State of climate investment in Aotearoa New Zealand

The financial sector plays a critical and unique role in influencing and driving the transition to a low-emissions, climate-resilient economy by mobilising and reallocating capital. Investors and financial institutions have a range of devices they can deploy to support climate investment including removing barriers and adopting sustainable practices and investment policies.

However, a survey of New Zealand’s institutional investors with more than NZ$230 billion under management shows the investment sector needs to accelerate climate action. The third survey by the Investor Group on Climate Change, Toitū Tahua: Centre for Sustainable Finance and Mindful Money into climate investment by the financial sector shows this capital is not being used to drive climate action.

Huge opportunities have been identified, with New Zealand’s Climate Change Commission estimating $34 billion of additional investments required by 2035 to finance our transition, for example through increased renewable energy generation, energy storage and green infrastructure. And most of this funding will need to come from the private sector.

With the first reports being released this year under the climate-relating disclosure reporting regime and increased recognition that climate risk is a financial risk, more progress was perhaps anticipated. Despite this, there has been some progress, for example through decarbonisation of investments, emissions reduction targets, and implementation of biodiversity and deforestation policies. They found the key climate approaches used by investors were negative screening, corporate engagement and shareholder action.

Despite these improvements, and climate action identified as a way to reduce the risks they face, New Zealand fund managers continue to lag behind providers in Australia and the EU.

At a governance level, 100 per cent of respondents reported building climate awareness of directors, and two-thirds had reviewed their board structures to embed climate change either at the board or a committee level, up from only 8 per cent in 2022. One-third reported formally assessing the board, senior management and investment teams on climate change knowledge and expertise. One-third said they provide regular training for the board and all staff on climate risks and implications for the strategy and investments. Despite this, only 33 per cent have regular climate reporting to the board.

Key findings:

• 30 per cent had a strategy or plan for achieving their net zero objectives or targets. An additional 54 per cent intended to produce one during the next twelve months
• 77 per cent had policies regarding fossil fuels, up from 28 per cent in 2022 (although most investors did have fossil fuel divestment or exclusion policies)
• 77 per cent had a climate policy, up from 58 per cent in 2022
• 100 per cent used negative screening for some climate goals
• 92 per cent used corporate engagement, shareholder action and/or active ownership
• 26 per cent had a formal target, plan, commitment and or strategy for investments in climate solutions (public or non-public)
• 8 per cent had assessed their entire portfolio for exposure to physical risk associated with climate change. When assessments were made, a high proportion of investors responded to the information; primarily by implementing negative screens (54 per cent)