KiwiSavers should factor in carbon emissions
Australia is burning and too many New Zealand companies are behaving as if it is business as usual. The debate on whether climate change is real has come and gone; the question is what are we going to do about it? It is a question that should matter to anyone who is an investor, including the 3 million New Zealanders in KiwiSaver.
The United Nations is concerned climate change could have a significant impact on financial markets and also the value of stocks you have money invested in, including through KiwiSaver.
The longer the world goes without a safe trajectory on climate change, the greater the risks for investors of an abrupt policy response. Financial markets look forward and price in future events, which means share prices are likely to react to climate change.
So it should be of great public interest that the Ministry for Business, Innovation and Employment (MBIE), and the Ministry for the Environment have put out a discussion paper on climate-related financial disclosures.
These would be included in company annual reports, accessible to the general public for listed companies and financial institutions that invest in them. In other words, they would need to explain how they are taking into account the risks of climate change and what they are doing to mitigate their carbon footprint. This has come about because the Intergovernmental Panel on Climate Change (IPCC) says limiting global temperature increases to 1.5 degrees Celsius, will involve many changes to human behaviour, including disinvestment in high greenhouse gas emitting products, processes and activities, and increased investment in new technologies, energy efficiency and clean energy sources.
Mint Asset Management is a signatory of the United Nations Principles for Responsible Investment, meaning it will be one of a few investment managers in New Zealand adopting the new disclosure requirements on carbon emissions this year. The greatest challenge for fund managers like Mint is getting reliable, consistent data from the companies it invests in.
A recent report by Forsyth Barr highlighted the fact companies with lower emissions delivered better returns. But just under half of listed companies do not disclose their carbon footprint today.
Climate-related risks and opportunities will grow. The impacts of an increase in global temperature of 1.5C are now better understood with the IPCC stating the world is on track to miss a manageable level of warming by a wide margin.
Behaviour has to change and transparency is likely to hasten the work needed to reduce the risk of global warming.
In 2016, KiwiSaver customers were in an uproar, and rightly so, over finding out many of their providers were investing in cluster bombs, munitions and nuclear armaments, forcing investment managers to move billions of funds.
With carbon emission reporting, we might see companies and fund managers forced to do the right thing for the environment too.
David Boyle is head of sales and marketing at Mint Asset Management. He joined Mint from the Commission for Financial Capability, where he was responsible for investor education and advocating for law changes to make KiwiSaver work better.