The second stand-alone NZ Responsible Investment Association Australasia (RIAA) report heralds a “coming of age” for the sector, Matthew Mimms, The Investment Store principal, told a capacity crowd in Auckland last week.
Mimms, who also acts as the RIAA local representative, told the 70-strong audience gathered at the NZ Superannuation Fund Queen Street headquarters that the latest report showed responsible investing in New Zealand was now a “broad church”.
“There is a significantly greater diversity of investors represented in this year’s [RIAA NZ] report,” he said.
The RIAA NZ benchmark study released last week, which covers the calendar year 2015, found total assets managed to responsible investment principles jumped almost 30 per cent over the annual period from about $61.5 billion to more than $78.6 billion.
While the bulk of the year-on-year increase was down to institutional investors – most notably NZ Super and the Accident Compensation Commission fund – managing assets under environmental, social and governance (ESG) guidelines, the RIAA report shows the retail market also grew over the period.
According to the RIAA study, NZ “core responsible investment strategies” – which equate to retail-sourced funds – hit $1.6 billion at the end of 2015, up $237 million, or 18 per cent, over the 12-month period.
However, retail responsible investments in NZ account for just under 2 per cent of the market, representing a slight proportional drop compared to the previous year.
But Mimms told the Auckland audience, comprising of both managers and asset owners, that further growth in the retail responsible investment market was underpinned by both KiwiSaver and the Financial Advisers Act (FAA).
He said the fact both sets of legislation require some measure of responsible investment disclosure to clients could be a “strong driver of growth” in the retail market.
John Berry, Pathfinder Asset Management director, told the Auckland audience “it was no surprise” the RIAA report indicated retail clients were warming to responsible investments.
“We’ve seen a level of direct enquiry from retail investors over the last year that we haven’t experienced in the past,” Berry said.
The Pathfinder Global Water Fund is deemed a ‘sustainability themed’ product by the RIAA.
Curiously, Berry said financial advisers and retail investors tend to include such thematic products as a “satellite” holding in portfolios.
“It is a very different approach with wholesale and institutional investors,” he said. “Using conventional asset allocation models they cannot find a place for sustainable themes – regardless of how strongly they view the investment thesis.”
Nonetheless, NZ institutional investors were picking up on incipient retail demand for responsible investment products, according to Rebekah Swan, AMP Capital head of distribution.
She said AMP Capital was fielding enquiries from across the spectrum of retail investors, ranging from retirees concerned about their “legacy” and socially-engaged ‘millennials’.
As flagged here in July, last week the AMP Capital responsible investment funds were added to the AMP KiwiSaver and NZ Retirement Trust schemes.
Swan said NZ wholesale investors were also increasingly including responsible investment requests in mandate proposals.
Meanwhile, the RIAA NZ report found eight asset owners (including the three main Crown Financial Institutions) and nine fund managers were signatories to the United Nations Principles for Responsible Investment (PRI) – the same as in the inaugural 2015 study.
This year, however, the RIAA named three of the nine fund manager PRI signatories “were able to demonstrate leading practice in ESG integration”, namely: the $8.45 billion infrastructure investor HRL Morrison; sustainable dairy fund, Southern Pastures, and; Wellington-based boutique Harbour Asset Management.
In a statement, Andrew Bascand, Harbour chief, said including ESG in the investment process was “a growing issue right around the world”.
“We believe that companies with a good ESG track record are more likely to create long term shareholder value, and a reduced risk profile, so it makes sense to integrate these factors into our assessments,” Bascand said.