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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.

Paul Brownsey Paul Brownsey 8 minute read

What is the difference between net-zero and carbon neutral?

The terms carbon neutral and net-zero are often used interchangeably but represent different approaches to tackling the issue of carbon emissions.

The commonly accepted definition of carbon neutrality currently only encompasses Scope 1 and 2 emissions, or ‘operational’ emissions, and doesn’t necessarily require emissions reductions, only offsets. Pathfinder has no Scope 1 emissions as we do not own or control any emissions sources, and we are addressing our indirect, Scope 2 emissions by sourcing 100% renewable and certified carboNZero electricity from provider Ecotricity who offset any unavoidable emissions with NZ native bush carbon credits. Therefore, most of Pathfinders emissions sit within Scope 3 and it is here that we can achieve the greatest and most impactful emissions reductions.

Scope 1 - Direct emissions from owned or controlled sources.

Scope 2 - Indirect emissions from the generation of purchased electricity.

Scope 3 - Indirect emissions that occur throughout the supply chain.

The accepted definition of carbon neutrality currently only encompasses Scope 1 and 2 emissions, or ‘operational’ emissions. Pathfinder has no Scope 1 emissions as we do not own or control any emissions sources, and we are addressing our indirect, Scope 2 emissions by sourcing 100% renewable and certified carboNZero electricity from provider Ecotricity who offset any unavoidable emissions with NZ native bush carbon credits. Therefore, most of Pathfinders emissions sit within Scope 3 and it is here that we can achieve the greatest and most impactful emissions reductions.

Committing to net-zero carbon emissions means considering all emissions, including Scope 3, and achieving both emissions reductions and the removal of carbon through offsetting.  Pathfinder’s Scope 3 emissions include emissions associated with our investments. In calculating this we use an investment-specific method as outlined in the internationally recognised GHG Protocol standard. This involves collecting scope 1 and 2 emissions data from the investee company and allocating the emissions based on our share of investment.  We have implemented science-based emissions reduction targets in line with the Science Based Targets Initiative (SBTi) and based on three scenarios: 2°C, Well Below 2°C, and 1.5°C. This gives us Scope 3 reduction targets of 12.3%, 25%, and 42% respectively for the target year 2030.

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 emissions that we are responsible for as investors is offset using carbon credits as described below.

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.

Carbon credits

Carbon credits are awarded for projects that store, avoid, or reduce greenhouse gas (GHG) emissions in the atmosphere. 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. The quality of carbon credits varies, but there are internationally accepted guidelines for carbon credits to determine whether a credit is credible and reliable. Credible carbon offsetting requires the measurement, reduction, and offsetting by cancellation of carbon credits, or units. Each unit represents 1 tonne of CO2eq+.

Voluntary carbon offsetting is not regulated by the New Zealand Government, but claims do fall under the Fair Trading Act. The Ministry for the Environment considers that credible voluntary carbon offsetting must: be transparent; measurable and verifiable; additional (i.e. would not have occurred under a business as usual scenario); not double counted; and leakage must be addressed (i.e. the act of removing emissions must not result in increases to emissions elsewhere).

Pathfinder is purchasing credits generated through the distribution of safer and more energy efficient cookstoves in Mexico through Fuego Limpio (FL) in collaboration with C-Quest Capital, a social impact project developer involved in high impact carbon finance programs. These credits are certified as Verified Carbon Units by Verra, a global non-profit organisation that administers a certification system for carbon emissions to companies and governments around the world.

How much is Pathfinder offsetting? 

We have calculated our emissions share based on the companies we are part owners of. For instance, if a company emits 100 tonnes of CO2 per annum, and we own 2% of that company, then we would take responsibility for 2% of that company’s emissions, or 2 tonnes per annum. We add up our share of each company’s 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 in our first year, we have calculated our emission share as accurately as possible and then added 50%. This should cover any inaccuracies that we may not have correctly identified, plus go a little bit further and actually make our KiwiSaver funds carbon negative. We are aiming to have our carbon emissions and offsets externally verified as soon as possible.

Who pays?

At Pathfinder, our core values include looking after people and the planet. The cost of these credits is 100% covered by Pathfinder Asset Management, there is no extra cost to investors.

Impact

The installation of these efficient cookstoves contributes to the development of clean and affordable energy access (SDG7), while also supporting poverty action (SDG 1), gender equality (SDG 5), public health and well-being (SDG 3), climate action (SDG 13), and overall sustainable development.

Traditionally, indigenous families cook using ‘three-stone fires’: metal or ceramic plates heated over an open fire, usually located in poorly ventilated, one-bedroom homes. Families, particularly women and girls, tend to cook for on average four hours per day exposing them to toxic air particulates and the risk of burns, especially to small children. And to fuel these fires, families can spend 20 hours or more each week collecting wood – time that could otherwise be spend at school, work, or at rest.

The suppliers have considered the cultural and technological requirements surrounding the use of these new, more efficient cookstoves, and visit a sampling of the stoves annually to verify carbon savings and gain additional information including feedback from users. Emphasis is placed on the use of local enterprises to produce and manufacture these stoves, creating significant local employment opportunities.

Air pollution is the largest source of death and disability globally. Household air pollution from cooking and heating with solid fuels is responsible for about 40% of deaths and years of life lost to disability. Children under age 5 are especially high risk, with acute respiratory infection as the leading cause of death. A typical three-stone cooking fire emits about 400 cigarettes worth of smoke every hour, while each ONIL stove installed saves an estimated 2.893 tons of CO2 per year. The stoves reduce wood consumption by 70%, gaining the equivalent of two days a week in time saved by not gathering wood, allowing more time to be spent in school, resting, taking care of families, and earning income.

What are you doing in practical terms?

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.

The intent of carbon offsetting is to supplement carbon reduction efforts, not to be used as a stand-alone approach. The first step is to reduce our operational emissions as much as is possible. We have committed to achieving net zero by 2030 as part of the B Corp Climate Collective, in partnership with the UNFCCC Race to Zero campaign. This applies to Scope 1, Scope 2, and relevant Scope 3 emissions. This is achieved by reducing emissions wherever possible and using verified offsets to balance emissions that cannot be eliminated.

We exclude many high emitting companies from our portfolios. We do not invest in any companies that are involved in the exploration, extraction, and distribution of fossil fuels, and we avoid heavy emitting companies like airlines. Companies like Air New Zealand, Exxon Mobil, Z Energy, and Royal Dutch Shell do not make it into our portfolios. We also do not 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 portfolios are much lower in emissions intensity than the average portfolio - atleast 65% less than the average equity fund.

The equity portfolios of the 4 funds we are offsetting are KiwiSaver Growth, KiwiSaver Balanced, KiwiSaver Conservative, Pathfinder Ethical Growth. Our current carbon offsetting applies to the calendar year 2020. In 2021 we will be offsetting these four funds again as required and expanding to cover the other funds that carry the Pathfinder Ethical name.

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.

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