Nicolette Boele, Responsible Investment Association Australasia (RIAA) executive policy and standards outlines how far responsible investing in NZ has come over the last two decades, where it is now and what’s next…
Just 20 years ago, ethical investing was almost unheard of in New Zealand. Today, however, as more people become savvy investors, COVID-19 wreaks havoc on world economies and the climate change emergency alarm bells ring louder than ever before, ethical and responsible investing has transitioned from a ‘nice-to-have’ to a critical and material part of the mainstream finance realm.
As we launched the annual Responsible Investment Benchmark Report Aotearoa New Zealand 2021 report last week, it’s clear just how far we have come. Responsible investments in New Zealand now represent $142 billion, or 43% of the country’s professionally managed funds. And they are fast gaining market share. Amidst broader market stagnation in 2020, responsible investment assets in New Zealand grew at more than twice the rate of overall professionally managed investments.
The last 12-months alone have had a powerful impact on ethical and responsible investing. Racial inequality came into the spotlight via the Black Lives Matter movement sparked by the brutal murder of George Floyd in the US. Meanwhile, COVID-19 decimated lives and businesses and drastically impacted education, travel and and retail, reminding us that powerful natural forces can change our lives and bring communities and economies to their knees.
At home, New Zealand’s vulnerability to climate change is being constantly reinforced in 2021 with water shortages leading to ongoing restrictions in the Auckland region and increased pressure on our power generation. Of course, the paradoxical challenge of the climate crisis means these shortages have been seen alongside unprecedented rainfall and various emergency flooding events happening across both islands.
The Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report recently concluded that its member nations’ greenhouse gas reducing policies and programs have failed to halt, or even significantly slow, the relentless rise in global emissions. While New Zealand has its target in place; the IPCC report implores that targets be brought forward and the actions to achieve them accelerated.
A critical part of the puzzle is the creation of a sustainable financial system, which both the government and industry have within their sights. The requirement that default KiwiSaver providers commit to responsible investment; the Financial Markets Authority’s guidance to prevent greenwashing; and the legislation mandating climate related financial disclosures, are all examples of a policy environment that is rapidly beginning to hardwire sustainability into financial services.
For industry, the launch of the Aotearoa Circle’s Sustainable Finance Forum’s Roadmap for Action steps out how to change the way investment and lending decisions are made, so that environmental, social and economic factors are integral and negative impacts, both immediately and over the long term, are avoided.
New Zealand investment managers are falling into line. The number of New Zealand’s investment managers practising a leading approach to responsible investment increased by nearly half in 2020 and we’re seeing record numbers of investors supporting social and environmental shareholder resolutions on issues as diverse as dismantling racism to overhauling boardroom composition to ensure expertise on climate change.
At the same time, consumers are using their collective impact to demand that, at a minimum, the products they invest in are screened for negative impacts on the climate, human rights and animal welfare. There remains an opportunity here for investment managers to design products which better respond to these issues.
If delivering a healthier planet for our retirement and future generations isn’t enough, there are additional gains for money managers who heed the call and meaningfully commit to responsible investing. Beyond the strong financial returns, they stand to reap greater market share, as those with ineffective policies and poor processes begin to see the money moving out into other funds.
The writing is on the wall. Responsible investing is no longer just a label, or a nice-to-have for Aotearoa New Zealand. Done well, it is crucial to securing the future we all want to live in.