We believe climate change is a material investment issue with risks for long-horizon investors.
Climate change is a complex issue that presents material risks and opportunities for investors. These risks and opportunities come from multiple, interacting drivers, including physical and natural resources, regulatory action and technological innovations. The impact of climate change is felt variably across different investment sectors, geographies and asset classes. In fact, some of these impacts are already inevitable.
We have released a Climate Change Report into how we assess and manage climate-related risk and opportunities in our portfolio. The report is based on reporting recommendations from the Taskforce on Climate-related Financial Disclosures (TCFD) and also updates the Fund’s emission reduction targets through to 2025.
In 2015 we signed the Paris Pledge for Action, which affirms our commitment to a safe and stable climate in which temperature rise is limited to under 2 degrees Celsius, and pledged our support to ensuring that the level of ambition set by the COP21 Paris climate agreement is met or exceeded.
Given the Fund’s long-term horizon and purpose, it is important that the risks and opportunities stemming from climate change are factored into our investment strategies and ownership practices. The goal of our climate change strategy, which we announced in 2016, is to make the Fund more resilient to climate-related risk. We believe it will improve our portfolio. The strategy, which applies to our entire investment portfolio, has four parts:
Reduce: we are working to significantly reduce the Fund’s exposure to both fossil fuel reserves and carbon emissions. These reductions will be achieved through ongoing engagement with companies, building carbon measures into the Guardians’ investment model, targeted divestment of high-risk companies and reduction of other relevant portfolio exposures.
In August 2017 we announced that our global physical passive equity portfolio (constituting 40% of the Fund) was low-carbon. Since then, each year we have reapplied the same carbon exclusion methodology to our passive equity portfolio. We have also applied the strategy to our active equity portfolios, and excluded a larger proportion of the Fund via derivatives. See graphic below for our emissions reduction story.
Analyse: climate change considerations are incorporated into investment analysis and decisions, for example into valuation models, risk allocation and manager selection.
Engage: 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.
Search: we are intensifying our efforts to actively seek new investment opportunities in the areas of alternative energy, energy efficiency and transformational infrastructure.
Our climate strategy and the actions we take will evolve over time, as investment markets become more sophisticated on climate issues, and as more tools and data become available.
One of the core elements of the NZ Super Fund Climate Change Investment Strategy is to reduce the carbon intensity of the Fund’s investments and its exposure to fossil fuel reserves. In 2016, targets were set to reduce the Fund’s emissions intensity by 20% and its ownership of fossil fuel reserves by 40% by 2020 (we achieved this goal a year early).
Having met our 2020 targets we have set new, more ambitious targets and now aim by 2025 to reduce the emissions intensity of our portfolio by 40 percent and fossil fuel reserves by 80 percent.
Find out more
October 2020 – Climate Change Report + 2025 Emission Targets
June 2020 – How we invest white paper – climate change
October 2016 Climate Change Strategy announcement
- Responses to Official Information Act requests and proactive information disclosures, relating to climate change and fossil fuels.