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Super Fund's new climate strategy

The $30 billion NZ Super Fund will become more resilient to climate change investment risk under a new strategy announced by the Guardians of New Zealand Superannuation.

Wednesday, October 19th 2016, 1:07PM

Chief executive Adrian Orr said climate change was a material investment issue with risks for long-horizon investors. “In coming years the global energy system will transition away from fossil fuels. Some assets we invest in today may become uneconomic, made obsolete or face a dwindling market.

“Reducing the fund’s exposure to these risks and to the physical impact of climate change is good for the portfolio, and consistent with our mandate to maximise returns without undue risk.

“Climate change, and the coming transition to a low-carbon energy system, also present investment opportunities for long-term investors that we intend to capture.”

Orr said the strategy represented a significant and fundamental shift for the NZ Super Fund.

The Guardians will implement a four-part strategy of carbon footprint reduction, analysis, engagement and searching for new investment opportunities. The strategy will be applied across the Fund’s entire portfolio.

The strategy includes a commitment to significantly reducing the fund’s exposure to both fossil fuel reserves and carbon emissions. This will be achieved through ongoing engagement with companies, building carbon measures into the Guardians’ investment model, targeted divestment of high-risk companies and reduction of other relevant portfolio exposures.

The Guardians will incorporate climate change considerations into investment analyses and decisions, for example into valuation models, risk allocation and manager selection. The Guardians will also report the fund’s carbon footprint annually.

“We will continue to manage climate risks by being an active owner, including prioritising climate change engagements, developing our voting policy and directing our investment managers to vote according to our instructions on climate change resolutions,” Orr said.

“Importantly, we will intensify our efforts to actively seek new investment opportunities in the areas of alternative energy, energy efficiency and transformational infrastructure.”

Orr said the NZ Super Fund’s strategy was in line with current global best practice by institutional investors, and had been informed by NZ Government and international policy on climate change.

The Guardians had studied climate change strategies from AP4, PGGM and other global investment leaders in developing its approach. A 2015 climate change study by Mercer, part funded by the NZ Super Fund, was also an important part of the strategy development process.

“Our strategy and the actions we take will evolve over time as investment markets become more sophisticated on climate issues, and more tools and data become available,” said Orr.

NZ Super Fund will report publicly on the levels of reduction in its carbon footprint, for both carbon emissions and fossil fuel reserves, from 2017. Orr said the Guardians would look to achieve a substantial reduction in both measures as soon as practicable, and seek further reductions over time.

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