The NZ$35 billion ($25.9 billion) New Zealand Superannuation Fund announced Tuesday it shifted its portfolio's 40% global equities passive allocation to a customized low-carbon index earlier this year.
The Auckland-based sovereign wealth fund said as of its June 30 fiscal year close, that shift effectively lowered the fund's "carbon emissions intensity" by 19.6% and its exposure to carbon reserves by 21.5%.
That, in turn, represented a giant leap in the direction of the 20% carbon emissions and 40% carbon reserves reduction targets approved by New Zealand Super's board for 2020.
CEO Adrian Orr said in a news release that with New Zealand Super's adoption of a low-carbon index for its portfolio's largest allocation, the fund joined "leading investors around the world (in) adjusting their portfolios to address climate change risk and capture opportunities stemming from the transition to a low-carbon economy."
Matt Whineray, chief investment officer, said in the same release that the finding by the board that the fund's carbon exposures "were highly concentrated in a relatively small group of companies" guided its approach in working with MSCI ESG Research in creating a custom low-carbon methodology for listed companies.
The transition from the fund's previous benchmark indexes involved the sale of 62.5 million shares of high-carbon-exposure companies, with a combined value of NZ$951 million. The top 10 companies sold accounted for just less than half of that total.
"By targeting this group we have been able to significantly reduce the fund's carbon footprint while retaining the diversification benefits of passive investment," said Mr. Whineray.
Most of the leading companies New Zealand Super sold count as the usual suspects — including NZ$108 million of Exxon Mobil shares, NZ$70.9 million of Royal Dutch Shell shares and NZ$64 million of Chevron shares — but Berkshire Hathaway was also near the top of the list, with NZ$67.7 million worth of the company's shares sold.
Mr. Whineray, in the news release, contended that from the standpoint of a long-term investor, financial markets are underpricing climate change risk. For such investors, working to reduce exposure to carbon emissions is a "low-cost insurance policy," he said.
With the fund's passive allocations tended to, "our next priority is to reduce carbon exposure in our active investment strategies," said Mr. Whineray.
The news release said the fund isn't pursuing a blanket exclusion of companies with carbon exposures. If a company excluded from the portfolio improves its management of climate-related risks, New Zealand Super will be open to adding its shares to the portfolio again, said Mr. Whineray.