Week in Review
ACC must get its act together on climate
ACC is failing to live by the climate principles it proclaims. As a result, it is weakening the accident compensation system we all depend on. Ultimately, we all will pay the price as ACC levy payers, ACC clients and taxpayers.
ACC says: “Climate change, and reducing carbon emissions, is forefront in the minds of ACC and the business community both in New Zealand and overseas. ACC recognises this as a serious risk to the investment portfolio.”
But it offers platitudes not evidence of how it is managing that risk to its $44 billion of investments. The fund is meant to meet its Outstanding Claims Liability from clients suffering long-term or permanent disabilities. If the fund falls short, the Government will have to bail it out with higher ACC levies and/or funds from taxpayers.
ACC says: “…declining interest rates outside of ACC’s control, can have a significant impact on the OCL as ACC would expect to earn less income on the dollars it has today.”
But it has nothing to say about the negative impact fossil fuel stocks are having on equity portfolios around the world. Wise investors such as the NZ Superannuation Fund are already responding to these increased risks and lower returns by reducing the carbon exposure in their portfolios.
ACC says: “Promoting health and safety and preventing injuries, for example, is a key part of what ACC does. It’s at the heart of what the corporation was set up to do.”
But around the world climate change is already having adverse impacts on peoples’ health and rates of injuries and suicides, as a growing body of evidence shows. The only reference to climate change in ACC’s latest annual report is to its investments.
Those three quotes are from the statement ACC’s chair, Paula Rebstock, gave to Parliament’s Education and Workforce Select Committee on August 7. It had sought a briefing from ACC on its ethical investment policy.
The Committee’s subsequent report on ACC’s policy said the Government had the power to give ACC greater guidance on its fossil fuel investments. But in response, the Government said it would not.
The case for strong government policies on the investment response to the climate emergency has been made many times by many regulators, most notably the Bank of England. In its most recent open letter on the subject in April, it wrote:
“Carbon emissions have to decline by 45 percent from 2010 levels over the next decade in order to reach net zero by 2050. This requires a massive reallocation of capital. If some companies and industries fail to adjust to this new world, they will fail to exist.
“The prime responsibility for climate policy will continue to sit with governments. And the private sector will determine the success of the adjustment. But as financial policymakers and prudential supervisors, we cannot ignore the obvious risks before our eyes.
“That is why 34 central banks and supervisors – representing five continents, half of global greenhouse gas emissions and the supervision of two-thirds of the global systemically important banks and insurers – joined forces in 2017 to create a coalition of the willing: the Network for Greening the Financial System.”
It added: “The stakes are undoubtedly high, but the commitment of all actors in the financial system to act on these recommendations will help avoid a climate-driven ‘Minsky moment’ – the term we use to refer to a sudden collapse in asset prices.” Ultimately, some US$20 trillion of investment assets were at risk globally, it said.
Here in New Zealand, the Superannuation Fund is the leading investor on these crucial issues. It announced in October 2016 plans to partially reduce its exposure to fossil fuel companies and to reduce the carbon risks across all its investments.
This March, the Fund reported on the evolution of the strategy and its progress in meeting its decarbonisation goals. As of the end of its June 2018 financial year, it reduced the carbon intensity of its portfolio by 18.7 percent, against its target of 20 percent by 2020; and potential emissions from fossil fuel reserves of companies it was invested in were 32.1 percent lower, relative to an unadjusted Reference Portfolio. Its target is a 40 percent cut by 2020. The Fund has also shifted some funds into clean energy investments.
In contrast, ACC espouses a simpler strategy on carbon. “If Parliament changed the law banning use of fossil fuels, ACC would stop investing in the production of fossil fuels. Fossil fuel producers would be added to our exclusion list," ACC’s chair told the parliamentary select committee in August.
“Every day our investment portfolio managers take account of risks such as climate change when making investment decisions.
“It aligns with our objective of maintaining the best possible balance between return and risk.
“We expect our investment managers to take account of the challenges, risks, and opportunities that climate change – and the shift away from carbon fuels – may have on each individual investment and the reputation of ACC.”
ACC’s investments in companies involved in the production or distribution of fossil fuels account for $1 billion, or 2.5 percent, of its portfolio. But its annual report and ethical investment policy offer only general statements on those investments, rather than strategies, data and insights.
The detail is crucially important, which is why in recent years the investment sector worldwide has developed a wealth of products to help clients decarbonise their portfolios and to measure their investment performance from doing so.
Real investment gains can be made from decarbonisation. For example, MSCI’s global stock market index which excludes fossil fuel companies has delivered a gross return of 12.44 per cent a year for the past nine years. But its index including fossil fuel companies has only returned 11.66 percent a year. MSCI’s Low Carbon Indexes show similar performances, as do benchmarks from other data analysts such as FTSE Russell and S&P.
The links between climate change and illness, injury and suicide is a field of academic research dating back many years but now growing fast.
ACC’s role, though, goes far beyond a fiduciary responsibility. By being less than world class in its investment policies and practices on carbon, it is exacerbating climate change. That in turn only adds to our health burdens which ACC is meant to help alleviate.
The links between climate change and illness, injury and suicide is a field of academic research dating back many years but now growing fast. One of the classic early studies was of an intense heatwave in Chicago in 1995 during which the heat index, which measures how the temperature actually feels on the body, hit 52c. This led to 734 deaths from heat-related causes in five days, making it one of the deadliest natural disasters in US history. Drawing on scientific studies of the event, Eric Klinenberg wrote Heat Wave: A Social Autopsy of a Disaster in Chicago.
Higher ambient temperatures are also associated with increased risk of suicides, concluded a study of data from 341 locations in 12 countries reported recently in Environmental Health Perspectives, a UK academic journal.
On all these issues we are just as vulnerable as other countries. So, if ACC doesn’t get its act together quickly on its investment and social responsibilities on climate change, the government should replace the board with one which will.
Get it early – This article was first published on Newsroom Pro and included in Bernard Hickey’s ‘8 Things’ morning email of the latest in-depth business and political analysis. Get it early by subscribing now or starting a 28-day free trial.
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