The ban on default Kiwisaver accounts investing in fossil fuels that was announced yesterday remains vague, with the Government making unsupported claims and saying they will provide details later.

So it looks more like yesterday was more campaign PR exercise than solid plan.

I wonder if the Green Party are hoping that the details can wait until after this year’s election – and hoping they don’t have to worry about being vetoed by NZ First. Notably their were three Ministers involved in the announcement, Kris Faafoi and Grant Robertson (both Labour) and James Shaw (Greens). The elephant wasn’t in that room, but is trying to get re-elected in a pivotal role.

Newsroom asks more than Three questions about the KiwiSaver fossil fuels ban

The reason the Government is making its announcement now is the terms of the nine existing default providers expire in June 2021, and the newly-announced rules will apply to anyone wanting to run a default fund after that.

So the actual rules may not be clear until next year.

A vague claim in the Beehive promotion of the policy seems misleading: “In 2017, the $47 billion NZ Superannuation Fund adopted a climate change investment strategy that resulted in it removing more than $3 billion worth of stocks that exceed thresholds for either emissions intensity or fossil fuel reserves, without negatively affecting performance. So we know that moving away from investments in fossil fuels doesn’t have to mean lower returns.”

Newsroom:

Perhaps the highest-profile model – and the one quoted in the Government’s release – is the NZ Super Fund. But that fund, while putting considerable store on its Climate Change Investment Strategy and its carbon exclusion methodology, is proudly not fossil fuel-free.

…what the announcement doesn’t mention is the Super Fund has kept the top performing emitters in its portfolio. “Stocks in the top quartile of the “Carbon Emissions” score – reflecting less risk due to better management than their peers with respect to climate issues – have been retained in the portfolio,” Super Fund spokesman Conor Roberts says.

So this sounds like prudent investing – getting out of risky fossil fuel companies but keeping investments in “top performing emitters”.

Question 1: How do you define investment in fossil fuels production? Which companies fall into the category of banned investments?

Some are pretty straightforward. Oil companies Shell, BP and Exxon Mobil are presumably out. But what about NZ petrol distributor and retailer Z Energy?

What about ANZ, BNZ or Westpac, with their huge loans to Australian mining companies? As one commentator put it to Newsroom: “A decent whack of KiwiSaver funds are going to Australia and if you are investing in Australian banks you are knee deep in fossil fuels.”

Then there are the huge international funds. Warren Buffett’s mega-fund management company Berkshire Hathaway has an energy division that owns a number of coal-fired power stations

What about companies that are huge users of (and therefore encouragers of) fossil fuels production? Toyota or Volkswagen, the world’s largest producers of fossil fuel-driven cars; Fonterra, whose coal-fired milk processing plants make it one of the country’s top CO2 emitters; Air NZ, whose search for alternative fuel sources hasn’t come to much so far.

That’s a question I have already asked. It’s an important one that hasn’t come close to being answered yet.

There’s no definition of “fossil fuel production” in the Government’s press release. There’s also no information on whether the Government is going to give default KiwiSaver providers guidance on what exactly it means by “excluding investment in fossil fuels”.

When Newsroom asked  Kris Faafoi’s office for clarification, spokesman Peter Stevens told us only: “The Government will provide more detail on the threshold and definition of the exclusion before calling for tenders, as part of the process to appoint new KiwiSaver default providers.”

That sounds like next year, after the election.

As one KiwiSaver provider, who didn’t want to be named, told Newsroom. “Is the Government deliberately leaving it open, or are they going to come back later and tell providers they actually had a more specific idea how this is going to be interpreted?”

It’s not even clear whether it will be defined by the Government.

Question 2: What evidence does the Government have that its fossil fuels-free strategy won’t harm the financial performance of New Zealanders’ retirement savings?

Faafoi: ““It also makes sense for the funds themselves given that there is a risk of investing in stranded assets as the world moves to reduce emissions.”

And: “So we know moving away from investments in fossil fuels doesn’t have to mean lower returns.”

Which is only vaguely reassuring, particularly given the fact the Super Fund made a calculated decision not to get out of fossil fuels entirely – see above.

The Government appears to be assuming that it knows better than KiwiSaver fund managers what investment strategy is right for their fund in terms of risks and returns.

Which coincides with their climate change mitigation ideals.

“I’m not convinced government should be the arbiter on where the best returns can be generated in a portfolio,” one KiwiSaver manager told Newsroom. “If the objective of KiwiSaver is to make as much return for investors as possible, then fund manager should have freedom where they invest.”

But what would they know about investing, especially compared to politicians who have experience in investing in their own interests.

Question 3: Isn’t shareholder activism one way to produce positive change? But that means you have to be a shareholder.

…these days there’s another argument increasingly being heard in the investment community.

Why investing in coal mines could (maybe) be ‘responsible investment’.

Berridge argued that investors, particularly large ones, should be engaging actively and openly with companies whose products, activities or business models they are concerned about.

“If you are an investor in a ‘bad’ company and you vote for change, you have a chance to make a difference,” Berridge told me. “But if you invest just in ‘good’ companies, there is an argument your vote makes no difference.

“For an individual looking at a KiwiSaver fund, for example, there is an argument that choosing a provider or a fund which feels good is not helping things. It’s the weakest method of trying to make a difference.”

The move by the New Zealand Government to ban investments in fossil fuel companies risks being counterproductive, another KiwiSaver manager told Newsroom.

“There is a real danger we are shooting ourselves in the foot here. If our voices aren’t heard at the board table there’s a risk that progress towards emissions reduction goals could be slower.”

Maybe the Government is planning on forcing companies to change so shareholders won’t have to. Again that’s  questionable interference by the Government.

Waters are muddied still further by the fact that some companies that are heavy producers or users of fossil fuels are also putting a lot of money into trying to move towards renewable energy. Majority Finnish government-owned oil company Neste is also one of the largest producers of renewable diesel in the world.

Companies heavily involved in fossil fuels have plenty of incentive to diversify into clean energy alternatives to position themselves well for the future. If they lose investors they may be less able to do that.

With the lack of details yesterday’s announcement was more of a Labour-Green PR exercise than a definitive plan. They will probably use it in their campaigning this year. We re unlikely to know what their new investment rules will actually mean for people who invest via Kiwisaver.