Climate Change – Why carbon emission reporting is important for your investments

It was around this time last year that I went to the movies and saw Vice, starring one of my favourite actors Christian Bale portraying Dick Cheney’s rise to Vice President under the GW Bush administration.

There was a short scene in the film that just blew me away. It was when a public focus group was asked the question: “ ‘Global warming’ sounds bad doesn’t it, how do you feel about the term ‘climate change’?” Everyone agreed it sounded much less scary and the next day it was adopted all over the world through a brilliant PR marketing campaign.

Call it what you like but the recent Australian bush fires have put the topic of climate change front and centre around the world. The debate on whether it’s real or not has come and gone, the key question now is what are we all going to do about it?

It’s a question that should matter to anyone who is an investor. The United Nations is concerned that climate change could have a significant impact on financial markets and also the value of stocks you are invested in. The longer the world goes without a safe trajectory on climate change, the greater the risks for investors of an abrupt policy response. Financial markets look forward and price in future events, which means that share prices are likely to react before the real impacts of climate change are evident.

So, it should be of great public interest that the New Zealand Government, via the Ministry for Business, Innovation and Employment (MBIE), put out a discussion paper late last year on Climate-Related Financial Disclosures.  This came about from a recommendation from the Productivity Commission’s Report in 2018 calling on the government to implement mandatory (on a ‘comply or explain’ basis), principles-based, climate-related financial disclosures for listed companies. These would be included in company annual reports, making them accessible to the general public for listed companies and financial institutions that invest in them, like Mint Asset Management.

In other words, they’d need to explain how they are taking into account the risks of climate change and what they are doing to mitigate their carbon footprint in the long term.

This has come about because The Intergovernmental Panel on Climate Change (IPCC) has stated that achieving the Paris Agreement goal, of limiting global temperature increases to 1.5°C, will involve a wide portfolio of mitigation options, including disinvestment in high greenhouse gas (GHG)-emitting products, processes and activities, and increased investment in new technologies, energy efficiency and clean energy sources.

Mint Asset Management has been a signatory of United Nations Principles for Responsible Investment (UNPRI) for five years, which is the world’s leading proponent of responsible investment. This means Mint will be one of just a handful of investment managers in New Zealand adopting the new disclosure requirements on the topic of carbon emissions in 2020.

New Zealand is behind the eight ball when it comes to company disclosures, compared to other countries around the world, hence the recent MBIE discussion paper on the topic. The paper considers the best way for NZ entities to demonstrate they have taken climate change risks into account when setting future strategy in their business.

Mint has been part of an industry working group on the topic and has provided some valuable feedback to the government to ensure we see a successful transition for all parties contributing to this important change. The greatest challenge for fund managers is getting reliable, consistent data from our investee companies. This is just being developed now and hopefully the adoption of the Task Force on Climate-Related Financial Disclosures standards will provide this consistency of reporting across all New Zealand companies.

Climate-related risks and opportunities are set to grow in the coming years. The impacts of an increase in global temperature of 1.5°C are now better understood with the IPCC reports stating that the world is on track to miss a manageable level of warming by a wide margin. Behaviour has to change and having direct sunlight acting as a disinfectant based on the facts is very likely to help improve the work needed to bring down further risk of global warming.

I don’t believe that we have any other option but to face this challenge head on and stealing this brilliant one liner quote from the man himself, Dick Cheney, “I believe we can make this work”.

Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement here.

David Boyle

Mint Asset Management