NZ Super Fund Allocates US$15 billion Towards Low-Carbon Indices

By Nick Hedley

The state-owned New Zealand Superannuation Fund has shifted about 40% of its overall investment portfolio into indices aligned to global effort to tackle climate change, it says.

It has effectively allocated NZ$25 billion (US$15 billion) of its passive index-tracking reference portfolio towards sustainable strategies, and says detailed forecasts show the move is unlikely to weigh on investment returns. The fund’s total portfolio is worth NZ$57.3 billion (US$34.4 billion).

Whereas the fund previously tracked a custom version of the MSCI All Country World Investible Market Total Return Index, it now tracks the MSCI World Climate Paris Aligned Index and the MSCI Emerging Markets Climate Paris Aligned Index.

The reallocation started in June and is largely complete, NZ Super Fund said in a statement.

“In addition to alignment with climate goals, we expect these new indices to deliver better environmental, social and governance (ESG) metrics across the board,” chief investment officer Stephen Gilmore said in a statement.

The changes mean NZ Super Fund has reduced the number of publicly listed companies that it owns directly, although this would bring efficiency gains, Gilmore said.

“A smaller, more concentrated portfolio will be cheaper to run, and more manageable for us when looking to identify and engage on responsible investment issues.”

The fund has been trimming its exposure to carbon emissions since 2017 and says it has reduced total portfolio emissions intensity by nearly 50%. It no longer holds any material, long-term exposure to fossil fuel reserves.

Nevertheless, it says it continues to outperform.

Earlier this year, a study by Global SWF found that NZ Super Fund, with an 11.8% return per annum over the past six years, was the top performing sovereign wealth fund globally.

The fund, which was established by the New Zealand government to help pre-fund universal superannuation, has returned 10% a year since inception in 2003.

It recently reported that its portfolio shrank 7% to NZ$55.7 billion (US$33.4 billion) in the year to end-June as its passively managed reference portfolio, which makes up 60% of the fund and is heavily weighted towards equities, declined 14.2%.

On the other hand, its actively managed portfolio outperformed, thanks in part to allocations towards timber and hedge funds.