The NZ$30bn (€19.7bn) New Zealand Superannuation Fund says it was at risk of being left on the wrong side of technological change had it not implemented a new climate change strategy last month, as reported by Responsible Investor: Link to story.
Anne-Maree O’Connor, the sovereign fund’s head of responsible investment said consulting firm Mercer’s 2015 report ‘Investing in a Time of Climate Change’ was crucial in driving its thinking on the matter, as it demonstrated the risk of suffering investment losses regardless of the action taken to mitigate climate change: “The Mercer study showed that we were going to have negative impacts from climate change – doesn’t matter what scenario we have – but that particularly we would be very impacted if we were on the wrong side of the technological disruption driven by a 2 °C scenario,” O’Connor told a conference [on 24 November] in Melbourne organised by the Responsible Investment Association Australasia (RIAA).
“We didn’t want to be on the wrong side of technology and political will,” she added.
The fund’s new four-part strategy of carbon footprint reduction, analysis, engagement and searching for new investment opportunities has already seen it invest in North American solar and wind (link).
O’Connor said she was convinced of the merits of footprinting as it, for one, demonstrated to NZ Super that stranded asset risk was not being priced by the market.Additionally, the exercise further demonstrated how quickly the fund’s “very concentrated” carbon risk could be reduced – as 50% of its Scope 1 and Scope 2 emissions emanated from holdings worth 1.8% of its equity portfolio, and a further 50% of predicted future emissions stemmed from holdings worth 0.2%.
“So, suddenly [de-risking] becomes sort of manageable, and you can actually look at the sectors in which these are concentrated.”
O’Connor also briefly touched on both New Zealand’s and Australia’s attempt to lower their respective carbon footprints, remarking that a greater reliance on gas as an energy source would merely increase New Zealand’s carbon footprint, while being touted in the US and Australia as a means of reducing emissions.
In order to meet its carbon reduction targets, Australia would need to build around 7 gigawatts of renewable generating capacity by 2020, Rory Lonergan of the Clean Energy Finance Corporation noted.
“The reality is that we need to start building probably no later than 2018, because your typical wind farm takes 18 months to two years,” he said.
“So on that simple measuring, there is an enormous investment opportunity.”
However, Lonergan also remarked that the capital required would amount to around A$20bn (€13.8bn) – double the bank’s $10bn in capital, which he had earlier deemed “not nearly enough” to address the problem.
Amends to delete reference that O’Connor was sceptical of the climate strategy. She has asked us to point out the strategy is one of her core responsibilities and is its internal sponsor with the fund’s CIO.