Climate Change Is A Real Financial Risk, Super Fund Managers Say

Russell
Palmer, Political Reporter

The managers
of the New Zealand Super Fund say they apply a sustainable
finance and climate lens to every activity they
have.

It comes after New Zealand First MP Andy Foster
lodged
a member’s bill promising to end “woke ideologies”,
which leader Winston Peters said are being driven by
“unelected, globalist, climate radicals”.

The
Guardians of New Zealand Superannuation appeared at the
Finance and Expenditure select committee on Wednesday
morning to brief MPs and answer questions.

Co-chief
investment officer Will Goodwin said climate change was a
core risk to their long-term investments.

“It’s really
important to understand that, again, because of the horizon
in which we invest over, climate is a real financial risk
that we need to price and understand into our
portfolio.

“If we’re taking very, very long-term
views, the asset values will ultimately be impacted by,
potentially, climate change.”

Chair John Williamson
said the Guardians, who oversee the investment of the NZ
Super Fund and the smaller Elevate NZ Venture Fund, consider
sustainable investment for everything they look at investing
in.

“And it’s embedded in the culture of our
investment team.”

Goodwin said climate change was
“ultimately in the long-term a financial risk that we need
to be understanding and pricing into a lot of our investment
decisions, so therefore it makes sense for us to be doing
that on every single investment that we make”.

He said
they had set goals of reducing the emissions intensity of
investments by 40 percent, and reducing investment in fossil
fuel reserves by 80 percent – but had far surpassed those
targets, making reductions of 65 percent and 98 percent
respectively.

The board in 2022 approved a change to
Paris Agreement-aligned indices for passive
investments.

“A large portion [75 percent] of our
portfolio is invested in global equities, and what we have
done is transition that portion of our portfolio into what’s
called a Paris-aligned index.

“What that is doing –
and it’s run by MSCI – is investing in optimising that
portfolio, that cluster of companies, to hit net zero by
2050.

“So it’s excluding high-emitting and [fuel]
reserve companies and reinvesting and focusing on greening
companies.”

“Our commercial returns have not been
inhibited in any way, we believe, by our sustainable
investment policies and practices. So we are comfortable
travelling as we are.

“We’re not wedded irreparably to
our current position but it’s a position we enjoy at the
moment and it’s working well for us.”

The lack of
negative effects from the sustainable financing approach is
backed up by data showing portfolios with a “Responsible
Investment” approach were not markedly different to a
benchmark portfolio that did not use such an
approach.

While the US has pulled out of the Paris
Agreement, Williamson said the board was “very committed to
our current sustainable investment strategy … and we’re
not overly distracted by what’s happening in parts of North
America, and nor I believe is the rest of the world, the
investment world”.

He noted the Paris-aligned index
was not directly correlated to whether or not countries were
part of the accord or not.

Goodwin said a feature of
the index was that while it excluded some companies, it gave
more weighting to others – like technology companies – which
the fund had benefited from.

“It presents a lot of
opportunities, as well as risks, from an investment
standpoint,” Williamson said.

Williamson said the NZ
Super Fund was “at a key point in its evolution”, expected
to reach $100 billion within the next five or six
years.

Chief executive Jo Townsend, who has been in
the role for a year, also repeated the Guardians’ stance
that a tax-free fund would be a more efficient
approach.

The amount of tax the fund pays is set to
remain higher than the amount the government has been
putting into it, and Townsend suggested the government could
stop taxing the fund, dropping contributions by the same
amount.

“It is money in, money out. If we weren’t
having to pay tax that would actually create efficiencies
for us.

“We get a contribution in, we have to invest
it. If we make a tax payment out we actually have to raise
cash to do that, so purely from the perspective of having to
transact less in the market that would be a more efficient
outcome.”

Asked if the government had indicated it
would do so, Townsend said that would be a question for the
government to answer, but the fund’s managers have been
engaging with the government as
required.

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