Investors driving down emissions

3rd Nov. 2021

As world leaders meet at the COP26 climate summit, Mindful Money focuses on what the investment sector can do to drive emissions down in their investment funds. Around half of global funds under management have made pledges to achieve net zero emissions by 2050, but that includes few New Zealand funds. Mindful Money has convened a coalition of organisations to encourage and support investors to deepen their climate action here - the Aotearoa New Zealand Investor Coalition for Net Zero. As an initial step, Mindful Money has undertaken a baseline survey of asset owners and fund managers in New Zealand, finding out about their intentions for emissions reduction. The results are encouraging. Most fund managers and asset owners want to work towards taking a net zero pledge.

Investors Driving Down Emissions

by Barry Coates

World leaders are now in negotiation at the COP26 climate summit. There is unprecedented agreement that decarbonising global economies is essential, even if they find it hard to agree the specifics. Ideally, governments at COP26 would set a clear and detailed framework of rules without loopholes and fudges, including targets for decarbonising economies, harmonised carbon pricing and support for a just transition. This is unlikely. We may need to lower our expectations of governments while raising our expectations that citizens and the business community will take action in the absence of government leadership.

Having been involved in many of these summits in the past, I know how difficult it is to arrive at consensus across almost 200 nations. There are competing political interests and commercial self-interest is dominant. Perhaps the biggest failing is the lack of a cooperative approach and a recognition of the benefits from climate action. Most governments still treat action on climate change as if it is a costly burden instead of an historic opportunity to create an innovative economy with improved well-being, a better environment and a safe climate.

Finance can be a crucial lever for change. When investment shifts from the polluting economy to the clean economy, businesses will respond. The good news is that there are signs that leading investors are committed to getting out of the fossil fuel economy and, instead, putting their investment into climate solutions. This has been given a boost by commitments to reduce greenhouse gas emissions in investment portfolios.

Around half of global funds under management have undertaken pledges to achieve net zero emissions by 2050. These commitments are not only acceptance of their climate change responsibilities, but they are also undertaken for sound financial reasons – it is good business practice to manage climate risk and there are exciting investment opportunities as economies decarbonise.

The net zero pledges are undertaken within a framework of entry criteria, verification and guidelines. For example, investors signing up for net zero need to reduce emissions as far as possible, and only use offsets for residual emissions. And they need to publish their interim targets for emissions reductions and progress reports. There will be some investors that make a pledge and then do little, but they will be subject to scrutiny and will be held accountable.

The management of funds to reduce greenhouse gas emissions is now becoming an expectation across the international funds sector. For example, global fund managers with US$43 trillion under management have signed up to net zero commitments. There is now an expectation that all investment managers will actively reduce the emissions in their portfolios and drive towards net zero.

However, to date few New Zealand asset owners and fund managers have been at the forefront of climate action. This prompted Mindful Money to form a coalition of organisations to encourage and support investors to deepen their climate action. The Aotearoa New Zealand Investor Coalition for Net Zero will be launched at a high profile event on 4th November.

Mindful Money undertook a baseline survey of New Zealand fund managers and asset owners on behalf of the coalition, to establish a baseline of current pledges, plans in progress and intentions to reduce climate emissions. The coverage included nine of the ten largest fund managers and an estimated 75% of total New Zealand funds under management.

Race to zero
The survey revealed five pledges to net zero by New Zealand investment organisations: BT/Westpac, Mercer Investments, Pathfinder Asset Management, Russell Investments and QBE Insurance. Collectively, their funds under management amount to around $40 billion. Subsequent to the survey, government Ministers and the Crown Financial Institutions also announced a pledge to net zero emissions by 2050 - the NZ Super Fund, Accident Compensation Commission, Government Superannuation Fund and National Provident Fund collectively administer around $110 billion.

The survey revealed that a large majority of other fund managers and asset owners also intend to reduce carbon emissions in their portfolios. There is strong intent to take more action to reduce emissions in portfolios. This puts pressure on companies to reduce their emissions and invest in climate solutions.

Mindful Money and its coalition partners will continue to encourage and support net zero commitments, with the aim of New Zealand finance being a lever for positive change. The Mindful Money website already shows fossil fuel companies that are in the portfolios of 730 KiwiSaver and investment funds. We will add further information to our Climate Action webpages to highlight the carbon intensity of funds and their commitments to reduce emissions.

Aotearoa New Zealand Investor Coalition for Net Zero comprises a core group of Toitū Tahua: Centre for Sustainable Finance, Mindful Money, and the Investor Group on Climate Change (IGCC). Supporting organisations are NZ Sustainable Business Council (SBC), Sustainable Business Network (SBN), Toitū Envirocare and Responsible Investment Association Australasia (RIAA).