Moving to a Paris Aligned Index for global equities

15 September 2023 / Published in Your Money

Climate change is a globally recognised problem, and the risks and opportunities that climate change presents could have an impact on the value of your investments. Recent weather events in New Zealand have highlighted how climate change can present physical risks, such as damage to our homes and roads. Additionally, countries and businesses have responded to climate change by making commitments to transition to a low emissions economy. This presents possible transition risks and opportunities, through changes in policy, technology, and customer demand.

Assessing climate-related risk

We've spent considerable time and effort seeking to understand climate change as an investment risk. Part of this has been looking at how climate-related risks may affect each asset class. When considering all our asset classes, we focused in on our global equities asset class*, which invests in a large number of company shares globally. 

Our global equities asset class was a good place to focus as it is a key source of climate-related investment risk in our funds, more companies in this asset class report their emissions compared to other asset classes, and we identified a preferred investment solution to manage climate-related risk in this asset class. 

Adopting a Paris Aligned Index

We then assessed how we might reduce the climate-related risk within the global equities asset class and, in September 2023, changed the management of this asset class to track a ‘Paris Aligned Index', specifically the MSCI World ex Australia Climate Paris Aligned Index.

Paris Aligned Indexes are designed to help reduce climate-related investment risk and help limit global temperature rise through setting specific targets or constraints. Our goal through tracking this index is to try to better manage these climate-related risks and enhance the long-term value of your investments.

We also anticipate a material reduction in emissions intensity compared to the previous global equities portfolio.

It's worth noting, not all companies in the index may be considered immediately aligned to support a low emissions economy. For example, the index will continue to invest in companies involved in electricity supply and transportation. In saying this, the index won't invest in certain activities, such as companies earning 10% or more revenue from oil and gas related activities.

What does this mean for my investments?

We analysed performance and expect the new global equities portfolio should deliver similar risk-adjusted returns to our previous global equities portfolio, if not better in the long-term. We continue to utilise an index tracking methodology as we see it as the best way to generate returns for customers in the global equities asset class. This also means the cost is similar to our previous global equities portfolio so we can keep our fees the same. 

What's next?

This is an important step for seeking to manage climate-related risk on the value of our customers' current and future investments. We will monitor the performance of our global equities asset class to check the new index continues to be appropriate in managing climate-related risk.

For further information about this index see our ASB KiwiSaver Scheme or ASB Investment Funds Statement of Investment Policy and Objectives.

*There is no exposure to the global equities asset class in the ASB KiwiSaver Scheme NZ Cash Fund. The Positive Impact Funds, available in the ASB KiwiSaver Scheme and ASB Investment Funds, will not track this new index. The global equities portion of the Positive Impact Funds is invested in an actively managed third party fund with an investment policy to invest in companies whose goods and services seek to address the world's social and environmental problems, as identified in the United Nations Sustainable Development Goals.

Interests in the ASB KiwiSaver Scheme and ASB Investment Funds (Schemes) are issued by ASB Group Investments Limited, a wholly owned subsidiary of ASB Bank Limited (ASB). ASB provides administration and distribution services for the Schemes. No person guarantees interests in the Schemes. Interests in the Schemes are not deposits or other liabilities of ASB. They are subject to investment risk, including possible loss of income and principal invested. For more information see the ASB KiwiSaver Scheme Product Disclosure Statement or the ASB Investment Funds Product Disclosure Statement available from this website and the register of offers of financial products at www.disclose-register.companiesoffice.govt.nz (search for ASB).


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