Government Superannuation Fund Authority
Portfolio level – Portfolio decarbonisation reference target
Baseline date: 30 June 2019
Baseline performance: Carbon intensity (CO2e/$mn sales) of 215 for scope 1 and 2 from all industries; and 431 including scope 3 from fossil fuel producers.
In the absence of our own portfolio data, we assumed carbon intensity equivalent to the MSCI ACWI index in the baseline year, i.e. 100%. We monitor against both the baseline and the broad market.
Target year(s): 2025 and 2050
Target(s): A 50% reduction in carbon intensity (CO2e/$mn sales) of the public equity portfolio (global and NZ public equities) by 2025 compared to June 2019, and total investment portfolio to be carbon neutral by 2050.
Targets for other asset classes in the portfolio will be set in due course.
GHG scopes included: Scope 1 and 2 are measured and reported for all industries. Scope 3 is measured and reported for Oil, Gas, and Coal. The 4 GICS sub-industries included for scope 3 are oil and gas exploration and production, coal and consumable fuels, diversified metals and mining, and integrated oil and gas.
Asset classes in scope: Global and domestic public and private equities, global fixed income, and insurance linked securities
Net zero scenarios/methodology: Baseline: In the absence of our own portfolio data, we assumed carbon intensity equivalent to the MSCI ACWI index in the baseline year, i.e. 100%. We monitor against both the baseline and the broad market.
As a Crown Financial Institution, the Authority has targeted reductions of portfolio carbon intensity in line with the current commitment by New Zealand to reach net zero emissions by 2050, through the Zero Carbon Act. This is consistent with Government policies and the goals of the Paris Agreement to which New Zealand has committed. These goals determine a target level that aims to keep the global average temperature less than 2 degrees above pre-industrial levels.
We intend to use the Paris Aligned Investment Initiative Net Zero Investment Framework and assess alignment of our approach to a 1.5°C pathway.
Emissions metrics: The cost of reducing global emissions will be minimised by allowing it to be reflected in relative prices of goods and services throughout the value chain according to their carbon intensity, i.e., emissions per dollar of revenue. It requires a shift of consumers away from emissions-intensive products and services not just a switch in production technology by emitters.
As an investor, the Authority can direct capital away from carbon-intensive products and services to increase their cost of capital and encourage companies to adapt to a lower carbon future. It is the companies, however, that must reduce absolute emissions in response to signals from consumers and regulators as well as from investors.
The Authority engages with companies through its active external investment managers and collectively with peer funds through Columbia Threadneedle’s global engagement service occasional joint collaborations, e.g. with PRI signatories. These engagements encourage companies to disclose emissions and develop plans to reduce them. External managers are assessed on the integration of climate factors in their investment process and their stewardship activity.
Portfolio level – Investment in climate solutions target
Qualitative goal: The Authority is investigating investment in dedicated climate solutions strategies. GSFA will invest as much as is consistent with overall portfolio objectives. The Authority expects that the initial investment in climate solutions will be at least 1% of the total Fund (approximately NZD 50m).
GSFA has not set a specific quantitative target for investment in climate solutions as the investment is conditional on financial attractiveness as well as contribution to reducing real emissions.
As at 30 June, GSFA has 37% of its public equities invested in companies that derive some revenue from clean technology solutions, as defined by MSCI ESG.
Quantitative target: Work in progress
Methodology: GSFA will continue to do work to determine a methodology to assess climate solution investments. At this stage GSFA can use revenue from clean technology solutions, as defined by MSCI ESG.
Asset level – Portfolio coverage target
Approach: GSFA plans to undertake a baselining assessment of asset alignment according to the Net Zero Investment Framework and set targets in due course.
Asset level – Engagement threshold target
Approach: GSFA will continue to do work to improve understanding of the proportion of financed emissions that is under climate engagement either directly or on GSFA’s behalf. The Authority’s public equity portfolio makes up 53% of the total portfolio as at 31 August 2022. 17.1% of this allocation is managed with Paris-aligned benchmarks.
Public equity and fixed income portfolio holdings are sent to a third-party global engagements provider quarterly, where engagements are carried out with companies on behalf of the four CFIs collectively, which includes GSFA.
Methodology: The Authority’s target to reduce its portfolio’s exposure to emissions intensity by 50% by 2025 surpasses IPCC scenarios. The GSFA portfolio is 53% public equities. Reductions in this asset class are measured more reliably than other asset classes while the 15% in private equities has lower carbon intensity. The longer term target of a carbon neutral total investment portfolio by 2050 is also aligned with keeping the global average temperature less than 2 degrees above pre-industrial levels.
Operational emissions: The Authority measures and reports its operational emissions annually. The organisation has a light operational emissions footprint and intends to lower this over time but has not set a quantitative target for this. There is an opportunity to reduce the organisation’s emissions by reducing travel of both the Board and staff by increased use of online meetings and staff working from home.
Fossil fuel investment: The Authority is currently considering transition to low carbon or Paris-aligned benchmarks for its global equity portfolio. These indices essentially exclude fossil fuels. GSFA also have some external investment managers individually benchmarked against those indices.
GSFA’s Climate-related Disclosure report, which constitutes an investor climate action plan, and is TCFD aligned, can be found on its website under publications, (https://www.gsfa.co.nz/). The Climate-related disclosure report going forward will include information on progress and strategy to achieve climate targets, alongside GSFA’s climate actions, engagement and integration etc.