Insights
ELI5 (explain it like I’m 5): The Paris Agreement

To control the overall temperature increase of the planet from greenhouse gas emissions, the Paris Agreement was adopted by close to 200 countries in 2015. The goal of the agreement (an internationally binding treaty) is to hold the increase in global average temperature to well below 2 degrees Celsius above pre-industrial levels. The lower the temperate increase, the smaller the effects of climate change.

The Agreement includes commitments from signatory countries to reduce their emissions and to work together to adapt to the impacts of climate change. It calls on countries to strengthen their commitments over time. The Agreement provides a pathway for developed nations to assist developing nations in their climate mitigation and adaptation efforts while creating a framework for the transparent monitoring and reporting of countries’ climate goals.

What does the world look like if we don’t achieve The Paris Agreement targets and are we on track?

The Paris Agreement set out to limit the global average temperature rise in this century to well below 2 degrees Celsius, while pursuing efforts to limit the temperature rise to 1.5 degrees.

The graph to the left (Global mean temperature increase by 2100) shows the differences in likely temperature increases based on the differences between what we’re saying and doing now (current policies and actions), vs what we’ve said we’ll do (pledges only) vs what we’ve legally agreed to both say and do (pledges and targets).

Notably, even if you take the best of these three options and look at the likely scenario of pledges and targets (the option that yields the lowest temperature increase) it’s still not enough to keep us on track for the 1.5 °C goal. This doesn’t invalidate the goal itself, or companies still aiming for their emissions to support achieving the goal.

How our investing aims to achieve the goals set out in the Paris Agreement.

KiwiSaver Investments are the second largest source of the average kiwi’s carbon footprint, after transport. What you feed grows; by the same token, the companies and industries you invest in can benefit from your purchase of their shares. The company’s share price increases with greater investor demand, this can be seen as an indicator of company success.

Because of this, we believe every investor (& fund manager) should make an active decision about whether they want to invest in a way that will support the goals set out in the Paris Agreement. While we think variety and freedom of choice is critical (and makes things interesting), without a liveable planet there won’t be investing – so decisions that materially impact the world we live in need to take precedence over ‘nice to haves’ like wealth generation.

At Pathfinder, we strive to select investments with lower-than-average emissions to drive down the overall emission profile of our investing. There’s a wider value add here too, because companies who champion a climate-solution focus are more likely to:

- Support decarbonization

- Prioritise sustainable development, and

- Conduct themselves with authenticity and transparency

That’s why we consider these companies to be higher-quality investments, likely to generate higher returns more sustainably. One reason for this is that they’re likely to be involved in fewer controversies, such as lawsuits due to bad environmental stewardship. Companies who are mired in controversy can have huge litigation bills and suffer serious reputation problems making them less desirable to buy from or work for – this makes them bad for the environment and shareholders.

The Paris Agreement is an international target, providing context within which we can view the weighted average carbon emissions (WACI) for our portfolio.

To view the WACI of our funds and other ethical metrics we use to assess the environmental and social impact of our portfolios, check out our Ethical Scorecards in the Investor Documents section for each fund.