Environmental Finance's Sustainable Debt Awards 2024

Sustainability bond of the year - supranational: New Zealand Local Government Funding Agency

In 2023, New Zealand Local Government Funding Agency (LGFA) structured a "Sustainable Financing Bond" (SFB) bond that co-mingled a sustainable asset pool of green, social, sustainability (GSS) use of proceeds loans with target-linked Climate Action Loans (CAL), which incentivise councils to set and achieve 1.5°C science-based greenhouse gas (GHG) emissions reduction targets and develop credible plans.

The NZD1.1 billion ($661 million) SFB was the joint largest bond issued by LGFA and received its largest-ever order book of more than NZD1.6 billion.

While following the sustainable finance market standards as closely as possible, LGFA highlighted that it was not claiming direct alignment as the SFB issued was not a green, social or sustainability bond, nor was it a sustainability-linked bond (SLB). This is because the established market standards did not allow for a co-mingled asset pool, it said.

The bond framework follows the Green Bond Principles, the Social Bond Principles, and the Sustainability Bond Guidelines while the GSS loans align with the Green/Social Loan Principles, and the CAL Criteria align with four of the five Sustainability Linked Loan Principles (SLLP) components1.

LGFA is the financing organisation for the second tier of government in New Zealand i.e. councils. Councils who borrow GSS loans or CALs receive a discounted loan margin from LGFA that incentivises them to take a sustainable approach to their activities.

LGFA said the unique structure was critical to delivering scale and liquidity to LGFA's bond programme, while encapsulating the impact of both types of sustainable loan programmes.

"Our approach of developing a Sustainable Financing Bond Framework that combed use-of-proceeds loans and sustainability-linked climate action loans was all about getting scale into our programme," commented Mark Butcher, chief executive officer at LGFA.

"The use-of-proceeds GSS loans tend to be more applicable to larger councils. They are for discrete projects, and very few councils borrow on a project-by-project basis. We have been offering GSS loans since October 2021 and the take-up of these loans is gradually gaining momentum.

"We did not want to issue a separate CAL funding bond as it would have reduced liquidity, so we combined the two types of loans into one asset pool, which formed the basis of our Sustainable Financing Bond. This structure is in line with our view that we act as an aggregator for the sector as a whole and reflects the role LGFA can play in helping the local government sector to decarbonise," he added.

One Sustainable Debt Awards judge described the structure as having "a significant positive impact for the underlying assets" and called it a "significant development for the APAC region".

GSS Category


Date Sustainable Loan Approved*

Project Description

Sustainable Loan Type

Approved Amount for Project*

(NZ$ million)

Principal Amount Advanced to date
(NZ$ million)

Allocation to Sustainable Loan Asset Pool under Framework
(NZ$ million)

Green Buildings Wellington City Council 14-Oct-2021 Takina, Wellington Convention and Exhibition Centre Green Loan 180 180 180
Green Buildings Hutt City Council 28-Jun-2022 Naenae Pool and Fitness Centre Green Loan 41 35 35
Green Buildings Whangarei District Council 19-Aug-2022 Whangārei Civic Centre Green Loan 59 59 59
Total Green Buildings Loans    280274274
Climate Change Adaptation Greater Wellington Regional Council 02-Dec-2021 RiverLink Project Green Loan 227 55 55
Total Climate Change Adaptation Loans    2275555
Biodiversity Conservation Tauranga City Council 10-Oct-2023 Kopurererua Valley Stream Realignment Green Loan 10.3 6 6
Biodiversity Conservation    10.366
Affordable Housing Christchurch City Council 17-Nov-2022 OCHT Social Housing Social Loan 55 42.2 42.2
Total Social Loans    5542.242.2
Total5 Borrowers   572.3377.2377.2
Source: LGFA

Another praised "the combination of ambitious targets, alignment with the Green Bond Principles, the Social Bond Principles, and the Sustainability Bond Guidelines, high performance in terms of market turnover, and innovative setup."

LGFA reports the bond performed well post-syndication, tightening approximately eight basis points (bps) over a month. The SFB is a retail bond accessible to both retail investors and institutional investors, in both primary and secondary markets.

LGFA obtained an exemption from the domestic regulator Financial Markets Authority (FMA) from certain aspects of New Zealand law regarding retail documentation requirements and obtained NZX classification for a new class of bonds as there was no existing category of SFBs. It says this will assist with the further development of the sustainable finance market in New Zealand.

LGFA has 90% market share of all New Zealand council borrowing and is the largest issuer of NZD bonds after the New Zealand government. It says it continues to encourage councils to undertake GSS loan-eligible projects and introduce GHG emission reduction plans.

Deal highlights

Issuer: New Zealand Local Government Funding Agency
Size: NZD1.1 billion ($661 million)
Maturity: 15 May 2030
Coupon: 4.5%
Use of proceeds: Access to essential services, affordable basic infrastructure, affordable housing, clean transportation, climate change adaptation, energy efficiency, green buildings, pollution prevention and control, renewable energy, sustainable management of living natural resources, sustainable water management, terrestrial and aquatic biodiversity conservation
External reviewer: Sustainalytics
Sustainability Coordinator: Westpac Banking Corporation
Lead managers: ANZ Bank, BNZ, Commonwealth Bank of Australia, Westpac Banking Corporation
Credit rating: LGFA securities are rated at AAA (domestic long term) by S&P Global Ratings and AA+ by Fitch Ratings


The component that does not align with the SLLP is the pricing and margin adjustment. This is because failure to meet the CAL requirements triggers declassification of the CAL from the LGFA asset pool rather than a loan pricing penalty to the council borrower. A penalty could not be incorporated into the CALs due to the accounting treatment of the underlying loans by LGFA.