By Vikas Vij — Leading global investors increasingly recognize the challenges posed by climate change and its long-term impact on business and economy. Some of the major investors are already shifting capital in a way to support a low carbon global economy. Integrating carbon management into investment decisions is critical to achieving the larger goals of climate risk mitigation.
To increase resilience to climate change investment risks, the NZ$35 billion NZ Super Fund
has shifted its NZ$14 billion global passive equity portfolio, representing 40 percent of the overall Fund, to low carbon. The Guardians of New Zealand Superannuation made this announcement, marking a significant reduction in the Fund’s overall carbon footprint.
The Fund’s carbon emissions intensity reduced by 19.6 percent as of June 2017, and its exposure to carbon reserves reduced by 21.5 percent, than if the changes had not been made. According to Chief Executive Adrian Orr, the Guardians’ strategy had been calibrated to match the Fund’s investment approach, horizon and needs.
Chief Investment Officer Matt Whineray said that for investors with very long horizons, such as the Fund, reducing exposure to carbon emissions and reserves is a low-cost insurance policy. The low-carbon portfolio is based on a bespoke carbon measurement methodology for listed equities developed by the Guardians in concert with MSCI ESG Research. MSCI ESG Research also provided independent carbon data and company ratings.
The Fund will continue to hold some companies in its passive portfolio with high exposure to carbon emissions and reserves, where MSCI ESG Research rates these companies well relative to their peers and there is evidence of strong management engagement with the challenge of climate change.
Whineray said that this would help the Fund capture the upside from companies, which are better placed, to succeed within the rapidly transforming energy sector. The transition to a low-carbon passive equity portfolio has taken the Fund a long way towards the Guardians’ Board-approved 2020 targets for reducing the Fund’s exposure to carbon.
These targets are to reduce the carbon emission intensity of the Fund by at least 20 percent, and reduce the carbon reserves exposure of the Fund by at least 40 percent compared to if the changes had not been made. The Guardians will publicly report on the Fund’s carbon footprint in relation to these targets annually.