Your biggest climate impact might be your Kiwisaver

Original article published on Stuff, written by Barry Coates founder and CEO of Mindful Money

OPINION: Most New Zealanders are taking actions to reduce their carbon impact. This is important. While individual actions alone will not solve the climate crisis, they are vital in influencing business practices. We need to align our economic choices with our values by supporting climate solutions rather than contributing to the problem.

However, many supporters of climate action have a blind spot when it comes to their savings and investment. The number of people with a more ethical and lower-carbon KiwiSaver or investment fund is growing but is still a small proportion of the population.

New research shows that our investment can be a powerful mechanism to influence companies and reduce our carbon impact.

The insurance company, Aviva – with a UK charity, Make My Money Matter – has just released a research paper on the impact of switching to a more ethical pension fund. The calculations show that the carbon emissions of companies in an average pension fund are more than three times the emissions from an individual’s travel, shopping, energy use, waste and direct impacts.

This shows the potential leverage for investor action. Ethical choices by investors are already encouraging fund managers to reduce the emissions from companies in their funds. A growing number of funds are setting targets to reduce their net emissions, including targets for their funds to achieve net zero emissions. There are two main ways they can reduce emissions.

Firstly, fund managers can use their power as owners of the shares to put pressure on companies. This was seen last month when a coalition of international investors replaced three directors on the board of Exxon, one of the world’s largest oil companies, as a way to accelerate their low-carbon transition. Shareholder action to reduce carbon emissions is becoming more common and more powerful.

Fund managers can also reduce emissions by divesting from companies with high emissions and switching their investments to alternatives. When undertaken at sufficient scale, divestment reduces the demand for shares of emissions-intensive companies, lowers share prices and makes it more costly to raise capital.

An example is the growing impact of the global fossil fuel divestment campaign, now supported by investment funds managing US$15 trillion. By contrast, renewable energy companies such as Meridian, Contact Energy and Tilt Renewables have seen rapid increases in their share prices after a flood of investment by ethical investment funds.

Demand from investors is crucial in persuading more fund managers to reduce the emissions of their portfolios. It is also a way for individuals to take powerful action. The UK study estimates that investing in a sustainable pension fund can be 21 times more powerful in reducing emissions than other actions individuals can take.

The exact figures are debateable, because the impacts from investor action are indirect. However, it is clear that switching to a more ethical fund can be a powerful driver for climate action.

This is a change that the majority of New Zealanders can make. For example, most people who have money in KiwiSaver or investment funds are still invested in fossil fuel companies, with high carbon emissions.

Now or Never

The total investment by KiwiSaver funds in fossil fuels was $1.65 billion in March 2021. This is despite repeated warnings about climate risk from experts and governments, and despite surveys showing that three-quarters of Kiwis want to avoid investing in fossil fuel companies.

The good news is that there is now a choice. More KiwiSaver funds are now avoiding fossil fuel investment. Two years ago, only 2 per cent of KiwiSaver funds had a policy to avoid fossil fuels. Now 19 per cent of KiwiSaver funds have a fossil-free policy, including 5 per cent that have completely divested from fossil fuels. It has also been a sound financial decision to avoid fossil fuels. The share prices of coal, oil and gas companies have plummeted over the past 6 years.

Few Kiwis are aware of which fossil fuel companies are in their KiwiSaver or investment funds or what the alternatives are. This is now easier to find out. The charity Mindful Money provides free access to analysis listing the fossil fuels companies in all KiwiSaver and investment funds, and identifies the funds that have a fossil-free policy.

Transitioning to net zero emissions globally and locally will need a massive shift in capital from the polluting economy towards investing in climate solutions. We can all play our part in making this shift happen.

Barry Coates is the founder and chief executive of the charity Mindful Money.