By the Hon. James Shaw, Minister for Climate Change, Associate Minister for Environment (Biodiversity)

Whether you are a planner, developer, engineer, builder, drainlayer (or, heaven forbid, a politician), delivering complex projects on time and on budget is always on your mind. As we work towards a net zero emissions economy by 2050, organisations involved in infrastructure, including the government, need to meet these demands in a way that also hits our emissions reduction goals.

Sustainability and resilience in infrastructure

Given the social impact, longevity and carbon footprint of infrastructure, there is now a public expectation for these projects to be designed sustainably, with resiliency built in. They must also be constructed and implemented in a way that creates long-term value. It would be rude not to.

Yet, it would be naive not to also recognise the scale of the challenge that’s before us. We need to keep adapting to new ways of working, new technologies and new ways of thinking. Yes, there are opportunities and savings to be made along the way. But there are also daunting up-front costs.

This is where new sources of investment – like green finance – can have a key role to play.

What is green finance?

Put simply, green finance can be any structured financial activity created to ensure better results for the planet, and a brighter, more sustainable and resilient future. It includes loans, debt mechanisms and investments that are used to encourage the development of climate-positive projects that minimise the environmental impact of existing ones, or a combination of these.

Benefits include increased cash flow from the public, private and not-for-profit sectors, as well as a good rate of return for investors wanting to put their money into sustainable projects.

Green finance and infrastructure: the perfect pairing

Infrastructure assets like buildings, transport, water and waste systems are, by their nature, extremely long-lived, with decades-long impacts. That means it is essential to integrate sustainability into their development and delivery. It also makes climate finance an extremely natural fit as a funding mechanism because it also requires a long-term mindset.

Typically, traditional financing instruments last around three to five years, so they can return capital to investors relatively quickly. That may be right for certain projects, but it’s not ideal for projects that take longer to come to fruition. This is especially true in the climate finance arena. With goals like net carbon neutrality by 2050, long-term horizons are well understood in green finance.

New Zealand’s pioneering green investor: NZGIF

We know that public funding alone will not pay for the scale of investment that’s needed to address the infrastructure challenges presented by the climate crisis. Months of extreme weather tearing through our road, power and communications networks have served as a stark reminder of the costs to come.

In 2019, I established New Zealand Green Investment Finance, also known as NZGIF, to speed up low-emissions investments into companies, technologies and projects that focus on abating emissions, rather than offsetting them with ‘technology’ like trees. The really great thing is that, in addition to generating a rate of return on investments, the capital is recycled and can be invested into other projects.

As a result, NZGIFhas one of the best track records of emissions reductions per dollar spent and, because its money comes from emissions trading scheme revenues, it’s actually paid for by polluters. As of June 2022, the total estimated lifetime emissions reductions of its investments was the equivalent of 480,000 to 590,000 homes’ energy use for one year.

Thanks to its success, NZGIF got a $300-million financial boost in this year’s budget. This will help it expand into larger-scale investments, including infrastructure projects.

Taking a longer-term outlook

NZGIF is deliberately designed to take a longer-term outlook, with investments taking 10 or even 20 years to realise returns. That’s because many of their investments are about supporting new projects, new business models or new capital infrastructure.

Crowding-in funding, driving capital

Bringing in private capital and driving up interest in companies or technologies that are new to the market is another important part of NZGIF’s mandate. For example, NZGIF’s deal with solar energy business solarZero involved working alongside Westpac, with both organisations providing lines of credit. NZGIF is also able to accelerate the green transition by finding structuring opportunities in a way that makes them more palatable to other institutions.

Concrete emissions reductions

In an important step for the construction sector and sustainable building materials, NZGIF has recently backed Kayasand to reduce carbon emissions from concrete. The technology uses by-products and recycled materials, such as quarry crusher dust and recycled glass, to manufacture a sand that, Kayasand says, makes stronger concrete than natural sand when mixed with cement. This reduces, and in some cases eliminates, the need for natural sand dredging. Kayasand’s goal is to reduce carbon emissions from concrete production by up to 20 per cent using this method.

Infrastructure investments decisions: capital coupled with purpose

I would like to think that we are entering a new era of climate-positive infrastructure development in which reducing carbon-embodied emissions during design, construction and maintenance is mainstream. So, why not include long-term capital funding that’s also climate positive?

Climate change presents material risks for the infrastructure sector, but there are also opportunities. Incorporating climate finance, like NZGIF, into infrastructure spending is the logical choice.