Investors need to step up to tackle climate change

Investment decisions have a major impact on climate change. In order to reduce emissions, funding needs to switch from high emissions companies to climate solutions like renewable energy, clean technologies and the circular economy. It is increasingly evident there are climate risks and costs for the investors that fail to integrate climate change into their approach, and opportunities for those that do.

Wednesday, November 30th 2022, 6:11AM

By Barry Coates, CEO of Mindful Money

The results of a recent survey show that the New Zealand investment sector as a whole has been slow to take steps towards climate action, despite intentions to do so. At a time when global capital is oriented towards reducing emissions, we are falling behind.

This second annual survey was undertaken by Mindful Money, Toitū Tahua – the Centre for Sustainable Finance, and the Investor Group on Climate Change. Survey responses from 50 asset owners, wealth advisers and fund managers covered $331bn of FUM, over 80% of the New Zealand investment sector.

The survey was undertaken in parallel with an Australian survey, and the same questions were asked on either side of the Tasman. The results showed that New Zealand investors are trailing their Australian counterparts, who in turn lag leaders in the EU. The under-performance in New Zealand was not only on a few issues, but on virtually every measure surveyed, even on measurement of emissions, even though New Zealand will become the first country in the world to have regulated reporting.

The slower progress was evident in the key foundational steps to address climate change – putting in place a governance framework, measuring and disclosing emissions, setting targets for emissions reduction, and making long term pledges to reduce emissions to net zero.

New Zealand is also behind the Australian investment sector in undertaking the main strategies to reduce emissions – decarbonisation of portfolios, stewardship and engagement, and investment in climate solutions.

There were particular areas of weakness. Most wealth advisers and managers have yet to meaningfully engage on climate issues. While there are challenges for independent advisers or small advisory firms, the survey focused mainly on the larger wealth management firms. Most have yet to build climate change into their advisory and wealth management processes. In addition, the survey revealed that most asset owners are not proactively setting mandates for fund managers to incorporate climate risk and opportunities.

Despite the slow progress overall, the survey highlighted some positive developments that provide a platform for further action – a number of smaller investors are progressing with annual climate reporting, even those not covered by the upcoming climate-reporting regulation; and over half of investors now have a climate policy in place.

There are also some leading examples of good practice shown in the report. There are now 11 New Zealand investors that have taken a UN Race to Zero pledge to reduce emissions to net zero and accepted the guidelines that require interim targets and progress reporting – this is up from eight in last year’s survey. Another six investors have set targets for net zero and 13 community trusts have committed to decarbonise their funds. Some funds are leading the way, notably the NZ Super Fund which has set targets, measured progress, increased their targets and entered a net zero pledge. A number of case study examples will be included in the forthcoming full report.

The survey also asked about constraints to progress. A lack of data, tools and definitions around climate investing and net zero strategies was identified in the survey as the biggest barriers to more climate-aligned investing. Interestingly, other potential issues such as a lack of consumer and client demand were not cited as barriers.

The coalition of organisations behind the survey will contribute to addressing these constraints and supporting faster progress on investor climate action. This will include education and awareness-raising, including through Mindful Money’s online seminars; support for collaboration on engagement with companies; continued support of a community of practice for investors to share information and resources; and monitoring of progress next year.

At the seminar held to launch the Executive Summary of the survey, Dr. Rod Carr talked about his role on a UN Expert Group on Net Zero. He outlined the actions taken in global capital markets to drive down emissions and challenged the New Zealand investment sector to avoid getting left behind. There are huge advantages for early action and costs for those who do not take action.