Climate reporting not yet backed by climate action
A 2023 survey of New Zealand institutional investors, with collectively more than $230 billion assets under management, has found slow progress on investment targeting climate mitigation.
Wednesday, July 3rd 2024, 2:33PM 
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Ironically, the number of participants in the survey was lower than in the past, possibly because it was conducted during a period (mid September to December) when many fund managers were busy preparing their first reports under the climate-related disclosure (CRD) reporting legislation.
The third annual State of Net Zero Investment report by the Investor Group on Climate Change (IGCC), Centre for Sustainable Finance and Mindful Money looks at how investors are integrating climate risk into investment decision-making and investing in climate opportunities.
Last year’s survey drew 13 respondents; Climate Venture Capital Fund, Accident Compensation Corporation, NZ Super Fund, Booster, Simplicity, Annuitas Management, Tahito, Trust Waikato, BT Funds Management, Mint Asset Management, ANZ NZ Investments, JMI Wealth and the Bay of Plenty Community Trust.
Mindful Money co-CEO Barry Coates says the role of investors is crucial, both to drive climate action in New Zealand and to contribute capital for international action.
“Climate reporting is important but it must be a foundation for actions to reduce the emissions they finance, not just a compliance requirement. Has climate reporting given a boost to the way firms are investing? That for us will be the test.”
He hopes the next annual survey will show better progress.
Centre for Sustainable Finance CEO Jo Kelly, says the focus on reporting by fund managers and asset owners has yet to be matched by specific commitments and actions to reduce the greenhouse gas emissions that they finance.
“The proportion of investors that have targets for investing in companies that are aligned with climate action (such as companies contributing to the climate transition) or providing climate solutions (such as technology that enables others to reduce emissions) is small but growing. There are still almost two thirds of fund managers in New Zealand without a target, compared to one third in Australia.”
The survey found that 30% of respondents had a strategy or plan for achieving their net zero objectives or targets, 54% intended to produce one over the next twelve months, 77% had policies regarding fossil fuels and 100% used negative screening for some climate goals.
Only 8% had assessed their entire portfolio for exposure to physical risk associated with climate change. When assessments were made, a high proportion of participants responded primarily by implementing negative screens (54%).
Coates says the way exclusions are framed can be very different. “Some exclude all companies that earn 50% of their income in coal production. Which is not a credible exclusion at all. Some will exclude 100%. Some extend that to oil and gas and generation from electricity.”
On its ethical investment rating website, Mindful Money excludes companies that earn more than 5% of revenue from fossil fuels and any revenue from coal, Arctic oil and shale oil. Most New Zealand investors fall well short of that, says Coates.
The survey also found that 92% of respondents used corporate engagement, shareholder action and/or active ownership, and 26% had a formal target, plan, commitment and or strategy for investments in climate solutions (public or non-public).
Rebecca Mikula-Wright, IGCC’s CEO says it was good to see most fund managers are also increasing their engagement and stewardship She says reductions in deforestation and protection of biodiversity are important pathways to reduce greenhouse gas emissions.
“While it’s encouraging that there is growing interest amongst investors in the interactions between nature and investment, less than one quarter of those surveyed have a policy on biodiversity, and only 15% have a policy on deforestation. These are similar levels to the Australian survey. We expect to see New Zealand investors accelerate their progress across all metrics in the year ahead.”
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Last year the FMA said it expected a high level of public interest in climate statements, meaning it would need to respond to a high volume of enquiries and complaints and any enforcement action will be considered on a case-by-case basis. Why does the FMA believe this? None of New Zealand's biggest climate polluters are associated with the financial services industry. Stats published by the Environmental Protection Authority in 2022 showed the biggest emitters were for milk, petrol, fossil (or natural) gas and meat businesses, with electricity, and steel companies rounding out the top group because of their fossil fuel use. By contrast, many of New Zealand’s biggest employers and profit makers (including banks, vineyards, telcos, healthcare companies and renewable energy providers) didn’t appear in the top climate polluter ranks because their emissions weren’t even high enough to qualify for compulsory reporting.
As another reader of Good Returns said last year "I suspect we’ll look back on this climate reporting in years to come, with confusion & questions. Whilst there is no doubt that climate controls are increasingly important, I’m unsure whether the energy, effort & expense in producing these reports are the best use of resources &/or going to make a difference… although I’m sure that the ‘climate enthusiasts’ & those who are positioned to make a buck from all of this will have an opposing & vocal perspective"
I look forward to the new Ministry of Regulation reviewing and ultimately deciding to remove climate related disclosures as a compliance requirement for the New Zealand financial services industry.