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How to finance the climate change transition

4 Jun, 6:30am by Daniel Smith

Industry leaders have outlined how fund managers can solve the climate crisis while still making great returns.

The climate crisis presents a generational challenge for New Zealanders, delegates at the Responsible Investment Association Australasia (RIAA) conference this week were told.

Overcoming that challenge will bring the potential to see great returns for those financing the change, according to industry panellists discussing financing climate transition.

Lance Wiggs is the founder of the Punakaiki Fund, and more recently the Climate Venture Capital Fund (CVCF). He set up the CVCF in order to bet big on climate recovery, and the science and technology that will accompany it. 

Wiggs says companies should aim high.

“We are looking for the opportunity to go big. Yes, we need to reduce emissions in New Zealand, but why stop there?

“Companies that can make a dent in global emissions are interesting to us. We are looking at these kinds of spaces because if they succeed then the rewards both financially and environmentally will be extraordinary.”

Wiggs’ sentiment was echoed across the panel.

Victoria Harris, portfolio manager at Devon Funds, says it's "...just common sense to think about returns from both a financial and environmental view".

“We look at dual returns when we look at companies and the impact that ESG will have on our evaluations. We just think it gives an appropriate risk-adjusted outlook for risk-adjusted returns.

"It is something that we incorporate into our modelling when we sign onto making investments.

“When we have an ESG conflict, there lies the beauty of being an active manager as we can engage with these companies to help them improve their approach to this aspect of the market,” says Harris.

Craig Weise, chief executive at New Zealand Green Investment Finance says in order for the finance industry to make sure they are on the right side of the climate transition, they will need to be open with their thinking about returns.

“When it comes to returns, I don’t think you need to compromise," he says.

“The hidden jewel in the story of the climate transition is that this is one of the biggest societal changes and energy use changes that has happened in most of our lifetime. This equals a massive opportunity.”

“Effectively carbon is about efficiency. If you can use less carbon, then you can do things faster and make more profit.

“That message is quite easy to digest if you are an economic actor. The fallacy of a tradeoff of returns will over time be fully dispelled.”

All of the panellists agreed that when discussing investments that have a positive impact on the environment, a focus on carbon is key.

“Carbon is our one true north," says Wiggs.

“Fundamentally greenhouse gas emission mitigation is the only thing that really matters if we are going to avoid much worse outcomes for the world. So that is what we are focused on.

“The neat thing about that is if you fix that, then a whole bunch of other fixes come along with it.”

Financial Planning