Climate change is one of the most significant risks and opportunities we face as an intergenerational, global investor.
Anne-Maree O'Connor, Head of Responsible Investment
Climate change has been a key focus for us for many years.
We’ve always approached climate change from an investment perspective – seeking to understand and mitigate the risks it presents, and to identify the investment opportunities it is creating.
On both counts, climate change is one of the most significant intergenerational risks and opportunities that we face as a global investor.
Because of this we aim to lower the Fund’s exposure to investments that are most at risk from the transition to a low-carbon world and increase our exposure to investments that will contribute to this transition.
We do this through our climate change strategy, which has four core elements:
Having successfully applied this strategy over a number of years, we are confident that we can have a positive impact on climate outcomes whilst benefiting the portfolio’s investment returns.
We have recently signed on to the Paris Aligned Investment Initiative’s Net Zero Asset Owners Commitment.
To play our part in delivering the net zero transition, we will:
While there is much more to do, and our focus on climate change will continue for decades, we have already made significant carbon cuts in portfolio emissions, and the Fund no longer has a material exposure to fossil fuel reserves.
Compared to the market average, our fund is low carbon, well on track to achieving our goal of being net zero by 2050 – and continues to achieve excellent financial returns.
Logo of NZ Super Fund, Te Kaitiaki Tahua Penihana Kaumātua o Aotearoa
Climate change presents material risks and opportunities for investors. These risks and opportunities come from multiple, interacting drivers, including physical damage, loss of natural resources, regulatory action and technological innovations.
The impact of climate change is felt in different ways across different investment sectors, geographies and asset classes. Some of these impacts are already being felt.
The Guardians has a longstanding commitment to address climate change risks and opportunities:
- We signed the 2015 Paris Pledge for Action and pledged our support to ensuring that the level of ambition set by the COP21 Paris climate agreement is met or exceeded.
- We have had a Climate Change Investment Strategy since 2016, significantly reducing the emissions footprint of our global equities portfolio, removing most fossil fuel reserves and setting targets for reductions in emissions intensity.
- We worked closely with the Treasury and other Crown Financial Institutions (CFIs) to develop the Crown Responsible Investment Framework, announced by the Minister of Finance in late 2021. This framework includes commitments to net zero by 2050 or sooner, reporting against common carbon metrics and a focus on climate change engagement.
- We have signed up to the Net Zero Asset Owners Commitment, an investor pledge to decarbonise our portfolio by 2050 or sooner, increase investment in climate solutions, set interim targets and undertake advocacy and engagement in line with net zero goals. The commitment is part of the Paris Aligned Investment Initiative, a global best practice framework.
In 2022, the Guardians’ Board decided to shift the benchmark Reference Portfolio to market indices that align with the Paris Agreement. The change relates to our passive investments in global equities, which represents about 40% of the overall investment portfolio, approximately $25 billion at the time. The changes will further reduce the Fund’s exposure to carbon emissions as well as deliver better environmental, social and governance (ESG) outcomes.
We are also investing to support the transition to a low-carbon economy, with investments worth nearly $1 billion in renewable energy in the United States and substantial investments in funds focused on energy efficiency and the energy transition. We have a partnership with Copenhagen Infrastructure Partners to explore the potential for large-scale off-shore wind energy in the South Taranaki Bight, as part of New Zealand’s energy transition.
Each year we publish our carbon footprint and a Climate Action Plan. 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.
We are also engaging on climate change both in New Zealand and globally.
Engagement on climate change
We have an active programme of engagement with companies on climate change, both in New Zealand and globally.
Engagement in New Zealand
We are working with other Government-owned investors on a collaborative initiative to engage with New Zealand companies on climate change. We have released a joint position statement on climate change and will engage directly with large New Zealand companies, initially those listed on the NZX50.
The group consists of the Accident Compensation Corporation, Government Superannuation Fund Authority, the National Provident Fund Authority and the NZ Superannuation Fund. The four funds have all committed to having net zero portfolios by 2050. We consider that the net zero commitment is becoming best practice for leading institutional investors.
A mandatory climate-related disclosures regime is now in effect for large New Zealand companies and financial institutions, with reporting required for accounting periods from 1 January 2024. Approximately 200 New Zealand companies and institutions will be covered by these disclosure requirements.
Our engagements with individual New Zealand companies seek to:
- understand their progress on climate change awareness, capability and commitments;
- understand how they are meeting regulatory requirements on climate-related disclosures and reporting;
- support companies to prepare for the transition by sharing knowledge of climate change risks and opportunities from the institutional investor perspective;
- understand how companies’ plans will align with our net zero commitments over time.
We will report publicly on the number of engagements and progress made in aggregate in our annual reports, but individual engagements will be confidential.
Much of our global engagement on climate change is carried out through international collaborations with other investors and a specialist engagement service that covers global equities. This gives us a much wider reach than we would have on our own. Through these channels, we engage in partnership with some very large international investors; collectively, our capital carries significantly more weight.
The collaborations include:
- Investor Group on Climate Change, a collaboration of Australian and New Zealand institutional investors
- Principles for Responsible Investment, the United Nations supported proponent of responsible investment
- Carbon Disclosure Project
The Carbon Disclosure Project focuses on encouraging the disclosure of company-specific climate change data, risks and opportunities. Greater disclosure by companies of this information improves the ability of investors such as ourselves to analyse how well companies are positioned to respond to climate change and be resilient in the changing policy, technology and market landscape.
Climate change is also a key theme for our engagement services provider, Columbia Threadneedle Investment. CTI’s Responsible Engagement Overlay service engages with companies on our behalf, covering hundreds of companies and engagements each year. Climate change is a priority area for engagement.