RBNZ to Ditch Bonds of High-Emission Countries

By Glenn Dyer | More Articles by Glenn Dyer

The Reserve Bank of New Zealand says it will cut its holdings of bonds issued by big carbon emitters such as Australia and Canada in coming years.

The central bank revealed its new approach when it outlined action on Tuesday to manage the economic risks associated with climate change.

Governor Adrian Orr told a news conference on Tuesday in launching the bank’s 2021 Climate Change report that the RBNZ carbon footprint in its balance-sheet is above a simple benchmark of a G7 weighted bond holding because it holds more Australian and Canadian bonds

Orr said the bank gets higher yields from Canadian or Australian bonds than it does elsewhere.

“So yes, we would need to think hard around how we can achieve the same effectiveness in our balance with a lower footprint,” Orr said.

“That’s exactly the choice facing so many investors globally right now,” he said.

It is also what Reserve Bank Governor Guy Debelle warned of a major speech two weeks ago that Australia could face rising costs of capital and divestment by offshore funds if it is not seen to be doing more to address climate change.

.”…climate comes up in most conversations I have with foreign investors. This is a marked change from a few years ago. Australian companies with an international investor base experience the same, as do the government debt agencies (both the Australian Office of Financial Management and the states’).

To date, these discussions have not led to any obvious change in investor appetite for Australian bonds or equity, with only a few small exceptions.

“One of these is when the Riksbank discontinued its investment in Queensland and WA state government paper a few years ago. There is a risk we will see more of these divestment decisions sooner rather than later.

RBNZ Governor Orr pointed out that the Swedish central bank sold off bonds from the oil-rich Canadian province of Alberta and parts of Australia in 2019 (WA and Queensland) because it felt that greenhouse gas emissions in both countries were too high.

Orr said RBNZ will look to be more proactive and consider investing more in green bonds.

“There is nothing stopping us from receiving green bonds and nothing stopping institutions from issuing more green bonds that we could receive,” Orr said.

Dr Debelle’s warning and the comments yesterday from Governor Orr underlines the weakness of the so-called climate change policy announced yesterday by Prime Minister Morrison.

It is too little too late. And with central banks – the most conservative investors there are – looking at carbon-based rankings of bond issuers, more commercial investors won’t be far behind.


The RBA doesn’t invest in NZ government debt. It holds the country’s foreign reserves in six currencies, as it explained in the latest annual report issued last week:

The foreign portfolio has target shares of 55 per cent in US dollars, 20 per cent in euros and 5 per cent each in Japanese yen, Canadian dollars, UK pound sterling, Chinese renminbi and South Korean won. These shares have been unchanged since 2016. The portfolio composition reflects the Bank’s risk appetite and desired liquidity.

If the RBNZ quits Canadian dollars, will the RBA follow suit?


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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