The New Zealand Superannuation Fund on Wednesday unveiled a climate change strategy aimed at improving investment returns while making its NZ$31.4 billion ($22.2 billion) portfolio more resilient to long-term, climate-related risks.
CEO Adrian Orr called the strategy a “significant and fundamental shift” for the Auckland-based fund, “consistent with our mandate to maximize returns without undue risk,” according to a news release.
While NZ Super has taken climate-related factors into account for years, in areas such as engagement with companies it invests in, the policy announced Wednesday amounts to a broad “intensification” of the fund's approach, said spokeswoman Catherine Etheredge.
NZ Super's four-part strategy commits the fund to:
- significantly reduce its exposure to fossil fuels and carbon emissions over time;
- incorporate climate change into investment analysis and decisions;
- manage climate risk through active engagement with companies; and
- actively seek investment opportunities in areas such as renewable energy.
The new approach calls for NZ Super to report its carbon footprint annually from 2017, with the goal of achieving substantial cuts in both carbon emissions and fossil fuel reserves over time.
The news release said the fund will pursue that goal through “ongoing engagement with companies, building carbon measures into (the fund's) investment model, targeted divestment of high-risk companies and reduction of other relevant portfolio exposures.”
The news release and additional materials on NZ Super's website contend that the activist approach to climate change risks will enhance, rather than hurt, the fund's long-term investment returns.
Anne-Maree O'Connor, NZ Super's head of responsible investment, said in an email, “we believe that … listed equity markets are underpricing climate change-related risk,” with the potential fallout especially significant for long-horizon investors such as NZ Super.
“We want to avoid this downside risk and capture some of the investment opportunities benefiting from the shift to a low-carbon economy,” she said.
Mr. Orr added in the release that “importantly, we will intensify our efforts to actively seek new investment opportunities in areas of alternative energy, energy efficiency and transformational infrastructure.”
The release said NZ Super studied the climate change strategies of other high-profile asset owners around the globe — including the 310 billion Swedish kronor ($34.9 billion) AP4, Stockholm, and PGGM, the €200 billion ($219 billion) firm that manages the assets of the €184 billion Pensioenfonds Zorg en Welzijn, Zeist, Netherlands — in formulating its strategy, as well as a 2015 climate change study by Mercer that NZ Super helped fund.
Helga Birgden, a partner with Mercer Investments and the firm's Asia-Pacific region head for responsible investment, said in a telephone interview that NZ Super's strategy puts it at the cutting edge of asset owners in the Asia-Pacific region in taking climate change into account for their investments. More broadly, NZ Super becomes one of the first sovereign wealth funds to do so, in an area where pension funds have led the way globally, she said.