The New Zealand Super Fund and Thailand’s Government Pension Fund (GPF) have evolved to become among the world's progressive asset owners when preparing to transition to a low carbon economy.
“I would argue that NZ Super is among a group of world leaders at this point,” Gabriel Wilson-Otto, head of stewardship, Asia Pacific at BNP Paribas Asset Management, told AsianInvestor.
“They provide a great example for other sovereign funds on thoughtful and actionable policies to decarbonise their investments."
NZ Super is fairly well recognised for its work on climate change investments, but Thailand's GPF gets under-reported “relative to the amount of progress they have made on ESG,” said Wilson-Otto.
Srikanya Yathip, who became GPF's latest secretary-general in August, has said climate and sustainability is a central ambition of her policy goals. She was previously head of the $32 billion pension fund's ESG working group.
“Due to the Covid-19 pandemic, social issues are coming more to the forefront,” Yathip told a Securities and Exchange Commission of Thailand online forum earlier this month, adding that the fund plans to intensify its exclusion policy.
The Thai pension fund’s investment team has been looking closely at the global best practice guidance from the various UN and World Bank agencies “and they are motivated to make a change. They’ve clearly recognised that ESG considerations go hand in hand with economic growth,” said Wilson-Otto.
“Similar to commentary from regulators in Japan, they see ESG as being a critical way of enhancing corporate governance to help drive growth.”
In a new report, Jennifer Wu, global head of sustainable investing at JP Morgan Asset Management, explains that climate change is a complex issue that presents material risks and opportunities for investors.
“Investors need to identify those companies that are most transition-ready,” said Wu. “By moving early, investors can avoid or mitigate climate policy risks and capture opportunities across asset classes and markets – well before they are priced in.”
An orderly transition to a low carbon economy is “nothing for investors to fear”, she added.
Sectors that stand to gain include renewable energy and green infrastructure. In contrast, industries that are likely to be hardest hit are energy, consumer cyclicals, especially autos, materials, and some utilities.
While institutional investors will be able to seek out these new opportunities in listed securities, private markets will also offer a growing range of opportunities, predicted Wu.
“The need for infrastructure investments is likely to continue to grow as countries renew their energy infrastructure to mitigate climate change, and make additional investments to grapple with the consequences of increasing temperatures.”
New Zealand has also been a trailblazer in combating climate change. On September 15 the country's government became the first in the world to announce new regulations that require the financial sector to report on climate risks.
The new regime will be on a comply-or-explain basis, based on the Task Force on Climate-related Financial Disclosures (TCFD) framework, which is widely acknowledged as international best practice.
Affected businesses will have to make annual disclosures that cover governance arrangements, risk management, and strategies for mitigating any climate change impacts. Around 200 organisations will be subject to the rules, including sovereign institutions such as the Accident Compensation Commission (ACC) and NZ Super.
NZ Super’s head of responsible investment, Anne-Maree O’Connor said the move makes sense given that climate change is being felt across different industry sectors and asset classes.
“It is not just the energy sector that is affected. Climate change risk influences other sectors through operations, supply chains, and distribution," she said. "We believe that the current market is not fully pricing in the potentially negative impact of climate change policy on asset valuations.”
NZ Super’s climate valuation framework assesses how assets might be affected by disruptive technology, extreme weather events, and increased costs from regulations designed to limit the long-term effects of climate change and to encourage sustainability.
“Part of our approach is about taking advantage of opportunities in alternative energy, energy efficiency, transformational infrastructure, transport, resource, and land management,” said O’Connor.
The NZ$44.8 billion ($29.7 billion) fund has so far invested in developing wind and solar generation, in energy-efficient glass and alternative fuel derived from waste gases.