Super Fund gains through carbon reduction

The first report in line with the new Taskforce on Climate-related Financial Disclosures (TCFD) shows carbon reduction policies have given $800 million dollar gains to NZ Super.

Friday, October 9th 2020, 6:22AM

Matt Whineray

The NZ Super Fund has released a climate change report into how it manages and assesses climate-related risk and opportunities in its portfolio.

The report is based on reporting recommendations from the TCFD and also updates the Fund’s emission reduction targets through to 2025.

NZ Super Fund CEO Matt Whineray said that, “The NZ Super Fund must factor in the impacts of climate change on the markets we invest in and the businesses we own. As the global energy system transitions away from fossil fuels, some assets might become obsolete, uneconomic or lose value. Similarly, changing weather patterns and extreme events might expose other investments to increased physical risks.”

Recently the New Zealand government announced the country would become first in the world to require the financial sector, publicly listed companies and Crown Financial Institutions (including the NZ Super Fund) to report on climate risks, based on the TCFD framework.

This recently released report is one example of what a disclosure report could look like for a large institutional investor. Although as legislative details are still being developed, future reports will be subject to further refinement.

One of the core elements of the NZ Super Fund Climate Change Investment Strategy is to reduce the carbon intensity of the Fund’s investments and its exposure to fossil fuel reserves. In 2016, targets were set to reduce the Fund’s emissions intensity by 20% and its exposure to potential emissions from fossil fuel reserves by 40% by 2020.

“Although still in an early stage, it’s positive to note that after running the strategy for several years we haven’t seen an adverse effect on performance. In fact, the carbon exclusion policy has added approximately $800 million to the Fund and about 60 basis points per annum to performance since it was brought in. So not only has this approach reduced what we considered to be an insufficiently rewarded risk, it has also added return.”

“Having met our 2020 targets we have set new, more ambitious targets and now aim by 2025 to reduce the emissions intensity of our portfolio by 40% and fossil fuel reserves by 80%,” says Whineray.

Tags: climate risk reporting NZ Super Fund TCFD