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NGS to reduce emissions 35% in three years

The super fund is aiming to reduce its carbon footprint by 35% by 2025 en route to its 2030 net carbon zero target.

"We have set this very aggressive target of 2030 to decarbonise the portfolio, and we are much more confident at this point in time that we can make material headway into reducing the carbon in our portfolio by 2025 on the information that we have," NGS Super chief investment officer Ben Squires said.

As part of this strategy, NGS is flagging assets that the fund deems as a stranded asset for assessment and divestment.

"Timing of divestment from these companies will vary, but we've committed to have no stranded assets in the portfolio by 2025 - ensuring we can divest in the best financial interests of members," Squires said.

The fund has conducted a baseline measurement of the carbon intensity in the Diversified (MySuper) investment option in which more than 70% of the membership is invested and has conducted scenario analysis to plan the trajectory for how it can transition its portfolio to meet the 2030 target, Squires said.

"The first step was to establish the baseline to find out what is the natural attrition rate of carbon we expect to occur by virtue of things moving at the momentum we're expecting at the moment across industry," he said.

"We applied that approach across the entire portfolio, to we could get a sense of what carbon looks like for real estate, private equity, fixed income, infrastructure as well as equities."

The scenario analysis was conducted over the listed and unlisted assets of its portfolio and NGS also did a glide path analysis to model carbon reduction scenarios over time, taking into consideration risk, return and tracking error.

The work will also go towards engaging with the fund's external managers to assure that they are aligned with NGS's stated 2030 target, Squires said.

"What we're also confident of is that we can remove exposure to Scope 3 fossil fuel exposure," he said.

"We're looking at the worst offenders in terms of stranded asset risk, versus a company which may have higher scope 1 or 2 emissions profile, but a higher propensity to transition to a zero carbon business."

NGS Super will engage with companies with high Scope 1, 2 and 3 emissions where those companies have a "a sound and realistic business plan to transition to the low-carbon economy within a timeframe deemed acceptable to the fund."

The current goals and targets were developed while considering the impact of Your Future Your Super (YFYS), but Squires said the 2025 target introduces a minimal level of tracking error to the portfolio.

"We would be totally naïve not to have considered tracking error in YFYS, because ultimately we might be right in terms of our strategy, but we might be killed on our timing," he noted.

"The timeframe for YFYS is measured over an eight-year period, and sometimes the investments we make have a longer horizon than that - they may have a 15-year payoff.

"That requires quite creative thinking. If you remove oil and gas, how do you compensate for those periods of time where you have higher geopolitical tension, and shocks like the Ukraine conflict, how do you deal with those periods of time where you see periodic spikes in oil and gas in particular?"

NGS will look at creating alternative exposures within the portfolio that aren't based on oil and gas production and have similar levels of correlation, Squires said.

"The world is also very big from an investment perspective," he said.

"We can find enormous opportunities to invest our capital. Why would we invest it to destroy the future for our children and create future costs for our members?"

Read more: NGS SuperBen Squires