Members have already begun trickling into the new ASB Positive Impact Fund following the ‘soft launch’ in July, according to the bank’s head of wealth, Adam Boyd.
“We’re starting to see customers come in,” Boyd said, “which is a promising sign as we haven’t started promoting the funds yet.”
As reported here, the ASB Positive Impact Fund invests into two underlying products: Vanguard Ethically Conscious Global Aggregate Bond Index Fund; and, the Mercer Socially Responsible Hedged Overseas Shares Portfolio.
Technically structured as two funds – one for the bank’s KiwiSaver scheme and another broad retail offering – the new ASB ‘impact’ investment strategy marks a step up from simple exclusions, Boyd said.
“Historically, the industry has focused on what we should exclude – and that can be effective in meeting the needs of some investors,” he said. “But now we can invest in areas that have a genuine positive impact on society.”
In addition to the now-standard exclusions (controversial weapons, tobacco etc), the impact component of the ASB portfolio will give weight to “industries actively building a better future for our world”, the bank website says, including:
“Renewable and alternative energies, water infrastructure and technologies, pollution and waste management, social services, sustainable consumer goods, responsible finance.”
But the impact label on the ASB fund has raised a few eyebrows in an industry where the naming rights to environmental, social and governance (ESG) strategies is increasingly under dispute.
For example, in August Kiwi Wealth head of customer, product and innovation, Joe Bishop, took a thinly-disguised swipe at index manager, Simplicity, for the limited effectiveness of passive funds as ESG vehicles.
Bishop singled out Vanguard’s “ironically-named” Ethically Conscious International Shares Index Fund – a sister product of the bond fund held in the new ASB impact offer – for its blunt instrument approach to screening.
He noted that the Vanguard fund could only cut out sectors rather than particular stocks with “highly questionable, even unlawful” records as public companies.
“Our view is that responsible investing is sadly becoming a bit of a box-ticking exercise or a marketing play. Statements that profess responsible investment values may get a cheap headline, but the talk hasn’t necessarily been followed up with action – at the expense of doing good for both investors and the planet,” Bishop said at the time.
“For fund managers to absolve themselves of their responsible investing duties because it’s ‘too hard’ is, we think, frankly shameful. Kiwis deserve more.”
The UN Principles for Responsible Investment (PRI) says in its overview of the sector, there are “many terms associated with the plethora of investment approaches that consider environmental, social and governance issues”.
“Most lack formal definitions, and they are often used interchangeably,” PRI says.
Impact investing, one of the newest terms in the ESG lexicon, is at the hard-core end of the spectrum. According to the Global Impact Investing Network (GINN) – the industry body attempting to bring coherence to the sector – the approach as generating “positive, measurable social and environmental impact alongside a financial return”.
ASB uses the GINN definition almost word-for-word in its promotional materials for the Positive Impact funds.
GINN, however, sets some further standards for earning the impact imprimatur including “the commitment of the investor to measure and report the social and environmental performance and progress of underlying investments, ensuring transparency and accountability while informing the practice of impact investing and building the field”.
The reporting duties of impact investors, GINN says, cover:
- establishing and stating social and environmental objectives to relevant stakeholders;
- setting performance metrics/targets related to these objectives using standardized metrics wherever possible;
- monitoring and managing the performance of investees against these targets; and,
- reporting on social and environmental performance to relevant stakeholders
Both the passively-managed Vanguard global bond product and the active Mercer equities fund contribute to the impact effect in the new ASB fund, Boyd said.
He said ASB would rely on the underlying managers to report on the actual impact their investments have achieved.
“There’s numerous ways to report [on the impact],” Boyd said. “For example, we can tell stories about what specific investments are doing.”
However, he said the industry had yet to settle on a standard set of ESG definitions.
“The more the industry can align [ESG] definitions, the better the customers can understand it,” Boyd said. “But there’s no clear pathway to achieve that yet.”
But the Responsible Investment Association Australasia (RIAA) is having a crack at it under new certification criteria for ESG funds.
The changes, outlined last week, would “strengthen the program, tighten the standards and provide better information to consumers and their advisers”, RIAA says.
RIAA-approved ESG products are now rated across eight fields including: strategies; significant harm avoidance; disclosure; active stewardship; and, the requirement that fund labels are “clear, honest and not misleading”.
Simon O’Connor, RIAA chief, said the new certification system should be fully-implemented in a year and would likely involve a tiered approach as opposed to the current single seal of approval method.
O’Connor said “we do foresee adding a star rating over the top of the program based on depth of sustainability outcomes”.
The Sydney-headquartered RIAA is hosting its almost sold-out annual NZ conference this week (September 24) at the usual Auckland Hilton Hotel venue.
RIAA will release its inaugural NZ impact investment report today. The report profiles the impact investing sector in NZ, which has grown to almost $900 million, according to the RIAA study.