Responsible investment, socially responsible investing, sustainable investing, ethical investing, green investing, and ESG. What are the differences between these investment terms? How long has responsible investing even been around?
Environmental, social and governance (ESG) factors have been considered in various portfolios for many years now, but Covid-19 has shone a light on the topic. Likewise, since Biden was elected as US President, he has signalled a push towards ESG investing. Several issues New Zealand specific that have also surfaced in recent years concerning investments into companies manufacturing cluster bombs and anti-personnel mines, supplying weapons to the Saudi Arabian military, producing nuclear weapons, or with links to the Myanmar military. But where can you find more information to help you understand how a Fund Manager is managing your or your clients’ money responsibly?
At the surface level, you can search through several fund documents, including the Product Disclosure Statement, Statement of Investment Policy and Objectives, Responsible Investment Policy (if available), Proxy Voting Reports (if available) or Other Material Information documents. You can also search the Responsible Investment Association Australasia directory or signatories to the United Nations Principles for Responsible Investment. However, there is no standard framework and there is a fine line between communicating well and marketing spin. Case in point regarding Vanguard in Australia and the infringement notice issued by the Australian Securities & Investments Commission.
The fundamental approaches a Fund Manager can apply range from integration of ESG factors and corporate engagement, to screening, to sustainability themed investments and impact investing. The latest benchmark reports by Responsible Investment Association Australasia (RIAA) revealed ESG integration as the most common primary or secondary responsible investment approach in Australia, whilst it was a close second in New Zealand after negative screening. Research IP has always integrated ESG considerations into our research and we believe global and Australian Fund Managers have been more progressed in this respect compared to New Zealand Fund Managers.
Each year, Research IP recognises and awards the best Fund Managers in the New Zealand market, including the first award for responsible investing in New Zealand in 2020. The Responsible Investment Manager of the Year award recognises the Fund Manager that demonstrates the most commitment to responsible investing and its benefits to stakeholders. But how do you prudently evaluate a Fund Manager’s approach to responsible investing? Is the Fund Manager ultimately providing value for money?
Regulators are pushing for more transparency on ESG investing and corporate disclosures. The European Union introduced legislation in 2019 which “…seeks to achieve more transparency regarding how financial market participants and financial advisers integrate sustainability risks into their investment decisions and investment or insurance advice.”
New Zealand has moved to make climate-related financial disclosures mandatory for certain publicly listed companies, large insurers, banks, and investment managers. Furthermore, the regulator in New Zealand issued the following guidance recently regarding asset stewardship and value for money: “If a scheme claims its asset stewardship, including taking account of non-financial factors within an integrated financial product, adds value, can they substantiate it by demonstrating how it fits member values? Or how it benefits investment outcomes? For example, does it reduce risk without reducing return, enhance return, have quantifiable non-financial impacts, or shape company behaviour?”
Our research paper, Beneath the Surface of Responsible Investing, takes a deeper look at the investment merits of different managed fund approaches applied in New Zealand, Australia, the United States and Europe. We assess the application of the United Nations Sustainable Development Goals in an investment context, the Principles for Responsible Investment, and broader ESG considerations. We believe independent, objective, and holistic analysis is required to understand the efficacy and nuance of different responsible investment strategies and how these relate to investors’ altruistic objectives. Independent research will give investors something to hang their hat on when evaluating which managed funds suit their objectives.
If you have any questions regarding responsible investing, please get in touch here, we would love to know what aspects of responsible investing matter to you, or if we can help explore a specific area further.
The latest version of Beneath the Surface of Responsible Investing can be found here.
Research IP delivers high quality investment fund research and consultancy services to financial advisers, charities & NFPs and the broader financial services industry. Our experience spans well over 20 years working directly across the multiple facets of finance, so we understand the key drivers and challenges for managers, as well as the impact for investors and the broader industry.
We strive to give you the best information, so you can help your clients make better decisions, and feel more confident about doing business with you. We believe that not only can everybody win, everybody should.
Reach out to us today about your research and consulting needs, and how to make the data work for you, and your clients.
Would you like to see research on a Managed Fund? Then enquire here.
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