Orr sells $1 bln worth of over-priced carbon assets


Outgoing New Zealand Super Fund CEO Adrian Orr. Photo: Supplied

The New Zealand Superannuation Fund CEO and future Governor of the Reserve Bank, Adrian Orr, is concerned enough about the rising cost of carbon emissions that he ordered the fund to sell $1 billion worth of carbon emitting assets. Thomas Coughlan reports.

Any increase in carbon taxes or costs to reduce emissions would hurt the profitability of companies who had assumed a low carbon price.

When asked on Wednesday at the annual review of the fund by the Finance and Expenditure select committee what the fund had been doing in response to climate change, Orr surprised the room by saying the divestment had not occurred on ethical grounds, but rather on the basis of the fund’s mission to maximise return without undue risk.

“It is our belief that carbon is mis-priced globally because there is no global price for carbon and investment behaviour suggests at some point there’s going to be winners and losers and we don’t know what that looks like,” he said.

“By not doing anything, we were taking on undue risk; we would be maximising return with undue risk because we are overexposed to carbon."

He said that once the decision had been made to reduce exposure to carbon, it was able to move quickly.

“We’ve reduced our exposure to carbon reserves by 40 percent across the whole portfolio, and carbon emissions by 20 percent across the whole portfolio by 2020. We’re almost there now,” he said.

“We swapped out close to a billion dollars of assets from carbon to non-carbon exposure companies. You can do that overnight.”

Orr said that now the easy gains had been made, the fund had to engage with external managers about their exposure to carbon and what could be done to reduce that exposure. The news wasn’t all negative though.

“We want to assess investment opportunities going into the climate change world, not just alternative energies. It’s also alternative ways of building communities. It’s going to impact everyone in so many different ways,” he said.

The Guardians of the Fund also told the committee to prepare for lower returns than the impressive numbers posted up to this point. The Guardians suggested returns of 8 percent a year were more likely at current portfolio settings, down from high returns “in the tens or twenties”.