The New Zealand Super Fund has moved to reduce the risk of losses on fossil fuel assets, as part of its strategy on climate change.
The move is part of the fund’s long term strategy of reducing its exposure to carbon-intensive investments – companies whose share prices could face sudden price collapses as the global economy begins the rapid transition needed towards a zero-carbon future.
Some $936 million in investment has been shifted away from companies that carry high reserves of fossil fuels on their books, or which emit high volumes of greenhouse gases as part of their business operations (such as chemical manufacturing and electricity supply).
Among the fossil fuel heavy-weights that have been either purged or significantly reduced from the investment portfolio are ExxonMobil, Chevron, Shell, BP and Canadian oil sands company Suncor.
The Super Fund is still rolling out its strategy on climate change and today’s announcement relates only to the 40% of the fund held in passive index funds, rather than those held in active management. However it is in line with the increasing awareness among international investor groups about the risk of huge losses on carbon-intensive stocks as the global economy makes the transition towards renewable energy sources.
In a landmark speech two years ago, the Governor of the Bank of England, Mark Carney, warned investors that they risked massive losses on “stranded” fossil fuel assets - vast reserves of oil, coal and gas on the books of companies like Exxon and BP that can never be burned if global warming is to be kept below 2°C.
It’s estimated that only one fifth of all the proven reserves on the books of the world’s fossil fuel companies can be exploited without pushing the global temperature increase past the catastrophic 2°C threshold.
Since Carney’s speech, the global Taskforce on Climate-related Financial Disclosures has come up with a set of recommendations aimed at forcing fossil-fuel companies and high-emitting industries to disclose their carbon footprints and to show how they preparing for a world that must wean itself off fossil fuels. The fear is that the financial markets are still not accurately pricing the true risk of fossil fuel exposure, and that a sudden price correction of carbon-intensive stocks could create massive global financial instability.
Among the biggest divestments announced by the Super Fund today are a $108 million reduction in holdings in ExxonMobil, leaving the fund with a residual $8.8 million investment in a company that has come under repeated fire for blocking action on climate change and which is facing fraud accusations for allegedly deceiving its shareholders about how it accounts for its greenhouse gas emissions.
The Super Fund has also sold $64 million in Chevron shares, $37 million in BP shares (although a holding of $760,000 has been retained under active management), $15.5 million in oil-sands producer Suncor and $6.5 million in Norwegian company Statoil.
New Zealand Oil and Gas and Genesis Energy shares have also been sold.
The fund is not following a pure divestment strategy such as that favoured by activist groups such as 350.org and fossil fuel companies that have shown a willingness to address climate change and begin adapting to a low-carbon future have been retained in the passive portfolio.
As at June 30 the fund’s full list of equity holdings (including those held under active management) still boasts a number of fossil fuel companies, including a $50 million holding in France’s Total and $12.6 million holding in Russia’s Gazprom.
NZ Super Fund chief investment officer Matt Whineray says the next phase of the fund’s climate strategy will be to focus on reducing carbon risk in the actively managed part of the portfolio.
In a recent interview with The Listener, fund chief executive Adrian Orr said the focus on carbon risk was all about financial risk management and was consistent with the fund’s long-term investment mandate.