Responsible investment: The changing landscape

Responsible investing takes into account environmental, social, and governance (ESG) factors when making investment decisions. We believe that ESG factors are important drivers of sustainable long-term returns.

Ultimately, we want to help you grow your investments, while reducing the impact these investments have on the environment and our communities. This is all embedded in the BNZ sustainability strategy which is built around two key pillars: Kaitiakitanga or caring for our natural environment, and Manaakitanga or caring for people and communities.

One of the most vital factors in the future of responsible investing involves aligning investment portfolios in a way that mitigates the impact of climate change risk. This includes consideration of climate-related risks for all investment portfolios.

At BNZ, we’re committed to aligning both our lending and investment portfolios with net-zero emissions by 2050 and to set targets for 2030 using robust, science-based guidelines. Science-based targets show companies how much and how quickly they need to reduce their greenhouse gas emissions to prevent the worst effects of climate change. These targets are aligned with keeping global warming to a maximum temperature rise of 1.5 degrees above pre-industrial levels.

Greening our operations

In 2020 we set a target of reducing our operational emissions by 60 per cent by 2025 (against a 2019 baseline). Since 2019 we’ve reduced our operational emissions by 56 per cent. Our target is considered both science-based and ambitious, exceeding Science Based Targets Initiatives (SBTi’s) minimum reduction pathway requirement by just over 30 per cent. We’ll be working to set a 2030 operational target to further our ambitions.

We recognise that our operational emissions are only a small part of our wider climate change impact. A far greater impact will come from transitioning all operational and attributable emissions from our lending and investment portfolios, in line with pathways to net-zero emissions by 2050.

Transitioning our investment portfolios to net zero

Net zero is about getting greenhouse gas emissions as close to zero as possible by 2050 or sooner, with any remaining emissions re-absorbed, for example by oceans and forests. The goal of net zero is to limit the amount of greenhouse gases in the atmosphere, in order to prevent the harmful effects of climate change.

In 2023, we’ll be developing a climate action plan and emissions reduction targets for our investment portfolios. These targets will include a 2030 target and a 2050 target and will be aligned to the Paris Agreement goal of limiting warming to 1.5°C.

New mandatory climate-related disclosures

In New Zealand, we have new legislation on climate-related disclosures. We recognise the importance of this new legislation for the investment sector, as this will enable both investors and investment managers to have a much better understanding of the climate impact of their investments.

In December 2022, the External Reporting Board (XRB) published its final Aotearoa New Zealand Climate Standards (Climate Standards). The new standards are based on the recommendations of the UN Taskforce for Climate-related Financial Disclosures (TCFD).

Around 200 entities in New Zealand are required to produce climate-related disclosures, including BNZ and BNZ Investment Services Ltd*. The XRB’s Climate Standards provide a framework for investment managers to report on the climate-related impact of their investments, including risks and opportunities.

For investors, this will mean more transparency around the targeted reductions in the greenhouse gas emissions of investment portfolios, as well as information on how we are tracking to those targets over time.

The ultimate aim of the Climate Standards is ‘to support the allocation of capital towards activities that are consistent with a transition to a low-emissions, climate-resilient future’.  You can learn more about the XRB’s Climate Standards, (and which entities will need to comply) on the XRB website.

New investment opportunities

The Climate Standards provide a harmonised reporting approach across the industry, this will not only pave the way to understanding climate risks but also opportunities. By requiring entities to provide comprehensive and transparent information on their climate-related activities, investment managers will also be able to report on climate-related investment activity that supports net-zero commitments. Investments in entities that are focused on transitioning to a net-zero future are likely to be better positioned to succeed in a low-carbon world, and over the long term this has the potential to be beneficial to investment performance.

This is important because achieving net-zero targets by 2050 will require new technologies and innovative solutions at scale. And innovative solutions need capital. A harmonised reporting framework will help to reveal climate-related information and support the allocation of capital where it’s needed.

Our next steps

We’re committed to understanding and reducing the risk that climate change poses to our customers and communities. Work is underway to ensure our investment portfolios consider climate and carbon-related risks and opportunities, aligning with the Paris Agreement goal of limiting warming of the planet to 1.5°C. This includes a range of interconnected objectives, including:

• Progressing a solution to enable the capture of climate and ESG data (for investments held by our funds), so we can report on greenhouse gas emissions across BNZ investment portfolios. This is important because data will be key to enabling us to identify and manage climate change impacts.
• Working with our underlying fund managers on the engagement activity they undertake, to understand how they influence corporate behaviour and effect progress towards a more sustainable future. This is all part of the Stewardship Code Aotearoa New Zealand, of which BNZ is a founding member. You can learn more about this here.
• Ensuring we’re ready to report on the mandatory climate-related disclosures and metrics across our managed investment schemes (including the BNZ KiwiSaver Scheme and YouWealth) from 2024 onwards. Our first report will be lodged no later than 31 July 2024, and will capture the reporting period to 31 March 2024.
• Developing an action plan to reduce the carbon intensity within our investment portfolios, which will be reflected in our Responsible Investment policy by early 2024.

This is an exciting and fast-developing area as investment managers work towards aligning investment portfolios to net-zero pathways, providing investors with the transparency and disclosure they need on climate issues.

These changes align with our bank-wide sustainability strategy to build a resilient, regenerative, and inclusive Aotearoa, for the long term. To learn more read our 2022 Climate Report or visit www.bnz.co.nz/sustainability

*BNZ Investment Services Limited is a wholly owned subsidiary of Bank of New Zealand (BNZ), is the Issuer and Manager of the BNZ KiwiSaver Scheme, YouWealth and Private Wealth Series .

Any views expressed in this article are the personal views the author and do not necessarily represent the views of BNZ, or its related entities. This article is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser.

Neither Bank of New Zealand nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any, information, representation or omission, whether negligent or otherwise, contained in this article.

BNZ Investment Services Limited, a wholly owned subsidiary of Bank of New Zealand, is the issuer and manager of YouWealth and the BNZ KiwiSaver Scheme. Product Disclosure Statements for both products are available at bnz.co.nz Investments in the BNZ KiwiSaver Scheme and YouWealth are not bank deposits or other liabilities of Bank of New Zealand (BNZ) or any other member of the National Australia Bank Limited group. They are subject to investment risk, possible delays in repayment, possible loss of income and possible loss of principal invested. No person (including the New Zealand Government) guarantees (either fully or in part) the performance or returns of the BNZ KiwiSaver Scheme and YouWealth or the repayment of capital. National Australia Bank Limited, the ultimate owner of BNZ, is not a registered bank in New Zealand but a licensed bank in Australia and is not authorised to offer the products referred to in this email to customers in New Zealand.