Both New Zealand-based funds covered in the Asset Owners Disclosure Project (AODP) ‘Climate 500 Index’ sit well down the rankings in the lobby group’s latest annual report.
According to the AODP 2016 index, the New Zealand Superannuation Fund (NZS) and the Accident Compensation Commission (ACC) fund sit at 108 and 255 respectively on list which rates the world’s largest asset owners on their “success at managing climate risk within their portfolio”.
Now in its fourth year, the AODP index ranks funds on three core criteria in relation to climate change action: portfolio carbon risk management; engagement; and, low carbon investment.
Based on a range of underlying details the AODP grades each fund into five basic categories ranging from ‘leaders’ to ‘laggards’ with sub-grades at the top three levels.
NZS earned a ‘D’ – or ‘bystander’ in the AODP terminology – as it slid down 49 places in the rankings compared to the 2015 index. Meanwhile, the ACC fund, which appears for the first time in the climate index, was X-rated by the AODP, pushing New Zealand’s largest fund into the ‘laggard’ category (while also locating the Wellington-headquartered organisation close to Invercargill in its ‘interactive’ map).
The two Crown Financial Institutions (CFIs) manage about $30 billion each with ACC slightly larger, according to most recent figures. The 2015 United Nations Principles for Responsible Investment (UNPRI) report awarded NZS an A+ for its “overall approach to responsible investment”. In June of the same year, NZS – along with the ACC and the Government Superannuation Fund – hired BMO Global Asset Management to manage the global responsible investment strategy for the CFIs.
Last year the AODP index ranked New Zealand as the fifth-best country in addressing climate change via investment funds, presumably based solely on the NZS data at the time.
The 2016 index rates the UK Environment Agency Pension Fund at number one followed by the Australian Local Government Super. Another trans-Tasman mega fund, Australian Super, also scored highly (7th) with Sweden, Denmark, Netherlands, USA and France represented in the top 10.
The US$773 billion Abu Dhabi Investment Authority Fund was the biggest ‘laggard’ in the AODP index. Funds from China, USA, Japan, Kuwait and Saudi Arabia filled out the list of 10 largest climate change laggards.
While the AODP report notes some improvement at the top end of the scale, the number of ‘laggards’ also jumped to 246 compared to 232 in the 2015 study.
About US$14 trillion of the total US$38 trillion managed by the 500 funds ranked by the AODP would fall into the ‘laggard’ category, the report says. At the same time, almost 20 per cent of the funds, representing some US$9.4 trillion are “taking tangible action” on climate change, the AODP says, and a further “157 worth $14 trillion are taking the first steps”.
In a statement, Julian Poulter, ADOP chief, said climate change was now seen as a “mainstream issue” by institutional investors.
“However, only a handful are protecting their portfolios from the very real danger of stranded assets, and it is shocking that nearly half the world’s biggest investors are doing nothing at all to mitigate climate risk,” Poulter said. “Pensions funds and insurers that ignore climate change are gambling with the savings and financial security of hundreds of millions of people around the world and risking another financial crisis.”
The AODP 2016 report “key developments” over the year include:
- 31 Leaders rated A and above, an increase of 29%
- 12 asset owners are rated AAA, a 33% increase
- The most significant increase is a 52% rise in asset owners rated CCC-C to 41, indicating many more are acknowledging and more importantly taking action on managing climate risk in their portfolios.
- Nearly half the index remains X rated, with no evidence they are taking any action.
Former Australian Liberal Party leader, John Hewson, chairs the AODP in a board that includes compatriots Sharan Burrow, General Secretary at the International Trade Union Confederation, John Connor, head of The Climate Institute, as well as the ex Goldman Sachs Asset Management US chair of quant investment strategies, Bob Litterman.
The AODP describes itself as “an independent not-for-profit global organisation whose objective is to protect retirement savings and other long term investments from the risks posed by climate change by improving disclosure and industry best practice”.