Inside Money: NZ Super tells Greens why coal call is not black and white

The Green Party says the Super Fund is backing coal while the world moves to dump it. Photo / Thinkstock

Last week the Green Party launched another broadside at the New Zealand Superannuation Fund (NZS) for alleged anti-planetary investing activities.

Under the inflammatory headline 'Super Fund backs coal while the world rushes to dump it' Green Party finance spokesperson, Russel Norman, accused the NZS of upping exposure to "the world's twenty dirtiest coal companies from $29 million at June 30, 2011 to $36 million at June 30, 2014".

"The Fund has increased its exposure to these companies while the average (unweighted) stock price of these companies has declined by 31 per cent," Norman said in the release.

He's not just pulling these figures out of thin air. The Greens have crunched some real numbers based on reported NZS holdings and underlying company share prices.

But the implication that the Super Fund has been loading up on old-world coal stocks while the rest of the investment universe dives into solar futures is predicated on a faulty analysis, according to the NZS.

The NZS said over the period analysed by the Greens, its apparent increase in coal investments is complicated by two factors: firstly, the fund upped its investment in physical shares at the expense of derivative exposure to underlying markets (which wouldn't show up as individual stock holdings in NZS accounts), and; the huge increase in the fund's size since 2011 would've lifted all boats - especially as the NZS gains 60 per cent of its exposure to global equities via index funds.

"Given our predominantly passive approach, however, the Fund's total, proportionate exposure to these companies will actually have reduced over the period [covered by the Green analysis]," the NZS said.

Not such a good headline for the Greens, which nonetheless asks the interesting question why the NZS doesn't just ditch its $140 million exposure to coal-related companies as it's "a tiny fraction of its total investments now valued at $29 billion".

"... so getting out of coal would be painless for the Fund but hugely valuable for the planet," Norman says.

Well not quite painless: digging out the coal stocks from the NZS passive portfolios would require a reasonable amount of effort and expense. (The NZS does, however, report a long list of stocks it doesn't invest in.)

The second Mercer climate change report mulls over the virtues of dumping sin stocks.

"Climate-sensitive industry sectors should be the primary focus [for investors], as they will be significantly affected in certain scenarios," the report concludes.

For instance, the report says, on worst-case assumptions, returns from the coal sector could decline by up to 74 per cent over the next 35 years, while renewable energy returns could rise by over 50 per cent during the same period: an outcome that would pretty much solve any coal allocation worries.