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Considering buying a commercial property in the next two years? By getting your ducks in a row early, you could save yourself hundreds of thousands of dollars. That was the message from the experts who spoke at a recent panel event, hosted by ANZ in Christchurch.

Most Kiwi businesses are keen to reduce their carbon footprint – but the cost can be prohibitive. Unfortunately, the environmentally-friendly option isn’t always the cheapest. It would be wonderful to see the Government step in and provide affordable financing for decarbonising the business sector, because we know this could work. There is the GIDI fund, but this is typically for large projects ($300,000 plus) being undertaken by major manufacturers and processors. There isn’t much available for the vast number of small and medium enterprises that make up the majority of Kiwi businesses. Our major banks, though, have stepped up to provide some options. There are now sustainable lending products available to qualifying business borrowers of all sizes, with lower interest rates for projects that will improve your company’s sustainability and/or carbon footprint. These can be a win-win-win: they help your business cut emissions, support the bank’s own sustainability targets, and they improve national energy efficiency. 8 types of projects that are likely to qualify The major banks all offer sustainability-linked loans and while their criteria differ, these are typically the eight types of projects that will meet the eligibility criteria at some or all of those lenders: Energy efficiency improvements. Investment in products and technology that will reduce energy consumption, such as switching from incandescent or halogen lighting to LEDs. Green buildings. This might include installing a digital energy management system or retrofitting a more efficient heating and ventilation system. Waste minimisation. Adhering to the principals of a circular economy by designing out waste at every stage of a product’s life cycle. This might mean using more recycled materials in packaging for instance, or making the product more recyclable at end of life. A loan could fund new equipment or materials, or go towards changing the manufacturing process. Process heat. Typically converting boilers from coal or natural gas to a cleaner energy source such as biomass or electricity. Renewable energy. Generating green energy; usually installing solar panels. Clean transportation. Switching from internal combustion engine vehicles to fully electric vehicles (EVs). This could also include resources to make the change such as installing EV chargers. Sustainable land use. Restorative agriculture, forestry and fisheries. Sustainable water. Investing in ways to reduce the use of water in manufacturing processes or reducing contaminants reaching our waterways. Much like with mortgage lending, every bank has a slightly different approach, so it pays to research each lender’s criteria and terms before you apply for a loan. Set yourself up for borrowing success All the major banks have certain conditions for sustainable loans that go beyond the basic box-ticking. Again, this varies widely. But to give you the best chance of a ‘yes’ on your loan application, you should be ready for two additional homework projects. First, several banks want to see the impact the project will have on your company’s carbon emissions. Unless your business is sizeable, they won’t expect an independent audit of your emissions – this is not only expensive but there aren’t many people qualified to carry out this type of work. However, you can use a free calculator like Climate Toolbox and Cogo to give you a baseline carbon footprint, and then recalculate it to demonstrate to the bank how much difference your project will make. While not official, banks also understand frameworks like B Corp which shows you have done your homework and are making a serious attempt. The Climate Action Toolbox may also be helpful. These calculators won’t be perfect, but they will be enough to provide an estimate of the impact. Second, the bank may also want to see how your proposed project fits into your wider business strategy. What is the long-term vision for the business and how will improving sustainability help this? Are you aiming to attract new customers, retain market share, or boost the company’s resilience? If you’re applying for a loan, being able to show the bank how the project fits into your wider strategy will make you a much better lending proposition. How much could you save with a sustainable loan? Is it worth jumping through a few hoops at the bank to secure a sustainable loan? It might be. The typical saving could be between 0.5% and 1.5% on what your interest rate would otherwise be. That rate will be determined by your quality as a borrower. Let’s say you’re planning to borrow $800,000 to buy new EVs to replace your company cars, and you’re expecting to keep the EVs for three years. If the standard business loan you can secure is 12%, here’s how much difference a 1% interest rate discount could make: Loan amount Interest rate Total payment Total interest Difference $800,000 12% $956,572.12 $156,572 0 $800,000 11% $942,875.05 $142,875 -$13,697 That saving of roughly $13,700 is already significant, but if you then replace the EVs again on another loan, after 12 years you’ll have saved nearly $55,000. On a much smaller project, the savings are lower but still helpful. Say your standard loan rate is 13%, and you want to borrow $50,000 to install solar panels on your building. These last a while, so your term might be 5 years. Loan amount Interest rate Total payment Total interest Difference $50,000 13% $89,586.44 $16,733 0 $50,000 12% $86,082.57 $15,227 -$1,506 Once you add that $1,506 to the savings you’ll make on energy costs, the solar panels start to look like a better investment. Run the numbers and talk to someone who knows the market Sustainable loans are relatively new, so banks are still finding their feet on how to lend and who can borrow. Run the numbers and start thinking about whether your current bank is going to be on board with your project. For example, a push to electrify your fleet of company cars will meet the sustainability criteria for most banks. However, what about replacing older EVs with new EVs? This will not reduce your company’s carbon footprint, so is it an eligible project for a loan? Some major banks say yes, others say no. Talking to someone who understands the sustainable loan market will help you match your project to the best-fit lender. The more affordable funding available, the more quickly we can help decarbonise Aotearoa and reach our climate change targets – which is good news for everyone in New Zealand.

Why would a business ever choose to invest more time and money in financial reporting? You might think it’s always better to just do the minimum and stick to the usual special purpose reporting that most Kiwi company’s produce. But when your company is serious about achieving a higher profile on an international stage, there could be some unexpected upsides to stepping up to more rigorous financial reporting. Instead of special purpose reporting, a company could benefit from adopting International Financial Reporting Standards (IFRS). Put simply, it’s an international accounting language that crosses borders so investors or shareholders who have a reasonable level of financial knowledge can compare listed companies across the globe. The standards are comprehensive, consistent, transparent and universal. Different jurisdictions have their own versions of IFRS and Aotearoa is no exception. We have NZ IFRS, a local version of IFRS which includes domestic requirements for our market while ensuring we comply with IFRS. The standards are updated regularly. NZ IFRS and which companies must comply Naturally, NZ IFRS is required for publicly listed companies, whether they’re based here or internationally. For some businesses, especially household names, you’ll often see the complying information packaged up in the financial section of a glossy annual report. For other businesses, the information will be available on the Companies Office website. Privately owned New Zealand companies with assets totalling more than $66 million or revenue over $33 million must also comply with NZ IFRS. Other entities deemed ‘publicly accountable’ may also need to report under NZ IFRS, for example regulated entities such as banks or insurers. Adopting IFRS sends a clear message your company is ready for the big leagues If your company doesn’t meet the threshold for mandatory adoption of IFRS, why would you choose to opt into the standards? Attracting the right buyers at the right price The first and biggest motivator is the prospect of a sale. Reporting under IFRS makes a company more attractive in the international marketplace. If your company has the potential to be purchased by a global corporation as a subsidiary, that potential buyer will be an IFRS reporter. By stepping up to IFRS, your company can be assessed more easily and accurately by the prospective purchaser. We’ve seen many Kiwi companies sold overseas in recent years, from huge sales like Vend ($455 million) and Timely (around $100 million), through to high-performing SMEs and farms. IFRS shows you’re speaking the same language, and that your company can easily slot into their own reporting regime. It also demonstrates that your business has the capability and capacity to comply with IFRS. Because this level of reporting is more complex, and requires a higher level of sophistication, it shows a purchaser that your company has the acumen and expertise to be a major asset on the balance sheet. Stepping up your capital raising game Another important motivator of switching to NZ IFRS early is fundraising. If your business is seeking to raise money from the capital markets, adopting higher-level reporting can help investors make a more informed decision. It can give them confidence in your company and allows them to have a more in-depth understanding of precisely how the company is performing. And, if your company is dealing in complex financial instruments such as hedging, foreign exchange or derivatives, there is no information in special purpose reporting that tells you how to treat these. NZ IFRS provides clear guidance about reporting on these types of activities. IFRS produces higher-quality financial statements Financial statements produced under NZ IFRS are considerably more accurate than those produced under the special purpose financial reporting framework. A higher level of scrutiny is applied across your organisation’s financials, and the standards themselves provide guidance about how to improve the accuracy of your statements. Here’s some examples to highlight how they differ: If your company has $1m debtors owing at the end of the financial year, special purpose reporting will value that at $1m. That’s a straightforward way to account for those monies owed. In contrast, NZ IFRS demands a closer look at the outstanding invoices. If the company historically sees a 5% rate of default, your NZ IFRS financial statements will provision for that and value the accounts receivable at $950k. This is a more accurate valuation of the receivable invoices. When a business exports goods, once the goods are on a ship and on their way overseas, they are invoiced and recorded as a sale. Under NZ IFRS, those goods might not actually be sold until they land at the receiving port – the sale would be reversed back into inventory until the product arrives and ownership passes. Unlike special purpose reporting, NZ IFRS requires right-of-use values for leased assets, which needs some detailed calculations to capture. There are hundreds more rules like these that contribute to IFRS providing much more detailed and accurate accounts. If you adopt IFRS, the quality of your accounts is going to be significantly higher, and it could change your final numbers quite substantially. Making a decision about whether to adopt NZ IFRS Adopting NZ IFRS does involve extra work and higher costs. You certainly wouldn’t adopt these standards lightly. Ideally, you should consider the costs and benefits to the business – is it worthwhile? If IFRS statements could make the difference between a sale or no sale, or maximise the value of your company, it could be an investment with a very impressive return. It won’t be right for every business, but for up-and-coming companies with great acquisition prospects, NZ IFRS can show you’re ready for the big stage.