Thursday 3 September, 2020
Our take on true responsible investment.
Since 2016, responsible investing has been in sharp focus due to heightened public awareness on whether KiwiSaver accounts are invested responsibly.
KiwiSaver is by far the most popular investment vehicle in terms of total numbers of New Zealanders invested, with more than 2.7 million members and total funds under management at more than $40 billion.
The heightened awareness led to an unprecedented shift towards funds being more responsibly invested, both directly and indirectly – the latter an important consideration given KiwiSaver scheme providers’ use of low-cost global index trackers.
While the actual changes in underlying investments in New Zealand are small, it nevertheless reflects a strong desire by New Zealanders to see a correlation between their personal values and where their money is being invested.
This paper seeks to contribute to redefining what responsible investment really means in the New Zealand marketplace. It draws from international best practice and offers our assessment on how best to apply those lessons to the New Zealand investment management industry.
- Responsible investment has gained a strong foothold in New Zealand but it is still in its infancy. The focus on exclusions is working against investors.
- The benefits of responsible investing do not come from company exclusions; rather they come from integrating Environmental, Social and Governance (ESG) principles into investment decisions and engaging with companies on key issues.
- Excluding companies is not an effective way to influence better behaviour – owning shares and voting gives investors a voice and is more likely to work.
- A balance needs to be struck in incorporating ESG principles into investment portfolios – either too much or too little could represent a breach of fiduciary duty.
- Partnering with the client is paramount. They must be engaged, educated and informed participants throughout the responsible investment process.
Kiwi Invest’s 2017 white paper on responsible investment, endorsed by the Responsible Investment Association Australasia, found that responsible investing objectives were best achieved when 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 white paper, ‘Investing in an imperfect world: Our take on true responsible investment’, can be accessed here.
Find out more about Kiwi our approach to responsible investment.