investors may get back less than originally invested.  Where an investment is denominated in a foreign currency, changes in rates of exchange may have an adverse effect on the value, price or income of the investment. Actual performance will be affected by fund charges as well as the timing of an investor’s cash flows into or out of the Fund.. Past performance is not indicative of future results, and no representation or warranty, express or implied, is made regarding future performance. Neither Harbour Asset Management Limited nor any other person guarantees repayment of any capital or any returns on capital invested in the investments. To the maximum extent permitted by law, no liability or responsibility is accepted for any loss or damage, direct or consequential, arising from or in connection with this or its contents.