AIA NZ accelerates sustainability push with multi-fund strategy

AIA New Zealand's investment approach incorporates climate action while keeping an eye on robust returns, a senior executive told AsianInvestor.

“Our investment approach focuses on achieving our climate goals while maintaining strong financial performance,” Alex Kühnast, chief product and strategy officer at the insurer, said.

Last year, AIA Group published its global transition plan and validated near-term targets through the Science Based Targets Initiative, marking a significant milestone in its sustainable investment journey, he said.

Alex Kühnast
AIA NZ

In 2023, AIA NZ invested in three new sustainable portfolio entities: the Betashares Global Sustainability Leaders Fund, its NZD-hedged version, and the Betashares Australian Sustainability Leaders Fund.

"These track indices excluding companies with direct or significant exposure to fossil fuels or activities inconsistent with responsible investment considerations,” said Kühnast.

The life insurer also expanded its sustainable investment range with the Smartshares Australian Equities ESG ETF.

According to Kühnast, this fund "screens for controversial weapons, civilian firearms, tobacco, thermal coal, and oil sands."

“We're pursuing options to transition remaining shareholder and policyholder equity assets into locally available PIE funds tracking ESG benchmarks, including seeding a new Betashares New Zealand Sustainability Leaders equities fund. We expect to continue our progress into the first half of next year,” he said.

The insurer’s commitment to transparency is evident in enhanced reporting capabilities.

"Our 2023 climate statements include disclosure on progress toward decarbonising our investment portfolio," said Kühnast.

Previously, AIA NZ lacked tools to report on scope three financed emissions under the Aotearoa New Zealand climate standard. However, the insurer’s recent partnership with MSCI has significantly enhanced its ESG reporting capabilities, he added.

PORTFOLIO CONSTRUCTION

Managing approximately $1.02 billion (NZ$1.7 billion) in assets, AIA New Zealand employs a sophisticated approach to portfolio construction.

"Our fixed income investments are predominantly long-duration assets, designed to match the long-term nature of our liabilities," Kühnast said.

This strategy involves "favouring government bonds and corporate debt, mostly with an active secondary market, and equity portfolios comprising predominantly mutual funds with daily liquidity."

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The portfolio maintains a careful balance, with 70-75% in bonds and 25-30% in equities. This structure reflects both regulatory requirements and risk management priorities.

"We must manage concentration risk while maintaining diversification across asset classes and jurisdictions," Kühnast said. “Our scale allows us to seed new investment funds and collaborate with local managers to drive investment returns.”

A recent example involves working with a New Zealand fund manager to broaden the insurer’s local equities scope to include New Zealand companies listed on the ASX, with input into company weightings and sustainability criteria.

“That’s something that wouldn't be achievable without AIA NZ's scale and significance.”

ECONOMIC BACKDROP AND OUTLOOK

The life insurer’s strategy is evolving amid significant economic shifts.

"New Zealand, like most of the global economy, has undergone significant economic disruption since COVID-19, facing stubborn inflation and high interest rates," Kühnast said.

However, recent developments signal positive change. "The 75 basis points of interest rate cuts have already delivered by the Reserve Bank of New Zealand with more cuts expected before the end of this year giving confidence that the challenges of the past few years are hopefully behind us," Kühnast added.

Looking ahead to 2025, Kühnast sees multiple opportunities emerging.

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"The RBNZ aggressively cutting interest rates, likely continuing faster and deeper than previously signalled, should lead to improved conditions for fixed income and corporate bond issuances, combined with opportunities to buy new green bonds through ongoing energy transition."

Market volatility presents both challenges and opportunities for investors.

"Volatility can be both a challenge and opportunity - while it impacts earnings, short-term repricing of assets can create value pockets, especially in equity markets," said Kühnast.

"This dynamic environment, combined with AIA NZ's market position and clear sustainability framework, creates a strong foundation for executing our ESG transformation while maintaining our fundamental commitment to policyholder security."