New Zealand’s sovereign wealth fund, NZ Super, has allocated 40% of its portfolio to low-carbon strategies following a NZD950m (€588.6m) transaction.

The NZD35bn fund aims to reduce its carbon emission intensity by at least 20% by 2020, and lower its carbon reserves exposure by at least 40% in the same period.

As at 30 June 2017, the fund’s total carbon emissions intensity was 19.6% lower than when it began its transition, the fund said earlier this week. Its exposure to carbon reserves was 21.5% lower.

The Guardians of NZ Super – who oversee the management of the portfolio – said the move to a low carbon strategy meant the fund was more resilient to climate change investment risks, such as stranded assets. 

The changes have significantly reduced the fund’s overall carbon footprint, the Guardians said. NZ Super’s chief investment officer, Matt Whineray, added that internal research had shown that carbon exposure was highly concentrated in a relatively small group of companies.

“By targeting this group, we have been able to significantly reduce the fund’s carbon footprint while retaining the diversification benefits of passive investment,” he said.

“Our initial focus has been on the passive portfolio, as the largest part of the fund and one in which reducing carbon exposure is relatively straightforward. Our next priority is to reduce carbon exposure in our active investment strategies.”  

As part of its overall climate change strategy, NZ Super has engaged with portfolio companies to promote better risk management, and has aimed to identify new investment opportunities from the global transition to a low-carbon economy.

“Reducing the fund’s exposure to carbon is a commercial decision based on long-term risk to our portfolio as a whole,” Whineray said. “Companies have the opportunity to re-enter the portfolio in the future, if they improve their management of climate risk.”

Whineray added that financial markets were underpricing climate change risk over the fund’s long investment timeframe. Reducing exposure to carbon emissions and reserves was a “low-cost insurance policy”, he added.

Erste excludes BMW and Daimler on cartel allegations

Austria’s Erste Asset Management has excluded German car manufacturers BMW and Daimler from its investment universe for its line of “responsible” funds due to suspicion they may have been colluding on technical standards and other matters.

The cartel allegations, made in the media and being investigated by regulators, also concern Audi, Porsche and Volkswagen, but the Austrian asset manager had already excluded these because of the diesel emissions scandal.

“The secret agreements among German car manufacturers, which had started in the 1990s according to media reports, represent ground zero of the diesel emissions scandal,” said Erste in a statement today.

Walter Hatak, research analyst and member of the sustainability team at Erste AM, added: “As pioneer and market leader, the German automotive sector bears a huge responsibility. But instead of free competition for the development of the cleanest and most efficient car, it seems backroom deals were made, geared towards stifling this very competition.

Making sense of carbon regulation patchwork

Trucost, part of S&P Dow Jones Indices, has launched a carbon pricing tool for companies that is intended to help them assess exposure to evolving regional carbon pricing mechanisms.

The tool is based on a database that Trucost has built of current carbon regulations, emissions trading schemes, fuel and other taxes, and potential future carbon pricing scenarios designed to achieve the goal of keeping global warming to a maximum of 2°C above pre-industrial temperatures, as per the Paris Agreement.

Libby Bernick, global head of corporate business at Trucost, said: “Companies are trying to make sense of the pace at which legislators in different countries, states and cities are implementing carbon regulations.

“Because these regulations could drive up the cost of fossil-fuel-based energy and carbon-intensive raw materials, increasing operating costs and reducing profit margins, companies need robust data and analytics to help inform financial decisions over investments in energy efficiency, low-carbon innovation and renewable energy.”