Project examples – Sustainable Finance

Climate Reporting Entities (CREs)

In New Zealand, certain financial institutions are newly required to make climate-related disclosures under the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021. Institutions required to make these disclosures are called Climate Reporting Entities (CREs).

A large New Zealand fund manager qualifies as a CRE. Under the disclosure requirements, the fund manager must produce an annual climate statement detailing the effects of climate change on the funds it manages.

Prior to implementation of the disclosures, the fund manager was evaluating the information it would need to collect and analysis it would need to undertake and was preparing a draft disclosure. A student team assisted the fund manager with this process.

Among other things, the student team evaluated and helped develop the fund manager’s process for identifying, assessing and managing climate-related risks, as well as measuring and developing climate-related metrics and targets. This included scenario analysis across a range of different climate scenarios.

Portfolio optimisation with climate risk

An active fund manager uses aspects of portfolio optimisation theory to help construct portfolios. It was exploring ways to integrate climate risk measures into its portfolio construction process.

A student team assisted the fund manager in analysing and evaluating different ways of constructing such portfolios. The student team used Python modelling to simulate and analyse risk-return outcomes for a range of different portfolio construction strategies.

Among other things, the student team evaluated the relative performance of the hypothetical portfolios including traditional risk/return metrics and metrics incorporating climate risk considerations. The student team also evaluated the suitability of the portfolios for different types of investors.