NZ Super fund to cut fossil fuels, makes "fundamental shift" to prepare for climate change
New Zealand's sovereign wealth fund is promising to reduce its investments in fossil fuels and target clean energy in a bid to prepare for climate change.
On Wednesday the New Zealand Superannuation Fund confirmed it was pledging cut the carbon footprint of its $30 billion portfolio, including selling down "high risk" investments.
While the move comes with no set targets and will not prevent the fund from investing in any particular sector, chief executive Adrian Orr said it would lead to some parts of its portfolio being sold.
The fund wanted to reduce its carbon footprint materially in a relatively short space of time, Orr said. The fund will publish its carbon footprint and fossil fuel reserves annually.
"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."
Established under the previous Labour Government in a bid to partially cover New Zealand's future pension needs, the fund claims the move will not hurt returns.
However, it admitted there could be a "limited" impact if global policy makers took less action on carbon reduction than was anticipated.
"We hope that we might be able to increase return for the same risk, or at least maintain our returns for less risk," Orr said.
"Our task is not to create a low carbon world, our task is to manage this portfolio to maximise the return without undue risk."
NZ Super will not commit to selling out of fossil fuel investments completely, but instead will "incorporate climate change considerations into investment analyses and decisions".
Investments with a higher carbon footprint would require a higher rate of return, but the fund would not necessarily rule them out.
"To walk away from carbon might...make some individuals feel pleased with themselves, but it won't make a squat of difference with regards to the actual climate change," Orr said.
The fund would also actively seek out new investments in the "alternative energy, energy efficiency and transformational infrastructure" sectors.
Although set targets had not yet been set, Orr said he expected these would be developed, with the fund then reporting progress against them.
The fund had not consulted the government over the plans aside from informing it under the "no surprises" policy, Orr said.
Finance Minister Bill English said the fund was expected to invest in a "prudent, commercial manner", but particular decisions were its business.
"The Government does not tell the fund where or how to invest. Decisions about investment, such as the decision to adopt a climate change strategy, are matters for the fund."
Green Party co-leader James Shaw welcomed the move, contrasting it to the over main state asset manager, ACC, which he said had taken "no action" on climate change.
"The super fund has accepted the fact that climate change is making its investments in climate-polluting companies increasingly risky," Shaw said.