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Westpac NZ’s KiwiSaver and investment arm, BT Funds Management NZ (BTNZ), has taken another step towards aligning its portfolio with its climate objective of supporting efforts to limit global temperature rises.
BTNZ believes it is the first KiwiSaver and NZ asset manager to allocate assets to a global shares investment index formally adhering to strict EU Paris climate regulations, which include the reduction of greenhouse gas emissions in line with a 1.5 degree C pathway. The index also allocates more to climate solutions and positive environmental, social and governance rated companies. The index has been designed in partnership with, and managed by, global asset manager Legal & General (L&G).
The move follows BTNZ’s commitment to reducing emissions in line with a 1.5 degree C pathway in 2020. The investment arm has significantly reduced its carbon intensity in its property and equity portfolios since the start of 2019.
BTNZ Head of Investment Solutions Philip Houghton-Brown says an initial investment of $200m in the index, expected to rise to $300m in the next six months, is just the beginning.
“We’re working to align our entire portfolio with our climate objective of a 1.5 degree C pathway, increasing exposure to climate solutions, decreasing climate risks, and supporting ecosystem, biodiversity, pollution prevention and water stewardship,” Mr Houghton-Brown says.
“New Zealanders are increasingly vocal about wanting to invest in funds that align with their social and environmental principles. They want action and less talk around sustainability issues. We’re working to deliver funds that can grow their wealth and also support positive environmental outcomes, so that together we can start to make a real difference.”
The index, which is constructed by provider Solactive, was launched last week with a greenhouse gas emission intensity profile 50% lower than the equivalent world sharemarket index, and will further reduce emissions intensity by 7% per annum to align with the 1.5 degree C temperature pathway.
In addition to investing more in positive environmental, social and governance (ESG) rated companies, the index excludes the worst climate and biodiversity offenders, a wide range of fossil fuels, controversial weapons, whale meat, tobacco and predatory lending. It also excludes companies deemed to be in violation of the UN Global Compact principles, which are labour, human and environmental norms.
“We chose to work together with L&G because of their recognised leadership in this area. They’re known for their proactive approach on climate change and other environmental, social and governance matters, and for vocally encouraging companies that aren’t making good progress to improve their performance.
“Under their Climate Impact Pledge, each year L&G publicly announce divestments from companies that are not meeting minimum climate standards.”
BTNZ’s exclusions policy already encompasses a large amount of fossil fuels activities, tobacco, whale meat, controversial weapons, predatory lending practices and companies deemed to in breach of the UN Global Compact principles.
“Exclusions are required when a particular industry is a total no-go. But in many cases an asset manager can exercise the greatest influence by constructively engaging with a company on ESG issues and taking a strong stewardship approach.
“We believe investing sustainably is a powerful way to achieve results both on and off the balance sheet. We believe that companies who follow that approach will contribute positively to the world in which we all live, and will also perform well financially over the longer term.”
BTNZ’s full commitments will be detailed in its new Sustainable Investment policy released within the next few weeks.
More information on L&G’s publicly available environmental, social and governance ratings of companies, Climate Impact Pledge and stewardship activities can be found here.
Westpac NZ was reappointed as one of the six default KiwiSaver providers in May following a government review. In July, it announced it would deliver savings to more than 380,000 members by reducing fees.