There’s a lot of funds to choose from nowadays if sustainable investing is your focus. One new fund from AMP is looking to do it a bit differently.

The global economy is transforming. A historic transition in the way we generate and use energy is underway, in response to the reality of climate change: from a fossil fuel economy to one based on renewable energy. According to the Net Zero Roadmap published last year by the International Energy Agency, that shift will require $US100 trillion in investment over the next 30 years.

That’s the scenario underlying the new Global Climate Fund launched by AMP Wealth Management New Zealand Limited (AMP), seeking to invest approximately $500 million over the next few years. The company is aiming for both a fast start and a genuine impact on climate infrastructure and that has meant doing some things differently.

“The ‘how’ for us is looking to get into private investments, where you know that the capital that you’re investing is going to specific initiatives rather than just buying and selling shares, which doesn’t really deliver any value or capital to the system.” says Aaron Klee, AMP’s general manager of Investment Management and Services.

Klee says the fund’s broad targets will be “solar, wind, battery storage, EV charging platforms, the infrastructure that society and the economy needs to transition from a fossil fuel economy to a renewable economy.” It’s not a new concept globally, but climate funds have struggled for momentum and are still largely concentrated in Europe, where the regulatory environment provides an incentive.

The major issue, says Klee, is liquidity. Infrastructure investment is a long game, even more so when it goes into new ventures.

“If you open up a fund or raise retail investor money, you have to manage liquidity in and out. And that gets quite hard if you want to put that capital to long-term projects, long-term solutions that require a longer-term commitment.”

AMP’s solution is to design the new climate fund as an allocation to the $9 billion in diversified funds it already manages. That means the need for withdrawals can be managed “quite easily”, says Klee “and it enables us to scale up investment capital quickly, because we’ve already got the funds there, so we’re not going out and asking for new money or bespoke investment into this fund.”

The expectation is for half of the fund to be under management by the end of the year and, says Klee, “once we start investing into it and we can start talking to customers around the specific projects or initiatives or companies that we acquire, then they’ll really start to feel it and touch it. We hope they’ll see some EV chargers being put up, or a new solar farm or battery farm, and they can say ‘my KiwiSaver investments enabled those’.”

It’s an idea that comes through in investor research, says AMP sustainable investment analyst Livvy Mortimer: “Generally people are keen to deliver a positive impact with their investment and not compromise investment returns at the same time. So this was an investment decision as well as a sustainable investment decision. I think it works on both fronts.”

Dean Hegerty, New Zealand based co-CEO of the Responsible Investment Association of Australasia, agrees that younger investors in particular increasingly expect their investments to be both “making a positive contribution to society” and delivering competitive returns.

The RIAA added a question about avoiding investment in fossil fuel production companies to its Voices of Aotearoa investor survey for the first time last year, with a specific focus on KiwiSaver choices. Seventy five per cent of respondents said they wanted to avoid such investments. That was lower than, say, the 90% who wanted no part of potential human rights abuses, but Hegerty says that’s more to do with the fact that “New Zealanders are really passionate and believe really strongly in a whole lot of causes. But climate is certainly a significant driver of behaviour at the moment. And you’ve only got to look at what the weather’s been doing in the last 12 months in New Zealand to see why.”

Klee says AMP has talked extensively with its partner BlackRock about strategies for maximising investment impact. BlackRock’s $2 billion fund with the New Zealand government, intending to make us the first country to use 100% renewable electricity, was a telling move, he says.

“This is the first time that they’ve run a strategy like this in a single country and part of the reason was the IP and the innovation that was being driven out of New Zealand. They saw it as a great generator of thought leadership around renewables. So you’re investing in the research and the capability and talent, then looking to scale it and take that IP and knowledge to other parts of the world.”

BlackRock’s billion-dollar investment in Australia’s Akaysha Energy, “a very small company at the time” is a good example of the kind of impact investment AMP’s Global Climate Fund may focus on, he says. “They’ve since won a tender to build the Waratah Super Battery just outside of Sydney. It’s going to be the largest battery farm in the world.”

There will also be opportunities to invest in simply managing the effects that climate change has already baked in, he says. “When you look at the data around extreme weather events and floods, the next theme is probably investing in climate resilience.”

But there’s another factor. Investors also want to feel that the company managing their money are “walking the talk”, says Mortimer. “We post all our holdings on our website so they can go in and look at where their money’s invested. A big pillar of our sustainable investment approach is transparency, so our investors can understand it for themselves as well.”

Mortimer, who is in her 20s, says “many members of my generation” have begun to ask “more sophisticated questions” about where their money is invested – and also about how the company handling it operates itself.

AMP is Carbon Zero-certified and has switched to the wind-power electricity provider Ecotricity. Nearly all of its vehicle fleet is now electric and the company is examining the idea of giving employees LED light bulbs to use in their home offices, “so they can reduce their emissions when they work from home as well.”

Behind it all is the bigger goal of becoming the first New Zealand-based financial services provider to have its net zero targets verified by the Science-Based targets Initiative, a partnership between the Carbon Disclosure Project, the United Nations Global Compact, the World Resources Institute and the World Wide Fund for Nature to define sector-specific pathways to net zero.

All this change is not simply a pointer to the potential of climate-friendly initiatives, says Hegerty.

“The world’s energy mix is going to look incredibly different in five, 10, 20 years. That doesn’t just mean opportunity, it also means the risk of holding on to assets that will become stranded is growing all of the time. In some instances, those older fossil fuel heavy assets, coal mines for example, are going to dramatically decrease in value. The risk of that is only going to grow. It’s push and pull at the same time.”

Klee, whose whole career has been in financial services, says AMP is responding to the biggest change the sector has ever seen.

“It’s moved from ‘avoidance’ to ‘leaning in’. I remember earlier in my career, the first ethical funds came out and they really struggled, I don’t think the market was ready for it, and they just stood out as fads. That’s not the world we live in now.”

Money is not being sought for the global climate fund and no one can apply to invest in it. It is a wholesale fund that will be invested in by other AMP funds. See more at amp.co.nz.