The Treasury
Enduring Letter of Expectation Information Release
October 2021
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Dear Board Chairs of the Crown Financial Institutions

ENDURING LETTER OF EXPECTATIONS TO CROWN FINANCIAL INSTITUTIONS IN
RELATION TO RESPONSIBLE INVESTMENT
We are writing to the Boards of the largest public investment institutions, sometimes referred to asNew Zealand’s Crown Financial Institutions (CFIs), to convey the Government’s expectations inrelation to your ethical investment policies.1
While this letter is specific to the CFIs, we encourage all public investment institutions to consider
the principles of the Crown Responsible Investment Framework (the Framework) and how thesecan be applied consistently with investment mandates. All parts of the Government’s economic
apparatus have a role to play to deliver the required climate transition. To do this we must start withtransparency but also commit to action.
This Government is committed to responsible actions, to optimise the wellbeing of both current andfuture generations. The CFIs play a crucial role in managing New Zealand’s financial wealth topromote intergenerational equity. We consider this to be analogous to the role of responsible
investment across the four capitals, to ensure investments today are made into things we can standproudly behind and contribute to the society we will hand down to future generations.
Climate change is one of the greatest challenges of our time. The recently published Sixth
Assessment Report from the Intergovernmental Panel on Climate Change found unequivocal
evidence that the global economy’s reliance on fossil fuel consumption is causing temperatures torise, leading to drastic changes in the atmosphere, ocean and land. Our national wellbeing isvulnerable to the economic and environmental impacts of climate change, both locally in ourcommunities and internationally through New Zealand’s reputation on the world stage and ensuring
our national commitments are met.
New Zealand has committed to taking urgent action on greenhouse gas mitigation and climatechange adaptation through the Paris Agreement’s article 2(1)(c), which commits the government to“making finance flows consistent with a pathway towards low greenhouse gas emissions andclimate-resilient development”, and Nationally Determined Contributions and the Climate Change

1

The Crown Financial Institutions include: the Guardians of New Zealand Superannuation in relation to the New ZealandSuperannuation Fund, the Accident Compensation Corporation, the Government Superannuation Fund Authority and the National
Provident Fund (NPF). While the NPF is not a Crown Entity it is included with the CFIs for the purposes of this letter.
For the purpose of this letter the terms ‘ethical investment’ and ‘responsible investment’ are interchangeable. Ethical is used forconsistency with underlying legislation, while the modern parlance denotes responsible investment as a broader interpretation thatincorporates positive as well as negative screening.

Response (Zero Carbon) Amendment Act 2019. The Government has committed to reduce
emissions in its own activities, in order to demonstrate what is possible for other sectors in theeconomy and showcase positive action to the rest of the world.
In December 2020, the Government announced a climate change emergency and theestablishment of the Carbon Neutral Government Programme (CNGP).2 This aims to accelerate
reductions of emissions within the public sector, and to be carbon neutral from 2025. The
Framework is designed to be complimentary to the Government’s carbon neutral commitments but
recognises that company level emissions are not directly influenced by investment managers.
Cabinet has already made a decision that all Crown funds with greater than $1 billion in total assets
under management should provide transparent reporting, consistent with the Task Force on
Climate-related Financial Disclosures (TCFD) recommendations. TCFD reporting helps to identify,mitigate and manage the risks associated with climate change so that reporting entities candemonstrate responsibility and improved foresight in their consideration of climate issues. Aligningwith best practice standards is important for New Zealand to fulfil its ambition of being a responsible
global citizen by taking a leadership position on global issues.
The establishment of the Framework enables clear communication of the Government’s key
policies and responsible investment expectations. At this time, the Framework is focused on theGovernment’s pledge to deliver a carbon neutral New Zealand by 2050, aligned with the ParisAgreement. However, we reserve the right to evolve the Framework to other aspects ofEnvironmental, Social and Governance (ESG) factors where Government policy sets the basis ofsociety’s expectations of responsible investment practice.
CFI leadership on responsible investment will avoid the need for Ministers to be more directive on
how to achieve a just transition. This provides the best opportunity to continue to deliver excellent
investment performance throughout the transition and is of greatest benefit to all New Zealanders.
However, if CFI leadership does not meet our expectation on the level of ambition of theFramework, the Government reserves the right to use legislative tools to strengthen theenforcement of the Framework.
How the Framework is expected to work
The Framework below is intentionally principles-based. This is to enable flexibility of individual CFI
investment strategies while moving towards the overarching policy objective. We recognise theimportance of this flexibility to deliver on dual financial and responsible investment objectives overtime. However, you should ensure that progress is transparent. You should measure and reportcarbon footprint metrics for your investment portfolios clearly, and in the case of fossil fuel reserve
owners, also account for emissions from the end-use of their products.
Measurement alone will not drive the transition, there must be a commitment to action. As
investment managers you do not have direct influence over investee companies, but you havechoices for which companies are more aligned to the required climate transition. We expect you toset ambitious carbon reduction targets for your portfolios, consistent with Government policy, the2The CNGP commits to reductions of scope 1, scope 2 and certain categories of scope 3 emissions. Investments, as scope 3emissions, are not currently captured by the CNGP.

Paris Agreement and global investment leadership over time. In the case of fossil fuel reserve
owners, reduction targets should also address emissions from the end-use of their products.
The leadership of CFIs to connect to global investors does not stop there. We expect you to be
influential in the domestic market for how businesses and investors can drive the transition to a low
carbon economy. You should actively seek all opportunities to drive the climate transition, fromeducation to active engagement to investment into climate solutions where there is consistency
with your investment strategy(s).
The principles of the Framework are intended to be enduring
Stability of the Government’s expectations will enable the CFIs to develop long-term responsible
investment strategies to measure, reduce and influence the transition to zero carbon investment
portfolios by 2050.
The principles set a minimum standard to be consistent with global best practice investment
standards and commitments of the Paris Agreement. You should feel comfortable going above andbeyond the minimum standard where this is not expected to have a negative impact on yourinvestment return profile.
We expect you to respond to this letter with how you will meet the expectations of the Framework
now and into the future. You should, at a minimum, set out how you will give effect to the Frameworkover the following five years, to 2025 initially. This response should be received by 31 December
2021 and explain how you expect to transition on the pathway from 2025 to achieving carbon
neutrality by 2050.
You should refresh your commitments regularly, initially prior to 1 January 2025 and within five
years after that date. The intention of regularly updating your commitments is to remain current withevolving expectations of global best practice commitments. Should there be any significant shift tothe New Zealand policy position, we will reissue this letter to refresh the Framework principles.
Yours sincerely

Hon Grant Robertson
Minister of Finance

Hon Carmel Sepuloni
Minister for ACC

CC: Chief Executives of the Crown Financial Institutions

3Crown Responsible Investment Framework for Crown Financial Institutions*
Measure1.

Carbon footprint metrics for your investment portfolios should be reported transparently,
on a consistent basis, enabling public scrutiny over progress towards carbon neutral
portfolios by 2050. In the case of fossil fuel reserve owners, you should also account foremissions from the end-use of their products.

2.

Reporting should align with the Taskforce for Climate-related Financial Disclosure
recommendations, until the External Reporting Board’s (XRB) climate related disclosure
framework has been issued, at which point it should apply, and should continue to evolvein line with global best practice standards;

3.

You should strive for consistency of measurement standards across the Crown Financial
Institutions so that relative performance on carbon emissions reduction can easily beinterpreted.

Reduce1.

Crown Financial Institution investment portfolios must be carbon neutral by 2050;

2.

You should set challenging minimum carbon reduction targets at interim periods to provide
assurance that investment portfolios are on track to be carbon neutral by 2050. In the caseof fossil fuel reserve owners, reduction targets should also address emissions from theend-use of their products.

3.

Interim targets should be aligned with global best practice standards to maintain a 1.5
degree global warming outcome;4.

Your first interim target should be for 2025 and should be refreshed prior to the start of thatyear for 2030. This process is to be repeated every five years thereafter;

5.

Where investment strategies allow, you should take a leadership position ahead ofminimum reduction expectations to demonstrate how return on investments can beachieved through low carbon strategies.

Influence
1.

You should utilise your long-term risk and return strategies to actively identify positive
investments that generate additionality to the transition to a low carbon economy; and2.

Recognising that success in reducing carbon exposure for investment portfolios relies oninvestee companies to transition to low carbon solutions, you should utilise your position
as significant investors to engage with New Zealand and global companies on developing
transition strategies.

*Crown Financial Institutions, for the purpose of this Framework, include:

Guardians of New Zealand Superannuation in relation to the New Zealand Superannuation
FundAccident Compensation Corporation
Government Superannuation Fund Authority
National Provident Fund4

Definitions and References
Carbon Emissions captures the greenhouse gases which contribute to climate change (CO2,CH4, N2O, HFCs, PFCs, SF6, and NF3), with carbon dioxide being the predominate gas.
Carbon Neutral Government Programme https://www.beehive.govt.nz/release/public-sector-becarbon-neutral-2025
Climate Change Response (Zero Carbon) Amendment Act 2019https://www.legislation.govt.nz/act/public/2019/0061/latest/LMS183736.html
Fossil fuel reserves is the proved and probable reserves for coal and proved reserves for oil andnatural gas that a company owns but has not extracted. Fossil fuel reserves represent potential
greenhouse gas emissions in the event they are extracted and sold.
Intergovernmental Panel on Climate Change’s Sixth Assessment Reporthttps://www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_SPM.pdf
Nationally Determined Contribution
https://unfccc.int/processand-meetings/the-paris-agreement/nationally-determined-contributions-ndcs/nationallydetermined-contributions-ndcs
New Zealand Nationally Determined Contribution
https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/New%20Zealand%20First/New%2
0Zealand%20first%20NDC.pdf
Paris Agreement
meetings/the-paris-agreement/the-paris-agreement

https://unfccc.int/process-and-Responsible investment
https://www.unpri.org/anintroduction-to-responsible-investment/what-is-responsible-investment/4780.article

5