The Pathfinder Responsible Investment Fund (RIF) has slashed exposure to fossil fuel-full stocks following recommendations from the manager’s new environmental, social and governance (ESG) analyst, Rebecca Lindegger.
John Berry, Pathfinder director, said the analysis by Lindegger – an environmental scientist who joined the Takapuna-headquartered boutique in February – prompted a substantial shift in the RIF portfolio.
“Based on Rebecca’s analysis of fossil fuel companies, particularly around oil sand activity, Arctic drilling and spending on alternative energy, we have reduced holdings from 13 to three,” Berry said.
Australian firm Santos, the Norwegian Statoil, and Madrid-headquartered Repsol were the only fossil fuel stocks to survive the RIF cut.
“Exxon Mobil was perhaps the holding that previously generated the most discussion in our fund,” Berry said. “It is now gone.”
The approximately 250-stock RIF exposure to the energy sector shrank from 5.2 per cent to 1.2 per cent post the portfolio oil company scrub. Launched early in 2017 with an almost $50 million mandate from seed client Ngāi Tahu, the wholesale RIF – packaged in retail form as the Global Responsibility Fund last October – equally-weights all stocks in the portfolio.
According to Berry, the RIF move reflects a wider trend among institutional investors – including sovereign wealth funds in NZ and Norway – to wind back exposure to fossil fuels and carbon-heavy assets.
“We don’t see ourselves as being an outlier on this,” he said. “This is not simply a judgment based on values – it is also based on future financial risks around climate change and stranded assets.”
Berry said over the long term it was highly likely that ESG risks would morph into financial risks.
The three remaining oil company stocks in the RIF portfolio scored well on broader ESG criteria, he said, “which shows that even in a ‘bad’ industry you can have good companies”.
In fact, Berry said the three firms rated above average on standard ESG factors (such as treatment of staff). The three firms were also committed to developing renewable energy resources, he said.
Lindegger’s background as an environmental scientist added a unique perspective on the research process, according to Berry.
“Most people in funds management come at this from a finance perspective but there needs to be a science-based approach to understanding ESG,” he said.