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Pathfinder first to offset carbon in KiwiSaver Funds

We agree that only offsetting is not a viable response to climate change. We invest our capital in companies that are low carbon and with viable plans to reduce their emissions further.

By Paul Brownsey

What does net zero mean?

Net-zero or carbon neutrality means that an organisation claiming carbon neutrality must:

  • Calculate their emissions and disclose the scope for their measurement
  • Task as many actions as practicable to reduce their emissions
  • Cancel or retire credible carbon units

We have chosen companies to invest in that have lower than average emissions (approximately 65% lower than the average of the MSCI ACWI index). The balance of the carbon that we are responsible as investors for emitting, is offset using carbon credits as described below.

We agree that only offsetting is not a viable response to climate change. We invest our capital in companies that are low carbon and with viable plans to reduce their emissions further. We also actively lobby companies (primarily through our membership in entities like the Responsible Investment Association of Australasia, the Investor Group on Climate Change, and by direct lobbying of companies) to responsibly improve their GHG emissions performance.

Reducing emissions vs offsetting?

Reducing emissions is critical – it is not credible to just offset while making no effort to reduce. At Pathfinder, we exclude from our portfolios many high emitting companies. For instance, we don’t invest in any companies that are involved in the exploration, extraction and distribution of fossil fuels. We also avoid heavy emitting companies like airlines. So no companies like Air New Zealand, Exxon Mobil, Z Energy, Royal Dutch Shell  - they don’t make it into our portfolios. We also don’t invest in many of the banks responsible for the largest individual financing of fossil fuel companies. For instance, JP Morgan Chase, Wells Fargo, Citi and Bank of America account for over 30% of all fossil fuel financing since the Paris Agreement was adopted. Over the last 4 years, these four banks have collectively financed over US$811 billion of fossil fuel projects.

As a result our portfolio are much lower emissions intense than the average portfolio. The equity portfolios of the 4 funds we are offsetting are:

Our current Carbon offsetting applies to the calendar 2020. In Calendar year 2021 we will be offsetting these four funds again as required, plus the other funds that carry the Pathfinder Ethical name.

What are you doing in practical terms?

In each fund, we have invested directly in company shares. We are part owners of around 170 individual companies. As responsible owners, not only are we seeking the best returns for our investors but we are also committed to a zero-carbon future. Firstly, we are making a real effort to select companies that are actively working to reduce their own carbon emissions. Already, our KiwiSaver funds have an emissions intensity of around 65% less than the average equity fund. But we believe that is just the first step - we are also buying quality carbon credits to offset our share of the CO2 emitted by these companies.

Carbon credits explained 

There is a global market for carbon credits. These are created when a firm or community reduces their carbon emission in a measurable, and scientifically robust method. Carbon Credits are certified and measured by third party organisations. The credits we use to offset our fund emissions are certified by Verra, a global non-profit organisation that provides environmental measurement and certification services to companies and governments around the world. See here for more detail: www.verra.org

Carbon credits are created when an entity reduces CO2 emissions in a certified process consistent with an international agreement. We then buy those carbon credits, with the bulk of the sale proceeds going to the entity that created them. After we have bought the carbon credits, they are then cancelled so cannot be used again.

We are purchasing “Transformation Carbon Credits” from C-Quest Capital (CQC). These credits are created by a high integrity reduction in GHG emissions, as well the program used to create these credits has a significant positive social impact on low-income communities in seven sub-Saharan countries. CQC manages programs to improve the cooking stoves used in these countries resulting in significantly reduced carbon emission as well as transforming the lives of the poorest families in these developing countries with a particular focus on the well being of women and infants. See here for details of CQC and their Transformation Carbon Credits: www.cquestcapital.com

 

What is the Sub-Saharan African Cookstove Programme? 

This is a social impact program that both reduces CO2 emissions and dramatically improves the wellbeing of communities in Sub-Saharan Africa. The program provides two free high-efficiency cookstoves to households. These dramatically reduce fuel and emissions when compared to traditional cooking styles. Besides the reduction in CO2 emissions, the stoves have a dramatic social impact. A wider range of fuel is possible, meaning less intensive foraging by women and children. The stoves are safer too, with less burn risk, less fire risk and fewer noxious emissions that affect family health.

Communities using the cookstoves are visited at least twice a year by “cookstove champions” who verify usage and provide training and support as required. The verification process includes GPS location, scanning of barcodes with each cookstove, and photographs of each stove.

How much is Pathfinder offsetting? 

We have calculated our emissions share of the companies we are part owners of. For instance, if a company emits 100 tons of CO2 per annum, and we own 2% of that company, then we would take responsibility for 2% of that companies emissions, or 2 tons per annum. We add up our share of each companies emissions and that is the total CO2 emissions we are responsible for.

Each quarter-end, we calculate our share of emissions for that quarter and buy sufficient carbon credits to offset that amount. To be sure of getting it right, we calculate our emission share as accurately as possible and then add 20%. This should cover any inaccuracies that we cannot identify, plus go a little bit further and actually make our KiwiSaver funds carbon negative.

Each quarter, we will update the table at the end of this document which will show our tons of CO2 emitted for each of our KiwiSaver funds, and the number of carbon credits we have purchased.

Who pays?

At Pathfinder, our core values include looking after people and the planet. African Cookstove credits absolutely do both. We are purchasing these credits from Pathfinder Asset Management – there is no cost to investors in our funds. The cost is paid for by us at Pathfinder Asset Management.

What difference does it make?

Climate change is a massive global problem. On our own, we accept the argument that we are not capable of making a big impact. But its also important to do the right thing. If every fund manager in the world took an initiative like this and also lobbied companies to change their emitting behaviour, then collectively we would make a difference. We have always thought of ourselves as leaders in ethical investing, we want to set an example for other fund managers to follow. Collective effort is required.

Our share of the CO2 emitted by our companies in Calendar Year 2020:

  • Ethical Growth Fund: 45
  • KiwiSaver Growth Fund: 236
  • KiwiSaver Balanced Fund: 62
  • KiwiSaver Conservative Fund: 7
  • Total: 350
  • 50% margin added: 175
  • Total credits purchased for cancellation: 525

Tons of CO2 emitted is measured as of 1 March 2021.

We apply a 50% loading on the tons of CO2 we have calculated to allow for any inaccuracy in our measurements.

What methodology are we using?

To calculate our share of Scope 1 and Scope 2 emissions emitted by the companies we invest in, we first obtain the declared emissions by those companies for the most recent financial year. A small number of companies do not report emissions, in these case we estimate the emissions of that company by reference to peer companies in the same sub-industry group. We look at each company individually and make adjustments upward if we believe that is appropriate.

Once we have determined the emissions for each company we use the methodology recommended by the Task Force on Carbon Disclosure to determine our fund share of the carbon emitted by a particular company. This is based on the proportional ownership we have in that company.

We then sum all those shares of carbon emitted across all the equities we own in each portfolio to determine our share of carbon emitted. For the 2020 calendar year, we have determined our emissions based on the average fund size of the 2020 calendar year, using the companies we own as of March 2021. We have increased this amount calculated by 50% to mitigate any inconsistencies in our calculations.

We have placed an order to buy Transformation Carbon Credits as of March 2021. These will be delivered in July 2021 and cancelled in the registry maintained by Verra when delivered. Accordingly, we are confident that we have calculated our carbon responsibility in a conservative and unbiased manner, and have contracted to purchase and cancel an appropriate number of credits (plus 50%)  under a certified process consistent with international climate change agreements.

Reference documents:

“Guidance for voluntary carbon offsetting – updated and extended until 31 December 2021” – NZ Ministry for the environment, August 2020

“Sub-Saharan Cookstove Program” – CQuestCapital, 2020

“Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures” - Taskforce on Climate-Related Financial Disclosure, 2017

“Banking on Climate Change – Fossil Fuel Finance Report 2020”

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