Billions of dollars of KiwiSaver to shift onto lower-carbon investments

This article originally featured on Stuff and was written by Rob Stock. 

Rebecca Roberts​ has just switched her KiwiSaver from her bank ASB to Pathfinder after deciding she needed a fund manager that more closely matched her ethical aspirations.

She was inspired to make the move after coming across a KiwiSaver post by social media influencer Ethically Kate (Kate Hall), who joined Pathfinder two years ago.

Hall said she felt huge relief after shifting that her money was no longer in a default KiwiSaver scheme supporting things like oil drilling, gambling and weapons.

“I’ve realised it's not about simply diverting your money away from the bad things, but acknowledging the power we have to do so much good in choosing an ethical KiwiSaver scheme,” Hall said.

Roberts made her switch through the online BetterSaver KiwiSaver service.

“I did an online quiz looking at what KiwiSaver were investing in, and Pathfinder was aligned with my values,” says Robert, who owns The Natural Co, which sells natural products.

Joe Taylor, chief executive of BetterSaver, said 40%​ of people using its tools to check whether they should switch fund, said sustainability was important to them.

Some of the largest KiwiSaver providers have indicated they will reveal their decarbonisation plans in the next three to nine months.

Already many KiwiSaver schemes have ejected fossil fuel producing companies from their funds, and some large schemes like Westpac, AMP and Mercer have made net zero carbon pledges. But three of the largest five schemes – ANZ, ASB, and Kiwi Wealth, which manage a combined $39 billion​ for about 1.33 million​ savers – are preparing to unveil emissions-reduction strategies.

That will take the amount of KiwiSaver money with public net-zero or firm carbon reduction pledges to over $55b​ covering the savings of about 2 million​ savers.

Simon O’Connor, chief executive of the Responsible Investment Association of Australasia, says climate is KiwiSavers’ next big leap forward in closing the gap between fund managers and the public’s aspiration to save the planet.

“One of the big things for them is to ensure their KiwiSaver funds are not doing environmental damage. Around 90% of people tell us that’s important,” O’Connor said.

Half expected their KiwiSaver provider to make a net-zero pledge, he said.

The relatively tiny Pathfinder KiwiSaver scheme, which was named as the Mindful Money ethical KiwiSaver manager of the year late last month, went net-zero carbon last year after pledging to do so in 2020.

Pathfinder chief executive John Berry said the world needed to transition to a zero-carbon economy, but he warned KiwiSavers to be on alert for long-term pledges with no concrete action plans from fund managers.

Companies that worked to achieve decarbonisation were likely to be better, lower-risk, long-term investments, Berry said.

Around the world, pension fund managers are pledging to offer lower-carbon funds, moving their investments away from industries and companies not doing their part to decarbonise.

The KiwiSaver industry has an extra local impetus, as from the 2024 financial year, large managers will be forced by law to report on their climate risks.

When Climate Change Minister James Shaw announced mandatory climate risk reporting, it was a world first, and fund managers say emissions measurement for funds is not yet an exact science.

Sam Stubbs, chief executive of not-for-profit KiwiSaver provider Simplicity, said: “There’s a massive effort going into this, but it’s too early yet to have credible measurements. Anyone who says there are is greenwashing and, or grasping at straws.”

“I hope the Financial Markets Authority is watching this, because I smell virtue signalling,” he said.

When Pathfinder bought carbon credits from a Mexican project distributing energy-efficient cooking stoves to go carbon-neutral, it bought more than it technically needed in case its carbon estimates were off.

Stubbs predicted rapid improvement, but until that happened, he warned of the danger of KiwiSavers being subjected to practically unachievable claims and promises.

Not all investors relish the prospect of their schemes shifting onto a lower emissions track.

Frances Sweetman, Milford’s head of sustainable investment, said its savers ranged from those who were focused only on returns to people who wanted Milford to “represent all of their values, even [those] that aren’t achievable through their own behaviours”.

“The largest bucket of people equally weight what they invest in, and financial returns, so they want both,” she said.

What’s your scheme planning?

ANZ: $18.5 billion, 650,000 savers

“Our net zero target, target date, and emissions reduction plan are under development, and will be implemented by early 2023✓​, at the latest,” an ANZ spokesperson said.

ASB: $14b, 500,000 savers

Is working on how to align its funds with the Paris Agreement to limit global temperature rise to below 2C above pre-industrial levels, and preferably to 1.5C or less. ASB will reveal plans later this year, and it will start reporting on emissions next year.

Westpac: $9.3b, 380,000 savers

Committed last year to aligning its funds to a 1.5C temperature strategy, and net zero greenhouse gas emissions by 2050 at the latest.

Fisher Funds: $6.9b, 230,000 savers

Is “actively exploring the requirements and ramifications” of committing to net zero. It started measuring fund emissions this year, but had not reported publicly because it wants to ensure it was robust.

Kiwi Wealth: $6.7b, 180,000 savers

Will unveil its decarbonisation plans in October, but it will involve a big dose of nudging the companies it invests in towards lower carbon futures. “We don’t believe we can divest to insulate our portfolio from real world physical climate risks. Engagement is the most promising way to progress this issue,” it said. Kiwi Wealth has already pledged to go net-zero through the global Net Zero Managers Initiative, and has a 2025 target of emissions to be 45% lower than in 2019.

AMP: $5.8b, 146,000 savers

Last year pledged to be net-zero by 2050, but it also has a 2030 target. “We are targeting a 79% reduction in exposure to carbon emissions by 2030 from a baseline measurement point from mid-2021,” said Jeff Ruscoe, AMP Wealth Management managing director. It measures fund emissions, and promises to publish them “soon”.

Milford: $4.9b, 88,000 savers

Still working on its climate change strategy.

BNZ: $4.5b, 180,000 savers

Bank signed up to the global Net-Zero Banking alliance in 2021, which committed it to going net-zero by 2050. It’s current KiwiSaver commitment is to have a lower carbon intensity than comparable benchmarks, and increased exposure to investments that may benefit from the transition to a low-emissions economy.

Generate: $3.3b

Did not respond to Stuff’s enquiries.

Booster: $3.1b, 175,000 savers

“We haven’t set a net-zero target as the path for managers to achieve this isn’t clear in the absence of buying carbon credits,” it said. It measured emissions, but has not yet published them.

Simplicity: $2.6b, 126,000 savers

Simplicity has adopted a net-zero 2050 target date, and is working on its climate strategy. “Our initial thinking is that we will start with a 2025 target based on our 2020 emissions and then set another 5 year target (2030) from there,” Stubbs said.

Mercer: $2.3b, 51,600 savers

Last year pledged to go net-zero by 2050, and reduce emissions by 45% by 2030, and already reports on carbon to investors.

Smartshares/SuperLife: $1.8b, 72,000 savers

Its owner NZX, the operator of the New Zealand sharemarket, plans to set a net-zero 2050 target, as well as a 2030 emissions-reduction target. “Smartshares has work underway to identify a market data partner to calculate and measure the carbon intensity of our funds, including SuperLife,” it said.

- Funds under management for end March. Source: Morningstar and KiwiSaver providers.