The just-announced NZ government-sponsored green investment ‘fund’ could be making its first deal by the second half of next year, according to the Treasury executive setting up the entity.
Craig Weise, establishment director of the New Zealand Green Investment Finance (GIF) company, said there were a number of technical and organisational hurdles to jump before the business could start doling out its $100 million of government-supplied capital to promising greenhouse gas-deflating ventures.
For one, Weise said the GIF would have to appoint an executive team to manage the day-to-day investment business with further board members also expected to join foundation chair, Cecilia Tarrant and director, David Woods.
Tarrant is chair of the Government Superannuation Fund Authority while Woods is heavily involved in NZ’s nascent impact investment sector. Sir Robert Fenwick, well-known businessman and environmentalist, has been named as GIF “ambassador” – a likely roving marketer role.
Weise said the GIF board would ultimately determine the executive structure – including hiring staff – and detailed investment strategies.
“The GIF objectives have been set in a relatively permissive framework,” he said. “The specific details of how to execute will be decided by the board.”
As well as traditional investment banking nous, the prospective GIF chief would also probably need some understanding of emerging technologies.
While the GIF has been touted as a ‘fund’, Weise said it would function more like a ‘green bank’ – lending or taking equity as the sole or joint investor in various projects – based on offshore models such as: the UK’s Green Investment Group; the Connecticut Green Bank; the New York Green Bank; and, the Clean Energy Finance Corporation in Australia.
“That peer group has provided some successful models for us,” he said. “But NZ has a different challenge to them.”
Most offshore green banks focused on energy investments, which is less of focus in NZ where more than 80 per cent of electricity comes from ‘clean’ sources.
The GIF could target areas such as “electric vehicles, manufacturing processes, energy efficient commercial buildings and low-emissions farming practices”, according to a government release.
Weise said the nature of the underlying investments would likely determine how the GIF structures any deal and who it may co-invest with.
For example, he said transport sector could require a different approach to product design, co-investment and where the GIF sits in the “capital stack” compared to agriculture projects.
The GIF could also invest in offshore-based ventures if it involved bringing technology back to NZ to help meet the core goal of helping reduce local carbon dioxide emissions.
According to the government statement, the GIF has “four key objectives”, namely to:
- make investments that lower domestic emissions;
- crowd-in private finance;
- make investments on a commercial basis; and,
- undertake a market leadership role.
The GIF would have a benchmark return target of the five-year NZ government bond rate plus 2 per cent, Weise said.
“It’s important as a taxpayer-funded entity that it is accountable,” he said.
However, the return profile would be longer-term – seven years or more – than many investors typically tolerate. Weise said the GIF could “recycle” any returns back into play with further government capital top-ups also possible.
“Any shareholding minister can go down that path [of providing further capital to the GIF] if they choose,” he said.
Before formally launching, the GIF, to be registered as a company, would require specific government exemptions to invest outside of cash or cash-equivalent products.
Weise said whether the GIF would have to pay tax or not was also still to be resolved.
Despite its set-up as a long-term government-owned venture, he said the GIF could ultimately wind up if the local private green investment market matures enough to fill the perceived gap.
As an example, Weise said the Green Investment Group, launched by the UK government in 2012 under similar directives as the GIF, was purchased by Australia’s Macquarie Group in 2017.
“Although the UK government retains a ‘golden share’ to ensure it still meets the non-financial objectives,” he said.
Previously Treasury acting director commercial operations, Weise has been seconded to shepherd the GIF into being as an independent entity.