NZ’s biggest fund burns off coal stocks

Paula Rebstock
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The A$45 billion Accident Compensation Corporation (ACC) of New Zealand has sold down about $A47 million of energy stocks since rewriting its exclusion list last December in the wake of political pressure. The NZ Government fund is one of the most respected in Australasia.

Paula Rebstock, ACC chair, told a parliamentary annual review committee in March that the almost NZ$50 billion fund divested from 54 companies after extending its banned list to include firms that derive more than 30 per cent of revenue from thermal coal.

“Those investments that previously weren’t excluded for us involved companies wholly offshore—a significant amount in Australia,” Rebstock said. “And I can confirm that the divestments have happened. It was in excess of NZ$50 million worth of investment that has been divested.”

The fund took some heat last year for its exposure to fossil fuel companies from another parliamentary committee, which concluded that if the “Government wishes to direct ACC to… [divest fossil fuel holdings], it is entirely within its power”.

In December the government also passed the Zero Carbon Act, which Rebstock said prompted the ACC board to instruct management “to ensure further alignment with other groups focused [on] climate change”

“We are undertaking a further portfolio analysis and will be monitoring greenhouse gas emissions,” she told the committee this March. “…We do expect further advice to the board outlining the further steps that ACC will need to take as an organisation and a significant investor, and we expect to report back on that in a few months’ time.”

Since last year the ACC fund had also made a “significant reweighting” of its portfolio, increasing exposure to ‘green’ energy companies while dialing down fossil fuel holdings.

Rebstock said in “a very short time” the fund had lifted investments in the renewable energy sector from NZ$770 million to more than NZ$1 billion.

“And, in terms of things that involve fossil fuels, we previously had $1.04 billion in fossil fuel investment. That has decreased to $900 million,” she said.

The Education and Workforce Committee, which conducted the ACC annual review, reported in March that the fund divestment and portfolio reweighting was not expected to hurt performance.

“ACC assured us that its investment team is satisfied that the divestment from thermal coal would not negatively affect the company, and reiterated that the shift toward renewable energy is for financial reasons,” the report says. “It thinks that these investments stand on their own merits.”

According to Rebstock, the “real impact” on ACC fund performance was related to changing interest rates, given its high exposure (about two-thirds of the total portfolio) to fixed income assets.

“And I get reports all the time on what’s happening [with interest rates], and the movements are vast,” she told the committe. “You know, they can move $1 billion overnight. I felt really pleased, going away at Christmas, because suddenly we had moved back $2 billion surplus, and by the end of January that was gone and we’ve moved the other direction…

But the low interest rate environment has a stronger effect on ACC’s wider long-term insurance liabilities, which have increased by NZ$10.8 billion to reach $53 billion in the 2019/20 reporting period. The liability blow-out, which saw the ACC report “an NZ$8.7 billion accounting deficit” over the year, Rebstock said, would likely lead to levy increases to cover claims and boost fund coffers.

“Right now, the investment fund is well ahead of budget. I think it’s—I don’t know exactly, but I think we’re about NZ$700 million ahead of budget right now,” she said. “They will continue to make that contribution, but it is not enough now to make sure we can, through levies and their outperformance, cover the full new year’s costs.”

The ACC fund returned about NZ$3.5 billion over budget during the 2019/20 financial year, although the 13 per cent return marked a rare underperformance of its benchmark.

“I remember, when the results came out in Australia, the future fund last year earned 11 percent Financial Times put out an article heralding what a tremendous result it was—and better than anyone in the world,” Rebstock said. “When we put our result out, it was nearly 13 percent. And our result was nearly twice that of that [NZ] super fund.”

She said the recent fossil fuel-related portfolio changes were in line with moves by other sovereign wealth funds such as the Norwegian government pension fund.

“And we see a number of investors taking a similar approach, though the percentage varies. It’s not how we ended up there, but we’re glad to be in the company of other respected investors,” Rebstock said. “I just want to say that once we have made decisions on the wider framework for ACC, we will be making that public and we will be reporting transparently against that.”

– Investment News NZ

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