2 Feb 2016

Investors want climate change risk disclosure

11:46 am on 2 February 2016

Institutional investors are agitating for more information from fossil fuel companies about the risks they face from climate change.

The New Zealand Superannuation Fund is developing a fund-wide strategy to deal with the financial effects of such change.

no caption

Photo: 123RF

The Fund manages $29.48 billion of assets which by 2031/32 is expected to be used to help pay for New Zealanders' pensions. It was undertaking significant work to future-proof the fund from economic, social and environmental trends such as human-made climate change.

The fund is signed up to the Australia and New Zealand Investor Group on Climate Change, which has 60 institutional investor members across the two countries representing around $A1 trillion of funds.

The group's chief executive, Emma Heard, said there was a real push from institutional and retail investors for more information on the risks from climate change to their investments.

"People really want to know where their money is going, particularly for young generations we're seeing quite a lot of significant campaign movements around engaging with their pension funds and saying where is my money going, where are you putting my money, how is it generating returns for me?"

Ms Heard said any responsible fund manager had to recognise the impact of the Paris agreement to limit global warming to less than 2°C above pre-industrial levels.

That target means many fossil fuel companies are likely to have to keep their main resources in the ground.

Ms Heard said climate change policy would drive an economic transformation which would result in winning and losing companies.

"For investors it's all about determining are any of those problematic investments in their portfolios and where are the growth opportunities for the next wave of investments coming off the back of the Paris agreement?"

Harbour Asset Management manages more than $2 billion. Its portfolio manager, Shane Solly, said the firm regularly asked companies about their environmental policies.

"In particular the policies on carbon emissions, energy use and water use, and how to prevent enivronmental damage, so it is something we take very seriously and it's a core part of what we do."

Mr Solly said large funds, globally, had moved away from fossil fuels, and it was something investors increasingly wanted to know about.

"What we find is companies that have reasonable environmental policies tend to deliver reasonable returns for investors, it's just the right thing to do. How these policies stack up influences our decision to invest in a company on our clients behalf."

AMP Capital head of investment strategy Keith Poore said its larger funds still invested in the fossil fuel industry, but being an investor is the way to get change.

"Given the size of AMP globally, especially when we team up with other investors, we generally get a seat at the table so we think engagement is a good way to go to try and improve some of the practices of some of the carbon emitters."

AMP Capital has $19b of funds and has $94 million in its responsible investment funds, which consider the impact of climate change.

However, Mr Poore said the uptake for those funds had not been as great as expected - but he thinks that will change.

"We're getting some good leadership I think, not just from ourselves but from the likes of the New Zealand Super Fund. They're stepping up their engagement as well, their responsible investment approach, so you're seeing it more in the news and in the media and I think people will pick up their investment in it."

The Superannuation Fund did not want to be interviewed on its strategy change at this stage because it was still under development.

Instead, it pointed to a study it part-funded last year which looked at investing in the time of climate change.

The study said the impact of climate change would be most meaningful for industry sectors.

It estimated that, depending on the climate scenario which actually occured, the average annual returns from the coal sub-sector could fall by anywhere between 18 percent and 74 percent over the next 35 years.

The renewables sub-sector could see average annual returns increase by between 6 percent and 54 percent over the same period.