NZ may need to regulate use of green-like fund terminology despite an uptick in public awareness of the notions, according to the 2024 Responsible Investment Association of Australasia (RIAA) NZ report.
The ‘Voices of Aotearoa’ RIAA study, produced in association with Mindful Money and Australian Ethical, found a “significant increase in knowledge and understanding about ethical and responsible investment” compared to the previous year.
“Overall awareness during the period rose to 75% of those surveyed, and there was increased understanding about what ethical and responsible investment really means (45%),” the report says.
But the survey also shows almost a third of those who have heard of “ethical investment are still uncertain about what it really means” with the knowledge gap larger for women and low-balance investors.
“This is a challenge to the fund providers that describe their practices as ESG, ethical or responsible (a large majority of funds) and a challenge for those building financial literacy in schools and across the population,” the RIAA report says. “It also sends a message to government to properly regulate the use of a wide range of claims such as ethical, responsible, ESG, sustainable, green or impact investments. Regulations in the EU and other countries are now setting standards and providing consumers with greater certainty over such claims.”
As well as advocating for more stringent regulation of ESG-related claims, the RIAA study also suggests that “more outreach and education” is required to help older New Zealanders understand the link between their investments and climate change.
The survey shows overall less than half (43 per cent) of respondents saw a relationship between their investment calls and climate change – down 2 per cent year-on-year – with a wide generational gap: 56 per cent of Z-generationers said their investments affected climate change compared to only 29 per cent of babyboomers.
“More information will soon be available (although not easily comparable due to different reporting metrics),” the report says. “Investment funds with assets under management of over NZ$1 billion will be required to report their carbon emissions starting in 2024, enabling New Zealanders to find out more about the emissions in their funds.”
Indeed, last week the first tranche of licensed managed investment scheme mandatory climate reports landed on deadline with 123 documents now available.
Under the rules, investment managers with $1 billion or more in assets must report on fund climate risks and opportunities according to a tightly defined structure.
Nonetheless, a random sample of the fund manager climate reports reveals a wide range of length and style in the publications.
For example, the two largest KiwiSaver schemes, ANZ and ASB, produced reports of 62 and 32 pages long, respectively. And while other smaller KiwiSaver providers such as NZ Funds and JMI Wealth have opted for text-heavy, design-lite approaches, others emerge as glossy, image-filled brochures.
Either way, the climate-reporting effort has required considerable manager resources with one industry insider estimating the process consumed in excess of $25 million.
Next year, the manager climate reports will also have to include estimates of greenhouse gas emissions in their portfolios, adding further complexity and cost but, arguably, a useful number for investors to fix on.
However, the RIAA survey found under “half of respondents (45-48%) consider that it is important for the fund they invest in to reduce greenhouse gases in their fund portfolios, to set targets for further emissions reductions and to commit to net zero emissions”.
As per other survey categories, the climate factor in funds was more important for younger generations.
Maria Loyez, Australian Ethical chief customer officer, said in a statement that the RIAA findings show youth is “leading the charge towards a more responsible investment landscape”.
“Their commitment to social and environmental issues is reshaping the market, and this report underscores the need for financial advisers and fund providers to adapt and meet these evolving expectations,” Loyez said.