Welcome to the Cheat Sheet, a clickable, shareable, bite-sized FAQ on the news of the moment. Today, Auckland Council wants you to help buy trains. What’s the deal, and can they be trusted with your money?
What’s all this then?
Auckland Council has announced they will be making an offer of five year ‘green bonds’ from June 18 – next Monday – in an effort to raise more than $200 million. The money will fund more electric trains and electric train-related equipment, and be used to refinance existing train-related debt.
The bonds are available to investors in New Zealand and some offshore jurisdictions, but there is no public pool, with the bonds reserved for clients of the main banks and other approved brokers.
‘Green bonds’? What the Tane Mahuta are they?
Green bonds are bonds earmarked specifically for projects with positive climate and environmental benefits. Auckland Council is the first council in New Zealand to offer green bonds in a move some have pointed to as preferable to ever-increasing rates, which are non-voluntary and a substantial burden for low-income households. The bonds offered by Auckland Council are Climate Bond Certified, which is a Fair Trade-like labelling scheme for bonds consistent with the 2 degrees Celsius warming limit in the Paris Agreement.
Politically, offering environmentally-friendly investment opportunities over compulsory rate-hikes is a much easier sell. Just ask Mayor Phil Goff:
“Billions of dollars need to be invested in Auckland’s infrastructure over the coming decade. This sends a signal that Auckland is committed to becoming greener and tackling our environmental challenges.”
Is there really a $200 million appetite for green bonds?
The council believes so, and maybe with good reason. Green investment is increasingly important to consumers, as demonstrated by Kiwisaver funds from many of the top providers eliminating things like cluster bombs and munitions from their portfolios.
Elsewhere, Treasury is expecting a report on the best use of the government’s $100 million green investment fund by the start of July. The fund forms part of the support agreement between the Greens and Labour, and is expected to stimulate $1 billion of new investments in low carbon industries by 2020.
“It makes sense to leverage the strong investor demand for green bonds to assist us with funding projects with environmental benefits,” said finance and performance committee chair and councillor Ross Clow in a press release.
Didn’t the council just blow a cool million on a report that concluded actually nothing? Why should I trust them with my money?
It was $935,000, OK, and the report did in fact have a conclusion; namely that another report was needed, aka she’s a pretty big job, fella.
That’s all beside the point though. The green bonds offered by the council are expected to be rated AA from Standard & Poor’s and Aa2 from Moody’s. This is a tiny step below the top tier, and implies an obligor has very strong capacity to meet its financial commitments. Unless all 48 of the volcanic cones around Auckland start firing up, your money is safe.
With that level of risk, you’re not going to reap the gains of an aggressive mutual fund, but it’s very much a set-and-forget investment. Auckland Council is yet to announce the interest rate, but industry insiders estimate it will likely be in the range of 3.20% – 3.30%.
So if you’ve got five years, a social conscience, a thing for trains and a bit of spare dough, this appears to be a reasonable use of your coin. Don’t blink however – firms are indicating this is likely to be a fast moving issue.
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