Australia’s Future Fund and New Zealand’s NZ Super Fund (NZ Super) are actively supporting companies in their transition from carbon-intensive activity to more sustainable operations. They are also increasing their allocations to dedicated transition investment funds.
As part of their ongoing climate-related portfolio diversification, these large funds are allocating to industries that are expected to develop environmentally friendly technologies and processes. The sectors of disruption and opportunity include energy, utilities, materials, and industrials that have much higher carbon intensity relative to other sectors.
"We believe that providing capital to companies who are actively transitioning presents an attractive opportunity because it helps with the solution," a spokesperson for the Future Fund told AsianInvestor.
Renewable energy is the other key area of development for these asset owners. Future Fund is focused on markets that are expected to generate attractive risk-adjusted returns as economies decarbonise — and this includes not just renewables, but also energy-efficiency technologies and carbon credit markets.
For example, following its investment in August through the Powering Australian Renewables (PowAR) Fund, which had completed the acquisition of Australian business Tilt Renewables, Future Fund’s investment in wind and solar assets in Australia has grown to over A$1 billion ($704 million).
PowAR is a partnership between the QIC Global Infrastructure Fund and its co-investors, Aware Super, Hostplus, TelstraSuper, MLC, LGIASuper, the Future Fund, and AGL Energy. Through the acquisition of Tilt, the PowAR business will own more than 1,300 megawatts of operational renewable energy capacity across nine geographically diverse wind and solar generation assets.
As part of its commitment to achieving net zero emissions by 2050 or sooner, NZ Super has also made several investments in renewables, including in Longroad, a renewables developer in the US, and a €125 million ($141 milion) allocation to Copenhagen Infrastructure Partners’ (CIP) Energy Transition Fund.
The CIP fund is focused on developing industrial-scale sustainable energy infrastructure, known broadly as Power-to-X (power-to-hydrogen, power-to-ammonia and power-to-methanol) and has a €2.25 billion target size. Investments will be focused in OECD markets in Western Europe, North America, and Apac.
CIP currently manages approximately €16 billion across eight funds, and is the largest fund manager globally dedicated to investing in renewable development.
The NZ Super Fund (NZ Super) has also committed $100 million to the Fifth Wall Climate Technology Fund, an early-stage fund that seeks to invest in new technologies to decarbonise the global real estate industry.
To date, Fifth Wall has raised more than $300 million towards a targeted fund size of $500 million for the Climate Technology Fund, the largest pool of capital focused on decarbonising the real estate industry.
Meanwhile, the Future Fund is continuing to support companies in managing their climate risks. "The fund is supportive of investee companies providing appropriate disclosure on the potential impact of climate change on their business, such as through the TCFD framework," said the spokesperson.
"Where we identify a material misalignment between the potential risk to company performance due to climate risk, and a company’s approach to managing these risks, we are able to share this feedback with the company through direct engagement and by exercising our ownership rights."
NZ Super’s view is that, given the rapid developments data, “by 2025, we expect that global reporting standards for investors will be significantly more developed than they are currently, and that better carbon footprinting data will be available from companies. For example, the standards may shift towards reporting on an implied temperature rise from each portfolio," said Matt Whineray, CEO of NZ Super.
Future Fund recently posted a position paper on what it sees as the 10 key paradigm shifts that are shaping the investment order, from deglobalisation and demography to rising inflation and global warming.
The paper encourages investors to think afresh about their portfolios. “We cannot know how these changes will ultimately play out. However, we believe that preparation and monitoring the investment environment, and testing our thinking and the assumptions on which it is built, are the best ways we can position our investment program to generate strong returns, with acceptable risk, over the long-term," said the paper.