The NZ$30bn (€19.7bn) New Zealand Superannuation Fund has announced a sweeping new strategy to reduce its exposure to climate change risk – and take advantage of investment opportunities presented by the energy transition.
It will implement a four-part strategy of carbon footprint reduction, analysis, engagement and searching for new investment opportunities, across its entire portfolio whether active or passive, listed and unlisted.
The fund says it will significantly reduce its exposure to both fossil fuel reserves and carbon emissions, through engagement with companies, integrating carbon measures, “targeted divestment of high-risk companies” and the reduction of other relevant portfolio exposures.
The strategy will look at valuation models, risk allocation and manager selection, the fund said in a statement. It will report on its carbon footprint, for both carbon emissions and fossil fuel reserves, from 2017.
“We will continue to manage climate risks by being an active owner, including prioritising climate change engagements, developing our voting policy and directing our investment managers to vote according to our instructions on climate change resolutions,” said CEO Adrian Orr, calling the move a “significant and fundamental shift”.
The fund says climate change is a material investment issue with risks for long-horizon investors. Orr said: “In coming years the global energy system will transition away from fossil fuels. Some assets we invest in today may become uneconomic, made obsolete or face a dwindling market.
“Reducing the fund’s exposure to these risks and to the physical impact of climate change is good for the portfolio, and consistent with our mandate to maximise returns without undue risk.”
Orr said the fund would “intensify” its efforts to seek new investment opportunities in alternative energy, energy efficiency and “transformational infrastructure”. It has already made forays into this area with investments in energy storage firm Bloom Energy, wind turbine firm Ogin and high-tech glass firm View.Just this month it made a commitment to North American utility-scale wind and solar via an investment in a new outfit called Longroad Energy Holdings.
Orr said the strategy was in line with “current global best practice by institutional investors” such as Sweden’s AP4, the Netherlands’ PGGM and others. A 2015 climate change study – Investing in a Time of Climate Change – by consulting firm Mercer, part funded by NZ Super, fed into the thinking.
CIO Matt Whineray, speaking in a video presentation on NZ Super’s web site, said climate change presents opportunities for long-term investors “that we intend to capture” and that the market is “not fully pricing” in the potentially negative impact of climate change on asset valuations.
“There is no single measure,” Whineray said, “that captures all of the investment risk associated with climate change and there is no single tool to mitigate those risks.”
The move was welcomed by a range of stakeholders, including the Investor Group on Climate Change (IGCC), the CDP, the New Zealand Green Party and the Responsible Investment Association of Australasia (RIAA).
James Day, Director Australia & NZ at the CDP, the investor backed climate data body, said he was “struck by the breadth of their climate commitments” while Emma Herd of the IGCC called it “a significant step forward”. RIAA’s Simon O’Connor said the strategy “responds to the reality” of climate change.
Green Party Co-leader James Shaw said the fund had “accepted the fact that climate change is making its investments in climate-polluting companies increasingly risky”. In 2015, the Greens tabled a bill that called on the fund to exit fossil fuels.
The fund may hold a technical seminar explaining its climate change strategy if there is enough interest. Anne-Maree O’Connor, NZ Super’s Head of Responsible Investment, is due to speak at a RIAA seminar in Auckland on November 15. Link