The NZ$35bn (€21.7bn) New Zealand Superannuation Fund has said its sweeping low carbon announcement today – involving the divestment of 297 companies worth NZ$950m (€588m) – is in accordance with the spirit of the Paris climate agreement.
The Auckland-based investor said today that its NZ$14bn global passive equity portfolio, 40% of its overall assets, is now low-carbon.
Among the companies divested include Italy’s utility Enel and domestic firms like Genesis Energy and New Zealand Oil & Gas — though big fossil fuel names like Exxon Mobil, BP and Royal Dutch Shell are retained, according to a spreadsheet provided by the fund.
Also divested, or partially divested, are the likes of Canadian Natural Resources and Denmark’s AP Moeller (in the news recently for a sustainability venture with Danish pension funds).
The fund’s Guardians studied climate change strategies from leading institutional peers such as Sweden’s AP4 and the Netherlands’ PGGM to inform its decision. The move was hailed by a usually critical Green Party in the country as “very big” and “ground-breaking”.
Roger Urwin, Global Head of Investment Content at Willis Towers Watson, called the move “coherent in both thinking and portfolio construction” – and that it gets the fund “ahead of the climate change curve”. It would set an example that other funds to study.
NZ Super’s decision was also informed by a 2015 climate change study by investment consultants Mercer that was part funded by the NZ Super Fund.
Pointing out the risks of ‘stranded assets’ and that the current market is not fully pricing in the potentially negative impact of climate policy on asset valuations, the fund said: “We believe that now is the right time to act.”It argues there is limited downside risk, as it would simply have sold fairly priced assets for other fairly priced assets. Proceeds from the sell-off have been reinvested across the rest of the passive portfolio.
“Climate change presents a risk for which we believe we will not be rewarded”
It created a bespoke methodology for assessing its carbon exposure based on data from MSCI ESG Research.
“Climate change presents a risk for which we believe we will not be rewarded – an undue risk over the long-term – it is good practice to try to hedge this risk,” it says.
According to internal documents released today, the fund was at pains to engage with the Greens prior to the announcement and stress the overall footprint reduction rather than on individual stocks.
Chief Investment Officer Matt Whineray said the move was a “commercial decision based on long-term risk to our portfolio as a whole”.
“Companies,” he said, “have the opportunity to re-enter the portfolio in the future, if they improve their management of climate risk.”
The fund, which has returned 10% p.a. since inception and 18% for the 12 months to the end of May 2017 – says its total carbon emissions intensity is 19.6% lower, and its exposure to carbon reserves is 21.5% lower, than if the changes hadn’t been made.
“This is very big,” said the Greens’ Co-Leader James Shaw. “We’ve pushed for years for the Super Fund to show strong leadership on climate change and today that move was decisive.” He hailed its “real leadership on climate change”.