If you want to get broad overview of the responsible investment market in New Zealand, the recently released ‘Responsible Investment Benchmark Report 2019 New Zealand’ is a good starting point. The report is produced by the Responsible Investment Association Australasia (RIAA) each year and provides an update on the responsible investment market, how it is changing, and how responsible investments are performing against the mainstream funds.
So what are the key take-outs from this year’s report? We look at some of the results from RIAA’s research into the market over the last 12 months and how this aligns with our own responsible investment strategy and engagement activity.
First, it comes as no surprise that the responsible investment market continues to grow. As responsible investing becomes more mainstream, growth is continuing its upward trajectory and there is now around $188 billion assets under management in New Zealand. This reflects the increased scrutiny from investors on the role of investment managers in not only delivering attractive returns, but also their influence and impact on societal and environmental outcomes.
As noted in the report, there are many different ways to engage in responsible investment – from environmental, social and governance (ESG) integration and negative screening, to ‘deep green’ ethical investment funds and impact investments that seek to deliver positive social and environmental outcomes. One of this year’s key findings was the progression along this responsible investment spectrum, with the focus shifting beyond avoiding the most harmful industries towards more positive sustainability-themed, impact and community investing.
Impact investing was the focus of a recent AMP Capital roundtable and the theme of a presentation by our Co-Head of Sustainable Investment, Emily Woodland, at the recent Philanthropy Summit NZ 2019. Green bond issuance is the primary growth driver in this sector (91%), with the balance in investments supporting social enterprises and mission-driven businesses. However, impact investing is still in its early stages and the dominant responsible investment strategy in New Zealand is negative screening. There is thus some way to go before impact investing becomes a primary driver of growth in this space.
Interestingly, while negative screening continues to grow, the report found that the exclusions applied by investment managers are yet to fully align with what’s important to consumers. Controversial weapons and tobacco are the most prevalent exclusionary screens, yet RIAA’s research showed consumers tend to search for funds that screen out fossil fuels and human rights violations. AMP Capital already excludes companies with a material exposure (more than 10%) to the most carbon intensive fossil fuels, such as thermal coal, oil sands, brown-coal, coal-fired power and coal conversion. We also actively engage with companies to detect and address human rights issues. In this respect we are demonstrating a leading approach to ESG integration and other responsible investment strategies.
Looking forward, the key drivers of market growth are likely to be consumer driven. As consumers demand greater accountability and become more informed and savvy about investing responsibly, they will look to invest in funds that are aligned with their values. In this year’s report it is encouraging to see this reflected in the growth in positive thematic funds and investors’ growing appetite for products that deliver measurable social and/or environmental impacts.
Read more in the full Responsible Investment Benchmark Report 2019 New Zealand, or to learn more about responsible investing visit ESG & responsible investing on our website.
This article has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). 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.