Responsible investing in NZ rises 28%

Wednesday 27 July 2016 07:34 AM

Responsible investing in NZ rises 28% as consumer demand emerges

By Fiona Rotherham

July 27 (BusinessDesk) - The amount of New Zealand’s capital being invested responsibly has grown 28 percent in the past year to $78.7 billion with take-up now ranging more broadly from the largest institutions to boutique managers and KiwiSaver providers responding to green shoots of consumer demand.

The Responsible Investment Association Australasia (RIAA) NZ Benchmark Report 2016 shows the growth in New Zealand’s total assets managed responsibly is still skewed by the large crown financial institutions, the New Zealand Superannuation Fund and the Accident Compensation Corporation, along with some leading fund managers and community trusts through a broad investment strategy of environmental/social/governance (ESG) integration.

“Core” responsible investment – that part of the market which is directly ethical and socially responsible investment and includes retail offerings, also grew strongly, rising 17 percent over the year to $1.6 billion in assets under management.

RIAA chief executive Simon O’Connor said quietly over the past five years the concept of responsible investment has become entrenched in some of the biggest institutions globally. “Effectively the argument that ESG matters to investment has been won,” he said. “We’ve seen so many textbook examples of companies that have completely destroyed shareholder value from things that are termed non-financial.”

The report singles out HRO Morrison, Southern Pastures LP, and Harbour Asset Management, as the three New Zealand asset managers scoring the best in ESG integration.

Consumer demand for core responsible investment is still nascent in New Zealand compared to the big uptick it has had in Australia and other parts of the world, O’Connor said. At 2.6 percent of the total $61.35 billion of assets under management in New Zealand, it’s up on last year’s 2.4 percent though still only a small proportion of the overall pie. The amount of responsible investment overall surpasses the TAUM in New Zealand because many of the assets of the large institutional owners are held outside of New Zealand.

In Australia responsible investment now accounts for 3.8 percent of total assets under management and the Australian report shows a strong surge in consumer interest to the highest point in a decade.

O’Connor said of the eight retail asset managers offering responsible investment products in New Zealand, anecdotally there are stories of growth and inflows from consumers who are starting to want their investments to align with their values.

Most core responsible investment involves positive and negative screening of investments which grew by 17 percent to $1.3 billion with more retail investors and KiwiSaver funds now choosing this approach. The main industries being screened include tobacco, alcohol, weapons, and gambling. The larger institutional asset managers and owners are also incorporating exclusions into their ESG strategies.

Sustainability-themed investments rose 21 percent to $278 million through investments in sustainable agriculture and water funds.

New Zealand Super Fund head of responsible investment Anne-Maree O’Connor said ethical screening only applies to a few companies and as awareness increases by investors, particularly millennials who are more purpose driven, fund providers will need to do more work on their overall portfolio.

In Australia, there was big growth in superfund managers being interested in this space and there was now also a lot of focus by responsible investors in the way invested companies perform in safety and environmental liabilities, she said.

One of the areas often under-stated in responsible investment was the ESG activity by private equity managers who often have more influence on the companies they put money into than other investors do on listed companies, the Superfund’s O’Connor said.

The report includes a comparison of the performance of Australian core responsible investment funds but not New Zealand because the sample size is still considered too small here to do so, though the RIIA expects that to happen next year.

Core responsible Australian equities funds and multi-sector funds out-performed the average large-cap Australia share funds and the S&P/ASX 300 Accumulation Index over all time periods - one, three, five and 10 years.Core responsible investment international equities funds outperformed large cap international funds over five and 10 years but slightly under-performed in the short term.

(BusinessDesk)

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