It’s great to see the responsible investment market going from strength to strength in the fourth annual New Zealand Responsible Investment Benchmark report, released today by the Responsible Investment Association of Australasia (RIAA). I’d like to share some highlights of the report which reinforces the drive behind responsible investment moving into the mainstream amongst New Zealand investors in recent years.
Responsible investment increased 40% to $183.4 billion during 2017, with more and more clients aligning their investments to their values and having a clear understanding that ESG factors impact investment performance. This is also the first time that this report has looked at the performance of ‘Core’ responsible investment (primarily negatively-screened funds) against relevant benchmarks. We are also proud to be noted in the report as one of four asset managers that applies a leading approach to environmental, social and governance (ESG) integration in their ‘Broad’ responsible investment approach.
The report reinforces that investments that deliver positive social and environmental impacts alongside financial returns are on the rise, and is also the baseline of good investment practise in New Zealand. Baseline investments ‘broad responsible investments are those that integrate ESG considerations which grew by 9% to reach $97 billion.
Screened funds (both negatively, positively, sustainability themed and impact investment and community finance) - referred to as Core responsible investment - grew by a staggering 107% to reach $86.4billion. The figures for AMP Capital alone within this section had increased considerably with the introduction of our new Ethical Framework last year. This furthered our commitment to ESG and responsible investing by giving us a robust governance process to assess and recognise degrees of ‘harm’ or the ‘denial of humanity’ with regards to sectors or individual stocks. As part of this, AMP Capital decided that tobacco would be excluded from all our investments across the globe.
Our Ethical Framework re-categorised a large part of our assets from Broad to Core in this survey, which is over and beyond our Responsible Investment Leaders (RIL) range. On top of a screening approach the RIL funds focus on the positive ESG attributes of stocks and, more importantly, focusses on engagement with these companies across longer-term thematics such as climate change, human rights, supply chain risk management and cyber security. We discuss these themes as part of our annual Engagement Report.
As noted earlier this is the first time that performance of the Core responsible investment funds against their relevant benchmarks have been included, and while it’s drawn from a small sample, the analysis in Australia over a larger sample produced a consistently similar outcome.
Both sustainability-themed and impact investing numbers are also improving, although investors tend to be focussing on ESG integration and screened funds. Judged by the conversations that we’ve had with investors, and also by trends offshore, these are the sectors that are set to emerge and gather momentum in the New Zealand market. It would be fair to say that the conversations around impact investing in particular have dramatically increased and there are a number of local community trusts and foundations making allocations in this space. I’m really excited to see how this growth transpires over the coming years. The Impact Investment Network has been formed linking like-minded people and entities and also a New Zealand Impact Investment National Advisory Board has been established that will connect with the Global Steering Group for Impact Investment.
Switching focus to the bond space, we saw the first sizable green kauri bond issued by the International Finance Corporation and there has also been a recent issue by the Auckland City Council. I was interviewed recently by Kanga News for a special feature on the potential of New Zealand’s green bond market. You can read the article here which also includes comments from AMP Capital’s head of fixed income, Vicky Hyde-Smith. It’s great to see these discussions starting and how the hurdles of scale and viability in the domestic fixed income market can be overcome.
As a passionate advocate for responsible investing it’s fantastic to see the market is continuing to grow. And I’m sure as New Zealand continues down its responsible investing journey the progress in our market will become more and more sophisticated over time. We have some catching up to do with our Australian peers in this space, but in the spirit of trans-Tasman competition I’m sure Kiwis are up for the challenge!
Product Disclosure Statements (PDSs) for the offer of the AMP Capital Investment Funds have been lodged with the Registrar of Financial Service Providers. The Responsible Investment Leaders Diversified Funds PDS, New Zealand and Australian Shares Funds PDS and Global Shares Funds PDS can be obtained from our website, and from the Disclose website www.business.govt.nz/disclose. The Manager and the Issuer of the Fund is AMP Investment Management (NZ) Limited, Meridian Building, Level 1, Queens Wharf, Wellington.
This blog post has been prepared to provide general information and does not constitute financial advice in accordance with the Financial Markets Conduct Act 2013. An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.