Just two New Zealand sharemarket listed companies will be barred to KiwiSaver default funds under new fossil fuel exclusion rules despite a number of others being involved in oil refining, fuel distribution and coal power.
From December 1 there will be six new KiwiSaver default funds set up to take members who do not choose their KiwiSaver provider when they are automatically enrolled into the scheme through either joining the workforce or switching jobs.
A condition of the new appointments which will also see around 300,000 existing default members switched into the new funds is that they will have to exclude fossil fuel investments.
The definition that was set up in the draft instrument of appointment stop the funds from investing in companies that own proved or probable reserves in coal, oil or gas and derive at least 15 per cent of their revenue from exploration and extraction of coal, oil or gas, or whose primary business activity is included in one of five sub-sectors.
Those sub-sectors include: integrated oil and gas businesses – companies that engage in all three fields of petroleum extraction as well as transportation and refining and marketing, crude oil producers, offshore drilling, oil equipment and services and companies that mine, process and market coal.
Steffan Berridge, quantitative and responsible investments strategist at default provider Kiwi Wealth, said its analysis only pointed to the need to exclude to NZX-listed companies – NZ Oil & Gas and miner Bathurst Resources.
That means Genesis Energy, which owns the coal-fired Huntly Power Station, NZ Refining – the country’s only oil refinery and main supplier of refined petroleum products – as well as petrol station owner Z Energy are still okay for KiwiSaver default providers to invest in.
Berridge said Z Energy did not have reserves and was classified under refining and distribution which was not an excluded sector.
“So there are only two companies that are going to be affected which are NZ Oil and Gas and Bathurst. Z Energy is okay.
“All of that stuff is debatable as to whether it makes sense and whether it actually helps the problem at hand anyway.”
Berridge said the fuel sector could be seen as lower risk as they were more able to adapt.
“They could start supplying other types of fuels that are less carbon intensive like electric for example. Maybe from the point of view the purpose of legislation they are trying to identify those companies that are more at risk and where it is not as easy to pivot.”
Barry Coates, a former Green MP and founder of Mindful Money – a company that analyses what KiwiSaver funds are invested in, said there were three areas of exclusion when it came to fossil fuels; the exploration and production side, the downstream assets like fuel retailers and power generation from fossil fuels.
“Typically when the industry is looking at this for exclusions they do break those things into separate categories.
“What the Government has chosen is quite a narrow definition of saying this is about exploration and production activities and not about these other aspects of fossil fuels.”
Coates said in a way that was fair enough as that was how a lot of the fund management industry operated its exclusions.
“That is a fairly standard approach. Initially most of the funds will start off on the exploration and production side on the basis that you still need retail of petrol because people are still driving cars but we want to get the upstream – the exploration and production people to shift into different energy sources. That is the logic behind it.”
“Of course we would love them to go further but that is probably not a bad balance given a certain amount of resistance from the investment sector.”
The fossil fuel exclusion comes as the Government is set to offer rebates to encourage people to buy electric vehicles.
Coates said one problem with the details of the exclusion definitions was that the Government had not used the industry-standard way of looking at it.
“What that then does it creates a certain amount of confusion.”
Coates said that meant there could be differences between the default funds and what they exclude.
“Many of them will be using an industry-standard definition and will go further than the Government’s definition.”
Coates said another concern over the definitions of fossil fuels was that it only covered equities and not debt like bonds.
“This is a serious limitation that is not standard procedure for most negative screening processes across the investment sector.”
Sam Stubbs, managing director of Simplicity, a newly appointed default scheme, said the instrument of appointment was still in draft form but it should be signed by the new default providers by July 1.
“There has been no debate or concern about those fossil fuel exclusions, they have been the same all the way along.”
Stubbs said it already excluded the sub-categories across its existing funds and its new default fund would be the same.
Stubbs said at the moment it excluded Genesis because it owns 46 per cent of the Kupe gas field. “We excluded that about a year ago. And that is the only one.”
Stubbs said NZ Oil & Gas and Bathurst Resources were not in the indices its funds tracked but would be excluded if they were.
He said Z Energy was not excluded as it was a downstream company.
“The exclusions don’t run downstream to distributors. I would imagine over time that will come more under scrutiny.”
Although he said fuel distributors could switch out and start offering electric charging in the future.
“Like all of these things it is very hard to draw the line – it is not black or white with Z Energy it is shades of grey.”
KiwiSaver default Fossil Fuel exclusions:
Which NZ-listed companies will be excluded?
• NZ Oil & Gas
• Bathurst Resources
Which NZ-listed companies are still okay?
• Z Energy
• NZ Refining
• Genesis Energy
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