NZ Super Fund shifts $25 billion to low carbon indices

The NZ Super Fund has significantly reduced its exposure to carbon emissions. Photo / NZME

The New Zealand Superannuation Fund has shifted $25 billion of investments - around 40 per cent of its total portfolio - into low carbon indices.

The changes apply to the fund's index-tracking reference portfolio benchmark and its passive investments in global equities.

Stephen Gilmore, NZ Super Fund chief investment officer, said the changes would reduce the fund's exposure to carbon emissions and bring its investments in line with the Paris Agreement - the international climate change treaty.

"Making this shift in a way that will not have a detrimental impact on investment returns has been critical for us. The move follows many months of technical analysis weighing up a range of risk, return, cost and implementation considerations.

"We're confident fund performance will not be adversely affected and see both cost and efficiency benefits in the changes. The new indices provide a simple, off-the-shelf solution for our passive benchmark and holdings."

The change will also reduce the number of publicly listed companies which the fund owns directly.

Gilmore said the smaller, more concentrated portfolio would be cheaper to run and more manageable for it to identify and engage on responsible investment issues.

The NZ Super Fund first began reducing its exposure to carbon emissions in 2017.

Since then it had reduced fund-wide emissions intensity by nearly 50 per cent and no longer held any material, long-term exposure to fossil fuel reserves.

The fund is a signatory to the Paris Aligned Investment Initiative's Net Zero Asset Owners
Commitment, under which it has agreed to make reductions in its portfolio carbon footprint in line with a globally-accepted pathway.

Gilmore said the fund would be reporting on its progress towards net zero annually under a framework for the New Zealand Crown Financial Institutions, as agreed with the Minister of Finance last year.