NZ Super Fund Announces Multi-Faceted Climate Change Strategy
POSTED ON: 19 October 2016
The NZ$30 billion NZ Super Fund will become more resilient to climate change investment risk under a new strategy announced by the Guardians of New Zealand Superannuation today.
CEO Adrian Orr said climate change was a material investment issue with risks for long-horizon investors. “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.”
“Climate change, and the coming transition to a low-carbon energy system, also present investment opportunities for long-term investors that we intend to capture.”
Mr Orr said the strategy represented a significant and fundamental shift for the NZ Super Fund.
The Guardians will implement a four-part strategy of carbon footprint reduction, analysis, engagement and searching for new investment opportunities. The strategy will be applied across the Fund’s entire portfolio.
The strategy includes a commitment to significantly reducing the Fund’s exposure to both fossil fuel reserves and carbon emissions. This 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.
The Guardians will incorporate climate change considerations into investment analyses and decisions, for example into valuation models, risk allocation and manager selection. The Guardians will also report the Fund’s carbon footprint annually.
“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 Mr Orr.
“Importantly, we will intensify our efforts to actively seek new investment opportunities in the areas of alternative energy, energy efficiency and transformational infrastructure.”
Mr Orr said the NZ Super Fund’s strategy was in line with current global best practice by institutional investors, and had been informed by NZ Government and international policy on climate change.
The Guardians has studied climate change strategies from AP4, PGGM and other global investment leaders in developing its approach. A 2015 climate change study by Mercer, part funded by the NZ Super Fund, was also an important part of the strategy development process.
“Our strategy and the actions we take will evolve over time as investment markets become more sophisticated on climate issues, and more tools and data become available,” said Mr Orr.
The Guardians said it would report publicly on the levels of reduction in the Fund’s carbon footprint, for both carbon emissions and fossil fuel reserves, from 2017. Mr Orr said the Guardians would look to achieve a substantial reduction in both measures as soon as practicable, and seek further reductions over time.
James Day, Director Australia & NZ – CDP:
“CDP welcomes the announcement by NZ Super Fund of its new climate change investment strategy. NZ Super Fund is joining other leading asset owners around the world that are sensibly addressing the risks that climate change poses to its investments. We were struck by the breadth of their climate commitments, from measuring and reducing carbon exposure across all of their physical equities, through to being an active owner via their voting activity and engagement, which is becoming an increasingly important mechanism for investors to drive the change they need to protect their investments.”
Emma Herd, CEO – Investor Group on Climate Change:
“Investors have a critical role to play in managing the financial risks of climate change and supporting the transition to a net zero emissions economy. Leading funds all round the world are taking practical steps to measure the risks in their portfolio, engage on the issues and invest for the low carbon future. NZ Super are to be congratulated for taking a significant step forward with a thoughtful and multifaceted approach to making their business more resilient to climate change impacts.”
Helga Birgden, Partner, Global Business Leader, Responsible Investment – Mercer:
“We commend the Guardians’ strategy on the issue of climate change and on their contribution to our global study Investing in a Time of Climate Change. Climate change is an environmental, social and economic risk, expected to have its greatest impact in the long term. But to address it, and avoid dangerous temperature increases, investors need to act now.”
Simon O’Connor, Chief Executive – Responsible Investment Association of Australasia:
"The NZ Super Fund's climate change strategy responds to the reality of our changing climate with a strong and prudent set of actions to maintain the fund's resilience and to shore up the long term strength of the Fund. Consistent with global leading practices, it's pleasing to see the Fund acknowledging and committing to use the full suite of available tools to comprehensively respond to the risks posed by climate change in the Fund's portfolio: measuring carbon exposure, selective divestment, engaging with companies, voting shares, and seeking new low carbon investments.
"In light of strengthening global policy, the increasingly evident physical impacts of climate change, and the subsequent radical economic transformations underway, this strategy represents a strong beginning for the Fund to play its part in New Zealand's climate change response, whilst creating a strong foundation for long term financial returns. RIAA welcomes this climate change strategy by the NZ Super Fund.”
New Zealand finance industry professionals are invited to register their interest in a technical seminar explaining the NZSF’s climate change strategy via [email protected]. If there is sufficient interest we will hold a seminar later in the year.
Anne-Maree O’Connor, NZ Super Fund Head of Responsible Investment, is presenting on a climate change panel at the 15 November RIAA RI Seminar in Auckland. Professional investors (banks, fund managers, asset consultants and financial advisers) and financial media are invited to register for this event.