The question then becomes: can't we just make laws to stop these harmful investments? The answer is sometimes yes, but it's not always that straightforward.

Infrastructure projects require long-term planning and certainty, so they often have their own criteria for what makes a worthwhile investment.

Investors involved in such projects are increasingly looking at scientific predictions and sustainable business practices to guide their decisions. They want financial stability and to know their money is going towards environmental, social, and governance (ESG) outcomes. Why? Because it means a small saving on rates, and the ability to limit their own climate risk exposure from investments. In essence, they’re looking for a balance between financial security and positive impact.

One popular and simple approach is a bond. A bond is simply a way of raising money. It’s a loan to a company or government that pays investors a fixed rate of return. The borrower uses the money to fund projects. The investor gets interest on their investment.

With society deep in the throes of the climate fight, a new breed of bonds is contributing to environmental sustainability and carbon-friendly infrastructure.

Green bonds are being issued for environmentally sustainable, land-based projects; blue bonds for marine and coastal conservation projects. Environmental impact bonds are for projects with positive environmental outcomes. The same goes for sustainability bonds - used for green and social projects.

In Aotearoa, green bonds issued by Auckland Council have helped fund the rehabilitation of Puketutu Island, City Rail Link, and water and wastewater infrastructure. 

The Council does impact assessments of how each green-funded asset is reducing carbon emissions and achieving broader benefits. 

Among many examples, a project to switch Auckland’s train fleet from diesel to electric saw 21,858 metric tons of carbon dioxide reduced and avoided in 2023. A replacement pump station completed last year saw 3,170,081 cubic metres of water pass through a new sustainable wastewater facility.

State owned enterprise Transpower has green financing instruments worth a combined $3.2 billion. These are being used to fund green assets that reduce carbon emissions from electricity generation and help get new renewable generation up and running.

Electricity firm Meridian has its own green finance framework to finance new or existing renewable energy assets and projects that deliver positive environmental outcomes.

While there aren't too many examples in Aotearoa, the effectiveness of environmental impact bonds is nicely illustrated by a water project in Washington DC. It’s a model we could mimic. 

A $25 million bond issue by DC Water, bought by Goldman Sachs and the Calvert Foundation, aimed to reduce runoff and improve water quality from sewer overflows. 

The proceeds funded retrofitting of bioretention gardens, urban swales, kerb extensions, permeable pavements, and infiltration basins across 200 hectares of impervious urban land. There was a 30 percent reduction in runoff after 12 months. Impressive stuff.

Green 'taxonomies' play a crucial role in green finance. These classification systems define which economic activities and assets are green or environmentally sustainable. They define and categorise projects that align with emissions reduction targets and require impact reporting - just like Auckland Council is doing with its green bonds.

The European Union's leadership in developing green bond taxonomies is influencing global standards, with various jurisdictions creating their own taxonomies. 

Aotearoa's Ministry for the Environment is developing a taxonomy for the private sector's sustainable lending programs and a separate one has been developed for the NZ Sovereign Green Bond Programme.

While Aotearoa is a small feather in the rich plumage of the global financial system, we’re no slouch. In 2018, a Crown-owned green investment bank was established to accelerate investment that helps reduce greenhouse gas emissions.

Environmentally friendly financing has increased in popularity and there’s strong offshore demand for our green bonds. BusinessDesk reports that nearly a third of all debt on the NZX debt market is now in green or sustainable bonds - an increase of 40 percent in two years. This is great to see.

While the finance industry has historically faced criticism for its environmental impacts and ethical practices, it's slowly going green through initiatives that promote sustainable finance, and environmentally responsible investments. 

Financiers are acutely aware of the risks and opportunities. In a promising sign, they seem to be coming at things pragmatically – wanting to ensure long-term profitability while doing better by the environment and society.

The global shift to sustainable financing is being driven by initiatives like the Task Force on Climate-Related Financial Disclosures (TCFDs) and influential players like BlackRock and major private equity banks.

Investors want to disclose that their investments align with Paris Agreement climate commitments and ESG goals, so they're seeking green investment opportunities. 

Investing in green bonds isn't just a way for investors to show their commitment to ESG principles; it's a strategic move to access capital in the future. As more investors prioritise sustainable investments, issuers of green bonds are likely to see increased demand - creating a positive cycle for sustainable financing initiatives.

Despite these green shoots of hope, there are challenges - including concerns about bond repayment capabilities, the level of seriousness and commitment towards sustainable initiatives, and the ability of the market to deliver on sustainability metrics. 

Questions sometimes also arise about the financial benefits of green investments, as lower interest rates may not always materialise, and green bonds may not necessarily lead to additional investments in the sustainability transition. 

Greenwashing remains a challenge, given the voluntary nature of standards and frameworks. This highlights a need for more robust and enforceable regulations to ensure the authenticity and impact of green financing.

It's crucial to carefully consider how and where Aotearoa can use green finance. It shouldn’t, for instance, just be used for large-scale projects but also for smaller initiatives that can drive regional change. 

Our infrastructure deficit is an opportunity to attract green finance from international lenders. This will need strategic alignment with appropriate green taxonomies. It will involve shaping infrastructure plans, long-term strategies, and business cases to meet green finance criteria.

While there's a tendency to prioritise mega projects, there's value in packaging smaller initiatives that collectively mobilise change and can be financed sustainably - offering reputational and financial benefits, including access to cheaper capital.

In the next 10 years, the worldwide green finance market is expected to reach USD$28.71 trillion in value, up from $4.18 trillion in 2023. In supporting innovative projects that accelerate the transition to a sustainable future, effective green finance should be applauded. Let's see more of it.