Paris alignment a drawcard for investors

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After a year of garnering wholesale investor input and subsequent seeding, Kernel Wealth is launching one of the few Paris-aligned index funds available to Kiwi retail investors.

Friday, March 10th 2023, 6:20AM 1 Comment

Kernel Global ESG Fund will be accessible for retail general investment, KiwiSaver as well as wholesale. It aligns with the 2016 Paris Accord, which includes UN-regulated criteria to match investments to listed companies committed to capping global warming at 1.5° celsius. To achieve the 1.5°C scenario, the index must reduce average carbon emissions intensity against its benchmark by 50% and include a year-on-year pathway for decarbonisation of 7%. Companies' ESG scores are captured, with the fund weighted toward those with the highest scores after exclusions for social activities flagged as critical concerns for Kiwis such as controversial weapons, gambling and revenues generated from fossil fuels. The fund invests across multiple dimensions of ESG and climate themes, including 11 major Global Industry Classification Standard (GICs) and 24 developed markets.

“Climate is the core focus of the fund,” says Kernel founder and CEO Dean Anderson. “It’s very topical at the moment. We’ve got regulatory change focusing our attention on climate and I think the conversation has been accelerated given the recent weather events. There is greater awareness of the change occurring in our environment, what that means and how we should be directing our investments.”

The index methodology also considers where company assets are and what the long-term climate risk to those may be; giving more weight to climate resilient companies. Anderson describes the depth of accessible information on each stock as astounding.

“This is essentially an institutional quality investment option available to everyday investors, financial advisers, and wholesale groups. It is one of the very few global equity funds available in New Zealand that is both tax and fee efficient, with fees of just 0.25%. It’s also available in both New Zealand dollar hedged and unhedged versions. We think that’s really important. Advisers and wholesale investors have varying views as to what they want to do around managing the currency exposure. Also the funds will have quarterly distribution but we offer a reinvestment plan as well.”

Kernel found market demand for climate-friendly ESG funds was evident when  it began the search for seed investors. The company has been working on the customised index strategy for over a year, requiring a significant investment seed in order to fully replicate the index.

Anderson says Kernel has already built strong demand, to not only secure the large seed but has subsequently secured significant additional commitments.

“The commitments already secured for this fund is a reflection of how serious New Zealand investors and institutions are taking climate action. We are simply providing them the tools they need to do this efficiently and transparently, while delivering on the principal investment needs.”

Other funds benchmarked to Paris-aligned indices include the New Zealand Super Fund and Westpac’s investment arm BT Funds for its KiwiSaver scheme.

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