Default KiwiSaver funds to exclude fossil fuel investments – Expert Reaction

Default KiwiSaver schemes will no longer include investments in fossil fuel production, the Government announced today.

The news is part of a suite of changes made to KiwiSaver default provider schemes. The new arrangements will take effect on 1 December 2021.

The SMC asked experts to comment on the news.

Ivan Diaz-Rainey, Director, Climate and Energy Finance Group (CEFgroup), University of Otago, comments:

“Today’s announcement that KiwiSaver default funds will exclude any investments in fossil fuel production is welcome news. The announcement is another step in the process of greening the New Zealand financial system and the economy more generally. There is a sense that Treasury is finally putting serious weight behind the climate change agenda. It follows soon after a disclosure that some Budget 2021 budget bids will account for climate costs with a shadow carbon price and the announcement late last year that all large financial institutions will need to report on climate risks by 2023. Cumulatively, it starts to feel like there is some real teeth to environmental policy finally.

“Some may quip about the materiality of this announcement. In terms of domestic investments, I don’t think this is going to make a huge difference to many firms on the NZX, save for a few firms such a New Zealand Oil and Gas. However, a fair chunk of KiwiSaver investments are invested overseas, and in this context, it will means excluding large oil and gas firms such as Exxon.

“No doubt prior pressure from individuals meant that few default funds held such positions, but it now gives investors certainty that it will not be the case. More importantly, I believe this will also protect New Zealand investors as there is now unprecedented momentum globally behind energy transition and this is ultimately going to be very bad news for companies in the fossil fuel sector. The Biden administration is being bold on climate investment and targets, meaning the three largest economies in the world – the EU, the US and China – are going hard at decarbonisation and sustainable investing. The announcement, therefore, stops Kiwis being dumped with fossil fuel stocks that have poor long-term prospects.”

No conflict of interest.

Dr David Hall, Senior Lecturer, School of Social Sciences and Public Policy, Auckland University of Technology, comments:

“The New Zealand Government’s decision to exclude fossil fuel investments from default Kiwisaver schemes is prudent, warranted and consistent with international trends.

“In order to limit global warming in line with the Paris Agreement, a large proportion of existing fossil fuel reserves must remain unused as ‘stranded assets’. This will involve a vast forfeiture of long-term investments; according to one study, potentially a write-off of between $1 trillion and $4 trillion in fossil fuel assets alone.

“Divesting retirement savings out of fossil fuel investments reduces New Zealanders’ exposure to the risk of such losses. It increases the cost of capital for fossil fuel companies, which need to work harder to find and retain investors. Finally, fossil fuel divestment frees up capital for investing in low-emissions assets whose future is assured by the material realities of climate change.

“Organisations such as the UN-convened Net-Zero Asset Owner Alliance, a network of over 30 investors with more than USD$5 trillion in assets under management, will advance this agenda at COP26 in Glasgow. These are systems-level changes that tilt our economies toward making the low-emissions transition sooner rather than later.”

Conflict of interest statement: “ANZ is a Principal Partner of the Climate Innovation Lab, a climate finance project for which I am Founding Director.”