Wednesday 26 February, 2020
The preponderance of green washing is leaving investors in the dark on just how responsibly their funds are invested.
With the responsible investment practices of investment funds in the spotlight, most fund managers had made changes to the way they invested members’ funds. However, the good progress made was being undermined by fund managers chasing headlines to divert from their own shortcomings.
Simon O’Grady, Kiwi Invest chief investment officer, said there was a divergence within the fund management industry between those that fully embrace responsible investing and those who use it as a marketing ploy.
“It’s becoming a real problem in funds management. There’s been some excellent work put in but we’re seeing far too much green washing in claims made by some fund managers.
“These managers typically have well-oiled marketing and PR but exercise very little control over their investments and the companies they’re invested in. Their ability to invest responsibly on behalf of their investors cannot live up to the shallow statements made so we’re pleased the Financial Markets Authority will soon be publishing guidance to protect investors from ‘green washing.’
“Investors deserve better. They should know precisely how a responsible investing strategy is being implemented on their behalf, which companies their money is invested in and how environmental, social, and governance (ESG) criteria is being applied. It should be mandatory for fund managers to disclose holding, exclusions and shareholder proxy voting records on all funds marketed as responsible.”
Kiwi Invest (the investment team behind Kiwi Wealth’s funds), implements exclusion, integration and engagement ESG strategies across all funds it manages. All KiwiSaver funds are independently certified by the Responsible Investment Association of Australasia (RIAA) and information on sector, company exclusions and proxy voting records are always publicly available to investors.
This week Kiwi Wealth Investments Partnership Limited became a signatory to the United Nations-backed Principles for Responsible Investment framework (UN PRI). The PRI will monitor, and independently grade, Kiwi Invest’s performance against mandatory ESG standards in its investment analysis and decision-making processes.
“Being a responsible fund manager means working with investors to ensure their investments are both tuned for financial performance and able to drive improvements in corporate behaviour in line with their personal values,” Mr O’Grady said.
“The best way to balance these two critical outcomes is to use a broad range of instruments that offer the flexibility to actively and consistently demand that the companies we invest in are lifting the ESG performance. For us, that means incorporating ESG factors at the security level as an active part of the investment process.
“We identify and exclude individual companies that we believe are being particularly irresponsible in environmental, social and governance areas. And, where we can see opportunities for improved ESG practices in companies we invest in, we can actively engage with them to drive that change.”
Mr O’Grady said they use a global proxy voting adviser Institutional Shareholder Services (ISS) to manage the research and execution of proxy voting rights across its in-house global equity strategies. ISS provides research and voting recommendations for all shares held directly by Kiwi Wealth and execute a voting strategy in accordance with Kiwi Wealth’s responsible investment policy.
“Most clients want to see their money invested responsibly. Proxy voting for positive change in companies satisfies their demands to be invested in the most responsible portfolios while maintaining strong portfolio performance.
“In our view, not incorporating ESG considerations in stock selection is out of line with best practice. We think it may also overlook our duty to act in the best interests of clients,” he said.
Kiwi Wealth’s 2017 white paper on responsible investment, endorsed by the Responsible Investment Association Australasia, found that responsible investing and fiduciary objectives were best achieved when Environmental Social and Governance (ESG) factors were considered across all investments in a portfolio in combination with actively engaging with companies and exercising proxy voting rights to influence company performance.
The Investing in an imperfect world: our take on true responsible investment white paper can be viewed HERE.