Insights
Does Pathfinder invest in fossil fuels?

Short answer: yes.

Although we seek to exclude companies who make more than 5% of their revenues from fossil fuels, we have granted one exception for a NZ energy company called Contact.

More than 85% of Contact Energy’s production is renewable, in fact they’re the largest renewable energy producer in New Zealand. The remaining balance is legacy government owned assets they were saddled with at the time of privatisation. Contact Energy has a plan to exit these assets and Pathfinder supports companies who are serious about transitioning  out of one of our excluded activities and who have credible pathways to get there. We monitor a company’s  progress along these pathways .

We believe the climate crisis represents a significant risk to human society and excessive fossil fuel activity is a key driver of this risk.

We’ve thought a lot about how our investment decisions can play a positive role in the climate crisis, rather than a negative one. For instance, we invest in low carbon solutions such as Mint Innovation and Lodestone.

And we’re proud of the impact we’ve been able to make; for example, all three of our KiwiSaver funds have less than half the carbon footprint of the MSCI All Country World Index (this is an index that tracks nearly 3,000 stocks in 47 developed and emerging market countries as at December 2023).

That said, this is (another) complex topic that can be hard to understand for people who aren’t climate scientists or investment specialists (fun fact: a combination of these two specialties was formerly rare but is becoming more common!).

So, to help make things clearer, we’ve broken the broad topic of ‘fossil fuels’ into categories based on activities.

By ‘activities’ we mean that there are 4 main ways companies might generate revenue related to fossil fuels, these are: exploration, extraction, conversion/generation and distribution.

Then, we’ve applied a revenue threshold of 5%.
This means we seek to exclude companies that derive 5% or more of identifiable revenue from the exploration, extraction, conversion /generation or distribution (except by rail ) of fossil fuels*.  The reason we have allowed for this carve-out for rail is because with our ‘fossil fuel distribution’ category we intend to capture high emissions transportation.  Rail is typically a lower emitter of carbon per kilometer so not included in this exclusion.

Why is 5% okay, but 6% or more isn’t?

In technical terms, this threshold means we can invest in a company that derives revenue from the generation, exploration or distribution of fossil fuels if it’s less than 5% of their total revenue.

To be clear, we do not seek out companies that generate 5% or less in revenue from these activities. This threshold is used as a buffer to allow us to invest in companies who are mainly making revenue from other things, but who might make a small portion from activities related to generation, exploration or distribution.

There are a couple of reasons why we need this buffer:

When you’re talking about companies who typically generate revenue in the multi-millions sometimes billions of dollars, less than 5% of that is another way of saying it’s a small part, not a core part, of their business. So, it usually rules out companies whose purpose is to generate, explore or distribute fossil fuels.

To rule a company in or out, based on a revenue threshold (such as 5%), we rely on data providers and publicly available information to tell us how much a company makes from all its different revenue streams. This requires companies to accurately record and then share this information.

We don’t want to mislead our investors, even unintentionally.
In instances where revenues from the activity we’re aiming to exclude is hard to identify, there’s any uncertainty, or it’s not reported; we use a % buffer to ensure our integrity. We wouldn’t want to promise 0% only to discover a company was making 2% revenue from an excluded activity and not accurately disclosing that.

Okay, so what’s an example of a company that earns under 5% from activity related to generation, exploration or distribution of fossil fuels?

There could be a company that’s transitioning from old to new, for instance, a power company that’s mostly invested in renewables but has some residual exposure to oil and gas due to how it was historically run.

So, those are the rules, but occasionally a company will come along that conducts business in one or other of these excluded activities, beyond the threshold we’ve set, that we think is worth investing in regardless. If our Ethics & Investment Committee agrees, they can grant an exception.

Here are some of the things our Ethics & Investment Committee would need to consider in order to grant an exception:

Transition: acknowledging a company’s commitment to business transition
A company may be in the final stages of a transition out of an excluded activity, or intentionally take on other’s environmental liabilities to transition them out of an excluded activity, with a clear pathway to achieving that. If we see leadership, commitment and a clear plan to transition from a company we may decide to invest in that company.

Transformation: investing for change
A company may be striving to change an industry or process such that it transforms out of being an excluded activity.

Financial: Portfolio construction imperatives
Our Investment Team determine we are unable to create a portfolio with appropriate diversification and/or risk & return characteristics without that company.

You can read the companies we’ve granted exceptions to on our website, here.
And the above is from our Ethical Investment Policy, which you can read in more detail here.

Yes, one. We invest in Contact energy, which breaches our exclusion of not investing in a company which has identifiable revenue of more than 5% from the generation of electricity or process heat from fossil fuels.

More than 85% of Contact Energy’s energy production is renewable, in fact they’re the largest renewable energy producer in New Zealand. The remaining balance is legacy government owned assets they were saddled with at the time of privatisation. Contact Energy has a plan to exit these assets, and Pathfinder supports companies who are serious about transitioning and who have credible pathways to get there.

You’ll recognise this thinking from the above category of Transition. Even after granting an exception we will watch the progress they’ve signposted. We may do this by reviewing their annual reports, any controversies in the news or undertaking direct engagement with the company’s executives.

Both our KiwiSaver Balanced and Growth funds have been designated as ‘Climate Friendly’ by Mindful Money (Conservative Funds are not included because they don’t have as many equities). You can learn more about this here.

This Climate Friendly designation means that our funds have less than 0.01% invested in any company producing coal, oil or gas, or the company is making the transition to renewable energy on a 1.5 degree pathway (this is where Contact Energy comes in). It also means that our funds have less than 0.01% invested in other aspects of Environmental Harm.

At Pathfinder, we're on a dual mission to generate financial returns from investing ethically. Our funds are a powerful way to reduce your personal carbon footprint and help activate a better future, one where nature is respected because we're aiming for our portfolio to have lower emissions than the benchmark.

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*We define fossil fuels as coal (and consumable fuels), oil and natural gas including where developed from unconventional sources such as tar sands or shale oil.

**Based on Mindful Money's calculations there is over $3.9 billion of KiwiSaver money and $4.6 billion of other NZ retail investment funds invested in companies that are involved in fossil fuel extraction, production and environmental damage (analysis of September 2023 data).