New Zealand’s sovereign wealth fund NZ Super Fund (not to be confused with the USEPA Superfund) made a surprise move contrary to existing trends in financed emissions – and may contradict TCFD and the Partnership for Carbon Accounting Financials (PCAF). In its independently assured Carbon Footprint 2023 report, the Fund states:
“Our bond investments are considered to have no carbon footprint (and no revenue) assigned. This is based on the Market Capitalisation approach as set out in TCFD guidance, where emissions are allocated based on equity ownership. In this approach, bonds are not allocated fossil fuel reserves, emissions and revenue as there is no equity ownership.”
Responsible Investor reports that not everyone agrees this is a valid approach.
A banker with knowledge of the carbon accounting methodologies developed by global body PCAF told Responsible Investor that the decision is ‘likely to be a pretty significant omission of impact’. They pointed out that PCAF covers bonds, including sovereigns.
Josephine Richardson, head of research at climate-focused think tank the Anthropocene Fixed Income Institute (AFII), said TCFD’s guidance makes it clear that when calculating a footprint of non-equity investments such as debt, ’emissions can be allocated across the capital structure. It doesn’t seem reasonable that any investment in a non-zero emissions producing issuer should have zero emissions’.
Interesting at the very least. Will this set a new precedent for carbon reporting in the financial services sector? Or will NZ be forced to change their ways? Stay tuned.
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