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Responsible Investment
Benchmark Report
2020 New Zealand
SUPPORTING ORGANISATIONS RESEARCH PARTNER
Responsible Investment | Benchmark Report 2020 New Zealand
Disclaimer Contact us
KPMG’s input into this report has been prepared at the request RESPONSIBLE INVESTMENT
of the Responsible Investment Association Australasia (RIAA) in ASSOCIATION AUSTRALASIA
accordance with the terms of KPMG’s engagement letter dated
Level 3, 478 George Street
04 March 2020. The services provided in connection with KPMG’s
Sydney, NSW 2000
engagement comprise an advisory engagement, which is not subject
Australia
to assurance or other standards issued by The New Zealand Auditing
and Assurance Standards Board and, consequently no opinions or +61 2 8228 8100
conclusions intended to convey assurance have been expressed. info@responsibleinvestment.org
responsibleinvestment.org
The information contained in this report has been prepared based on
material gathered through a detailed industry survey and other sources
(see methodology). The findings in this report are based on a qualitative
study and the reported results reflect a perception of the respondents.
No warranty of completeness, accuracy or reliability is given in
relation to the statements and representations made by, and the
information and documentation provided by, asset managers and
owners consulted as part of the process.
The sources of the information provided are indicated in this report.
KPMG has not sought to independently verify those sources. Neither
KPMG nor RIAA are under any obligation in any circumstance to
update this report, in either oral or written form, for events occurring
after the report has been issued in final form. The report is intended
to provide an overview of the current state of the responsible
investment industry, as defined by RIAA. The information in this
report is general in nature and does not constitute financial advice,
and is not intended to address the objectives, financial situation or
needs of any particular individual or entity. Past performance does
not guarantee future results, and no responsibility can be accepted
for those who act on the contents of this report without obtaining
specific advice from a financial or other professional adviser. As
the report is provided for information purposes only, it does not
constitute, nor should be regarded in any manner whatsoever, as
advice intended to influence a person in making a decision, including,
if applicable, in relation to any financial product or an interest in a
financial product. Neither RIAA nor KPMG endorse or recommend
any particular firm or fund manager to the public.
KPMG is under no obligation in any circumstance to update this
report, in either oral or written form, for events occurring after the
report has been issued in final form. The findings in this report have © Responsible Investment Association Australasia, 2020
been formed on the above basis.
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or trademarks of KPMG International. Liability limited by a scheme Responsible Investment Benchmark Report 2020 New Zealand,
approved under Professional Standards Legislation. Responsible Investment Association Australasia, Sydney.
Responsible Investment | Benchmark Report 2020 New Zealand
Contents
THANK YOU 4 FIGURES
Our sponsors 4 FIGURE 1 Research universe and New Zealand's responsible
Survey respondents 4 investment market 5
Data 4 FIGURE 2 AUM of the New Zealand responsible investment
market and growth in AUM of the broader Responsible Investment
ABOUT THIS REPORT 5 Research Universe 7
About the Responsible Investment Association Australasia 6 FIGURE 3 Responsible investment scores of the 58 investment
About KPMG 6 managers in the Responsible Investment Research Universe 8
EXECUTIVE SUMMARY 7 FIGURE 4 Proportion of survey respondent AUM managed using
primary and secondary responsible investment approaches 8
Background 7
FIGURE 5 Existence and disclosure of responsible investment policy 8
Responsible investment in 2019 7
Key findings 7 FIGURE 6 Proportion of AUM covered by an explicit and systematic
approach to ESG integration 9
INTRODUCTION12 FIGURE 7 Reporting on corporate engagement activities and outcomes 9
About responsible investment 12
FIGURE 8 Frequency of issues being screened (by number of survey
International responsible investment context 12 respondents that negatively screen) 9
New Zealand responsible investment context 13
FIGURE 9 Frequency of exclusionary screening for fossil fuel
Responsible investment key drivers and approaches 14 exploration, mining, extraction and production (by survey
Defining leading responsible investment in this decade 15 respondents that negatively screen) 10
FIGURE 10 Exclusionary themes – % of consumer searches
RESPONSIBLE INVESTMENT LEADERS AND MARKET SHARE 16
on Responsible Returns vs survey respondent exclusions
Responsible investment leaders 16 (weighted by % AUM) 10
Responsible investment market share 17 FIGURE 11 Sustainability-themed investments by theme (% AUM) 10
RESPONSIBLE INVESTMENT APPROACHES AND PRACTICES 18 FIGURE 12 Impact investing breakdown in New Zealand by
ESG integration 19 investment category ($billion) 11
Negative/exclusionary screening 20 FIGURE 13 Key drivers of market growth by survey respondents 11
Norms-based screening 22 FIGURE 14 Performance of responsible investment funds
Corporate engagement and shareholder action 23 (weighted average performance net of fees over 10 years) 11
Positive/best-in-class screening 24 FIGURE 15 RIAA’s responsible investment spectrum 13
Sustainability-themed investing 25 FIGURE 16 How the four key drivers for responsible investment
Impact investing 25 align with the seven responsible investment approaches 14
FIGURE 17 Responsible investment scores of the 58 investment
FINANCIAL PERFORMANCE 28
managers in the Responsible Investment Research Universe 16
MARKET DRIVERS AND FUTURE TRENDS 29 FIGURE 18 Leading investment managers and their responsible
Key growth factors 29 investment scores and associated responsible investment AUM 16
Growth deterrents 29 FIGURE 19 AUM of the New Zealand responsible investment
ESG data availability and reliability 30 market and growth in AUM of the broader Responsible Investment
Research Universe 17
APPENDICES31 FIGURE 20 Proportion of survey respondent AUM managed using
Appendix 1a: Abbreviations 31 primary and secondary responsible investment approaches 17
Appendix 1b: Definitions 31 FIGURE 21 Existence and disclosure of responsible investment policy 18
Appendix 2: Methodology 32 FIGURE 22 The level of disclosure of investment holdings by the
Appendix 3: Responsible Investment Scorecard 33 Responsible Investment Research Universe 18
Appendix 4: Survey respondents 36 FIGURE 23 Proportion of AUM covered by an explicit and systematic
Appendix 5: Other organisations used in data (desktop research) 36 approach to ESG integration 19
FIGURE 24 Frequency of themes being screened (by number of
survey respondents that negatively screen) 20
FIGURE 25 Frequency of exclusionary screening for fossil fuel
exploration, mining, extraction and production (by survey
respondents that negatively screen) 21
p2
Contents Responsible Investment | Benchmark Report 2020 New Zealand
FIGURE 26 Frequency of screening for weapons vs controversial
weapons (by survey respondents that negatively screen) 21
FIGURE 27 Exclusionary themes – % of consumer searches on
Responsible Returns vs survey respondent exclusions (weighted
by % AUM) 21
FIGURE 28 Frequency of norms used by investment managers
applying norms-based approaches 22
FIGURE 29 Reporting on corporate engagement activities and
outcomes 23
FIGURE 30 Positive screening – frequency of themes screened
by survey respondents 24
FIGURE 31 Positive screening – consumer searches using the
Responsible Returns online tool (% of consumer searches) 24
FIGURE 32 Sustainability-themed investments by theme (% AUM) 25
FIGURE 33 Impact investing breakdown in New Zealand by
investment category ($billion) 26
FIGURE 34 Top impact areas of active impact investors by
portfolio allocation 26
FIGURE 35 Performance of responsible investment funds
(weighted average performance net of fees over 10 years) 28
FIGURE 36 Key drivers of market growth by survey respondents 29
FIGURE 37 Key deterrents to responsible investment market
growth by survey respondents 29
FIGURE 38 Key sources of information used to make responsible
investment decisions 30
p3
Responsible Investment | Benchmark Report 2020 New Zealand
Thank you
OUR SPONSORS SURVEY RESPONDENTS
We are extremely grateful to the 22 investment managers that
responded to the survey. They are listed in Appendix 4.
NZ SUPER
The $46 billion New Zealand Superannuation Fund invests globally
to help pre-fund the future cost of universal superannuation in New DATA
Zealand. The Fund is managed by an Auckland-based Crown entity,
the Guardians of New Zealand Superannuation. Thank you to Morningstar Australasia and S&P Global for their
data provided for this research.
The Guardians believes that environmental, social and governance
(ESG) factors are material to long-term investment returns, and is
committed to integrating ESG considerations into all aspects of the
Fund’s investment activities.
A founding signatory of the United Nations Principles for Responsible
Investment, the Guardians also provides responsible investment
services to the Accident Compensation Corporation and the
Government Superannuation Fund Authority, and is a member of
the New Zealand Corporate Governance Forum.
PIMCO
As one of the world’s premier fixed income managers, PIMCO’s
mission is to deliver superior investment returns, solutions and
service to our clients. For nearly 50 years, we have worked
relentlessly to help millions of investors pursue their objectives –
regardless of shifting market conditions.
Leadership in ESG investing is essential to deliver on our clients’
financial objectives and to support long-term, sustainable economic
growth globally.
As at June 30, 2020 we managed US$1.92 trillion on behalf of our
clients. Our professionals work in 17 offices across the globe, united
by a single purpose: creating opportunities for investors in every
environment.
p4
Responsible Investment | Benchmark Report 2020 New Zealand
About this report
The annual Responsible Investment Benchmark Report New Of the 58 investment managers in the Responsible Investment
Zealand is published by the Responsible Investment Association Research Universe, 22 provided survey responses (survey
Australasia (RIAA). The report details the size, growth, depth and respondents). Survey respondents were split between asset owners
performance of the New Zealand responsible investment market (14%) and investment managers (86%). Asset owners were only
over 12 months to 31 December 2019 and compares these results included to the extent that they directly manage investments. For
with the broader New Zealand financial market. the balance of investment managers in the Responsible Investment
Research Universe (36), KPMG conducted desktop research over
It comes at a time when there appears to be an inverse relationship their publicly available information.
between responsible investment commitments made by the investment
industry on one hand (higher than ever before and growing), and Throughout this report, a distinction is made between:
the continuing decline in the real-world global condition on the other.
This puts into question whether what we promote and celebrate as • the full investment management market (known as the
‘responsible investment’ remains relevant in today’s context. Managed funds industry as defined per the Reserve Bank
of New Zealand and other sources);
To respond to this observation, in 2020, RIAA has broadened its • the Responsible Investment Research Universe (the 58
definition of leading practice standards across responsible investment investment managers that have self-declared as practising
approaches, detailed in the introductory section of this report. responsible investment); and
• the Responsible Investment Managers (the 14 assessed
RIAA commissioned KPMG to undertake the data collection and by RIAA as applying a leading approach to their responsible
analysis for this 2020 report. KPMG provided a platform for a survey investment processes and disclosures).
to be distributed to 58 investment managers in New Zealand known
to be applying responsible investing approaches (the Responsible Responsible investment assets under management (AUM) reported
Investment Research Universe), compiled the data derived from this herein is for the assets managed by the Responsible Investment
primary research, and undertook secondary research on publicly Managers to at least one responsible investment approach.
available data.
There was an uplift in survey responses in 2019 (31% to 38%).
RIAA and KPMG undertook a desktop review of: However only 10 investment managers responding in 2018 also
responded in 2019, meaning the commentary provided in this
• all New Zealand investment managers that are signatories report on screening themes, investor sentiment etc. includes 12
to the Principles for Responsible Investment (PRI) (23 in total, new investment managers (55% of all survey responses in 2019).
up from 19 investment managers the previous year); and Twenty-four percent of investment managers in the research
• other investment managers on RIAA’s database known to universe achieved a score of ≥75% and are considered to be
practise responsible investment (35 in total). practising leading responsible investment.
FIGURE 1 Research universe and New Zealand's responsible investment market
$296.3 billion managed funds industry (RBNZ and other sources)
total professionally managed AUm
$278.9 billion * (TAUM) now sits at $296.3 billion
according to the Reserve Bank of
Responsible Investment Research Universe (n=58) New Zealand (RBNZ) and other sources
Responsible Investment Research
Universe comprises the investment
managers and their AUM declared to
be managed to one or more responsible
Survey investment approaches
respondents $153.5 billion#
(n=22) &
Responsible Investment managers /
desktop the responsible investment market
responsible investment market (n=14)
research is the responsible investment AUM of
(n=36) 14 Responsible Investment Managers who
achieved a score ≥75% on the expanded
Responsible Investment Scorecard
* Data for 6 of the 58 (mainly boutique and smaller) investment managers was not publicly
available to use in the research universe.
#
Data for one investment manager (Russell Investments) was not received in the survey
period and hence ‘responsible investment AUM’ does not include its AUM.
p5About this report Responsible Investment | Benchmark Report 2020 New Zealand
The project was led by Nicolette Boele, Mark Spicer, Samantha ABOUT KPMG
Bayes, Stephan Gabadou and Elyse Vaughan. The report production
was managed by Katie Braid, with editing by Melanie Scaife and KPMG has one of the largest dedicated sustainability teams in
design by Loupe Studio. New Zealand that works with investment managers, asset owners
and private equity to develop environmental, social and governance
(ESG) strategy, performance and reporting.
ABOUT THE RESPONSIBLE INVESTMENT KPMG understands that a clear focus on ESG issues is required
ASSOCIATION AUSTRALASIA to support organisations in identifying risks and opportunities
that may have significant implications to value creation and
RIAA champions responsible investing (responsible investment) portfolio performance. There is a growing opportunity for financial
and a sustainable financial system in New Zealand and Australia organisations to manage these risks and opportunities and
and is dedicated to ensuring capital is aligned with achieving a transparently communicate their impacts and performance to
healthy society, environment and economy. members, investors, customers and regulators. KPMG works
with organisations to help them manage these emerging risks and
With over 300 members managing more than $9 trillion in assets opportunities in an integrated way to enhance all aspects of their
globally, RIAA is the largest and most active network of people and risk management, reporting and communication.
organisations engaged in responsible, ethical and impact investing
across New Zealand and Australia. Our membership includes super
funds, fund managers, banks, consultants, researchers, brokers,
impact investors, property managers, trusts, foundations, faith-based
groups, financial advisers and individuals.
RIAA achieves its mission through:
• providing a strong voice for responsible investors in the region,
including influencing policy and regulation to support long-term
responsible investment and sustainable capital markets;
• delivering tools for investors and consumers to better understand
and navigate towards responsible investment products and
advice, including running the world’s first and longest-running
fund Certification Program, and the online consumer tool
Responsible Returns;
• supporting continuous improvement in responsible investment
practice among members and the broader industry through
education, benchmarking and promotion of best practice and
innovation;
• acting as a hub for our members, the broader industry and
stakeholders to build capacity, knowledge and collective impact;
and
• being a trusted source of information about responsible
investment.
p6Responsible Investment | Benchmark Report 2020 New Zealand
Executive summary
BACKGROUND RESPONSIBLE INVESTMENT For the first time, New Zealand responsible
IN 2019 investment managers now favour ESG
RIAA’s annual Responsible Investment integration above negative screening as their
Benchmark Report New Zealand details the In 2019, funds managed under responsible primary responsible investment approach
size, growth, depth and performance of the investment approaches grew as a proportion for constructing portfolios, but managers
New Zealand responsible investment market of total professionally managed investments are increasingly driving capital towards
over 12 months to 31 December 2019 and in New Zealand. impact investing allocations with AUM being
compares these results with the broader managed to this approach growing more
New Zealand financial market. Ever more investment managers are than 13 times on last year’s figures.
applying a range of responsible investing
To do this, RIAA reviewed the practices of 58 approaches – from ESG integration and This year’s findings suggest that investment
investment managers known to be applying negative screening to sustainability-themed managers are catching up with consumer
responsible investment to some or all of their and impact investing. interest, with a doubling in frequency of
investment practices. These managers control investment manager products now applying
approximately $278.9 billion in assets under New data points in 2019 indicate that there screens to manage exposures to fossil fuel
management (AUM), which is 94% of the total is still a gap between those that claim to explorers, miners, and producers. Frequency
professionally managed AUM (TAUM). Twenty- be practising responsible investing and in screening for alcohol and adult content
two of those responses were assessed those that have embedded these practices production and sales has also experienced
directly via survey, and supplementary through formal policies and accountability significant gains on last year.
desktop analysis was undertaken for the commitments including disclosing full
remaining 36 investment managers. portfolio holdings. As we enter this new decade, industry
analysts and commentators are broadening
For a second year, RIAA canvassed Investment manager practices are also their view on responsible investing, as it
asset owners including pension funds maturing with just under a quarter of moves into the mainstream for professionally
to the extent that they directly manage managers earning the accolade of practising managed investing in New Zealand. The
investments, acknowledging the growing a leading approach to responsible investing focus for the decade becomes the extent to
trend for pension funds to bring investment against this year’s expanded Responsible which these efforts result not just in better
management in-house. Investment Scorecard. risk-adjusted returns for clients, but also
for a more stable and sustainable economy
based on assets and enterprises that benefit
stakeholders and contribute to societal and
environmental solutions.
KEY FINDINGS
FIGURE 2 AUM of the New Zealand responsible investment market and growth
in AUM of the broader Responsible Investment Research Universe
1 The responsible investment
market in New Zealand was worth
$153.5 billion in 2019. This represents
52% of the estimated $296.3 billion of TAUM $296.3
$300
$17.4
total professionally managed assets under TAUM $261.4
management (TAUM) in New Zealand. $250
$200 $73.4
AUM ($bn)
$150
$153.5
Responsible Investment
$100 Managers (responsible
investment market) Mainstream
investment
$50 Portion of the research
Responsible
universe applying a Investment
$188.0 $278.9 leading approach to RI Research
$0 Universe
2018 2019
p7Executive summary Responsible Investment | Benchmark Report 2020 New Zealand
2 Many investors now claim to be
responsible, and one quarter can FIGURE 3 Responsible investment scores of the 58 investment managers in
demonstrate leading practice. Of the 58 the Responsible Investment Research Universe
investment managers in the Responsible
Investment Research Universe, 14 (24%) are 20
applying a leading approach to responsible
investment (score ≥75% on the expanded
Responsible Investment Scorecard, which
15
now also rewards allocation of capital
Responsible investment score
towards real-economy outcomes).
Only those that scored 15/20 (75%) or 10
higher in the Responsible Investment
Scorecard have been included in this Investment
managers
report as responsible investment AUM practicing
5 a leading
of $153.5 billion, as stated in Figure 2. approach to RI
Investment
managers
55% of the Responsible Investment not practicing
a leading
Research Universe is new in 2019. 0 approach to RI
3 For the first time, ESG integration
(48%) replaces negative screening FIGURE 4 Proportion of survey respondent AUM managed using primary and
(10%) as the responsible investment secondary responsible investment approaches
approach that most influences the final
construction of responsible investor
Impact investing 1.6%
portfolios. The findings show a shift in focus Negative screening
by survey respondents away from negative
screening (44% in 2018) towards corporate 9.6%
engagement and shareholder action (40%
in 2020).
Primary approach refers to a responsible 48.5% ESG integration
investing approach deployed by an
investment manager that most influences Corporate engagement & 40.4%
construction of their portfolios. Secondary shareholder action note: No survey respondent
selected norms-based
approach refers to the approach that is used screening, positive screening
or sustainability-themed
in conjunction with the primary approach. investing as a primary or
secondary strategy.
4 71% of investment managers
in the Responsible Investment FIGURE 5 Existence and disclosure of responsible investment policy
Research Universe have a responsible
investment policy and 60% make them 100%
publicly available.
This demonstrates a growing commitment 80%
to systematically implementing responsible 29%
investing through responsible investment 11%
policies. 60%
Does not have
responsible
investment
policy/it is
40% not evident
Responsible
investment
policy is
not publicly
20% disclosed
Responsible
investment
policy is
60% publicly
0% disclosed
p8Executive summary Responsible Investment | Benchmark Report 2020 New Zealand
5 62% of investment managers
in the Responsible Investment FIGURE 6 Proportion of AUM covered by an explicit and systematic approach
Research Universe have at least one to ESG integration
asset class (or 50% AUM) covered by
an explicit and systematic approach 100%
to ESG integration, while 48% have more
than three asset classes (or 85% of their 80%
AUM) covered. 38%
60% 10%
4%
40%Executive summary Responsible Investment | Benchmark Report 2020 New Zealand
8 Exclusionary screening for
fossil fuel exploration, mining, FIGURE 9 Frequency of exclusionary screening for fossil fuel exploration,
extraction and production has increased mining, extraction and production (by survey respondents that negatively screen)
significantly in popularity since 2018.
The frequency in which investment 100%
managers screen to some extent for fossil
fuel exploration, mining, extraction and
production has increased from 45% in 2018 80%
to 80% of survey respondents in 2019.
60%
Managers screening
for companies that
40% derive >10% revenue
40%
Managers screening
for companies that
20% 25% derive ≤10% revenue
Managers screening for
45% 80% 15% both revenue thresholds
0%
2018 2019
9 Exclusionary screening of fossil
fuels is beginning to catch up FIGURE 10 Exclusionary themes – % of consumer searches on Responsible Returns
to consumer interest. In 2018, only vs survey respondent exclusions (weighted by % AUM)
3% of (negatively screened) responsible
investment AUM was screened for some 40%
level of exposure to fossil fuels; this figure % Consumer searches
was 18% in 2019 - a five-fold increase. Weighted % AUM
30%
For consumers using RIAA’s Responsible
Returns online tool,1 the most important 20%
exclusionary screens are fossil fuels (36%),
human rights abuses (17%) and armaments
10%
(12%).
36 18 17 2 10 4 7 2 4 7 5 8 3 9 10 6 14 12 18
0%
Fossil fuels
Human rights
abuses
Animal cruelty
Environmental
degradation
Labour rights
violations
Alcohol
Gambling
Nuclear power
Pornography
Tobacco
Armaments
10 For those investment managers
using a sustainability-themed FIGURE 11 Sustainability-themed investments by theme (% AUM)
approach, social impact is the most
popular theme, followed by climate
Social impact 17%
change and energy efficiency. In 2018,
the top three themes were agriculture, Climate change 13%
climate change and water management.
Energy efficiency 12%
Water management 12%
Agriculture 7%
Green buildings 6%
Renewable energy 6%
Waste management 6%
Healthcare 6%
Arts, culture and sports 3% note: ‘Other’
includes
sustainable
Other 12% fashion and
textiles/fashion
0% 5% 10% 15% 20% technology
p10Executive summary Responsible Investment | Benchmark Report 2020 New Zealand
11 Impact investing AUM has grown
over 13 times from $358 million FIGURE 12 Impact investing breakdown in New Zealand by investment category ($billion)
in 2018 to $4.74 billion in 2019 for assets
managed by financial intuitions included
in the Responsible Investment Research
Universe. Green, Social and Sustainability
(GSS) Bonds account for 88% of products
using this approach.
Green, Social & Total AUM: Other - including private equity
Sustainability (GSS) $4.17 $4.74 $0.57
and venture capital, private debt
Bonds
12 The three most cited drivers for
growth in responsible investment FIGURE 13 Key drivers of market growth by survey respondents
funds managed by survey respondents
are alignment of investments with mission or
44%
values (44%); demand from retail investors Align to mission
29%
(38%); and the expectation that responsible
38%
investments out-perform in the long term or Demand from retail investors
24%
better mitigate risks (26%). 26%
Expected long term
performance or risk mitigation 29%
ESG factors impact on 26%
performance 51%
20%
Fiduciary duty
13%
Demand from institutional 18%
investors 27%
11%
ESG risk management
11%
11%
Social benefit
11%
International initiatives 3%
3%
Industry competition
7%
Regulatory requirements
2%
(FMA or TCFD) 2019
0% 20% 40% 60% 2018
13 For the first time, financial
performance data for New FIGURE 14 Performance of responsible investment funds (weighted average
Zealand's responsible investment funds performance net of fees over 10 years)
have been reported. Even though it draws
from a low sample size, it can be seen
that responsible investment multi-sector new Zealand share funds 1 year 3 years 5 years 10 years
growth funds outperformed mainstream Responsible Investment Fund Average (between 1 and
11% 7% 9% 4%
indices over some time horizons. 12 funds depending on time period)
International share funds 1 year 3 years 5 years 10 years
Responsible Investment Fund Average (between 6 and
22% 14% 12% 9%
12 funds depending on time period)
multi-sector growth funds 1 year 3 years 5 years 10 years
Responsible Investment Fund Average (between 9 and
17% 9% 10% 7%
20 funds depending on time period)
Morningstar Multisector KiwiSaver Fund Average 16% 9% 8% 8%
Outperformed by the average RI fund Underperformed by the average RI fund
p11Responsible Investment | Benchmark Report 2020 New Zealand
Introduction
ABOUT RESPONSIBLE human resources globally. The latest Global on Climate-Related Financial Disclosures
INVESTMENT Risks Report by the World Economic Forum (TCFD) – created in 2017 to help financial
points to ‘an unsettled world’ where climate sector entities including banks, insurers,
Responsible investing, also known as threats and accelerated biodiversity loss investment entities and asset managers
ethical or sustainable investing, is a holistic are among the top global risks in terms of identify exposures to climate risk in their
approach to investing, where social, likelihood and impact.4 The last five years portfolios – is supported by more than 480
environmental, corporate governance are on track to be the warmest on record, investors representing US$42 trillion in
(ESG) and ethical themes are considered natural disasters are becoming more intense assets. From 2020, reporting in line with
alongside financial performance when and more frequent, and last year witnessed TCFD metrics is required for all Principles for
making an investment. It considers a broad unprecedented extreme weather throughout Responsible Investment (PRI) signatories.7
range of risks and value drivers as part of the world. The current rate of extinction is
the investment decision-making process in tens to hundreds of times higher than the In June 2020, the Central Banks and
addition to reported financial risk. average over the past 10 million years – and Supervisors’ Network for Greening the
it is accelerating. Financial System (NGFS), of which
Responsible investment includes the Reserve Bank of New Zealand is a
systematically considering ESG factors Financial markets are responding to member, released its guide for climate
throughout the process of researching, social, environmental and climate change scenarios.8 The NGFS Climate Scenarios
analysing, selecting and monitoring issues, and this response is gaining speed. were developed to provide a common
investments, acknowledging that these Countries including China, Canada, the starting point for analysing climate risks to
factors can be critical in understanding the United Kingdom and Hong Kong, as well as the economy and financial system. While
full value of an investment. the European Union, are taking measures developed primarily for use by central banks
to ensure that their economies and financial and supervisors, they may also be useful
Responsible investing is also about markets are resilient, inclusive, stable and to the broader financial, academic and
earnestly executing stewardship duties prosperous into this century. This is being corporate communities.
and working to improve the performance of done through the development of sustainable
companies comprising the economy and the finance roadmaps and action plans. The Global Sustainable Investment
stability and sustainability of the financial Alliance (GSIA) released its biennial Global
system more broadly. In March 2018, the European Commission Sustainable Investment Review 2018,
presented its 10-point action plan to enable showing that global responsible investment
In 2020, responsible investing is also about sustainable growth. March 2020 saw the assets reached US$30.7 trillion at the start
the intentionality of the capital invested – publication of the Technical Expert Group of 2018, a 34% increase from 2016.9
meaning where money is targeted – to avoid on Sustainable Finance’s final report and
harm, benefit stakeholders and contribute to subsequently in June 2020, European The COVID-19 pandemic, far from
societal and planetary solutions. politicians provided final legal confirmation dampening momentum on sustainable
for a taxonomy for sustainable finance finance, has reinforced the sustainability
activities.5 This report defines which imperative and prompted campaigns
activities can be legitimately marketed to ‘build back better’, including through
INTERNATIONAL RESPONSIBLE as green or sustainable to incentivise applying climate and sustainability criteria
INVESTMENT CONTEXT green and climate-friendly investments. to government support measures.
In economic terms, the taxonomy for
According to UN Environment Programme’s sustainable activities provides a model Proposals are afloat to design and create
Sustainable Finance Progress Report2 for others to emulate, and a tool for guidelines and mechanisms for the
produced for the G20 Sustainable Finance regulators, investors and product issuers Task Force for Nature-related Financial
Study Group, ‘there is growing evidence that to provide greater harmonisation, integrity Disclosures in early 2021, and this will
demonstrates the sustainable finance policy and transparency around what constitutes be modelled on the TCFD approach. The
over the last year has been characterized a ‘sustainable’ economic activity. It is framework will provide companies in all
by strong growth, increased scope, and anticipated that a similar taxonomy will be sectors with leading-practice advice for
greater maturity’. Globally, there are now developed and adopted in New Zealand measuring the financial risks they are
730 hard and soft law provisions in financial through the Sustainable Finance Forum.6 facing as a result of the over-exploitation
regulations that embed such sustainability Aligning taxonomies across key trading of natural resources (i.e. deforestation,
considerations across some 500 policy markets is expected to improve investor overfishing, poor soil management) and
instruments, with 97% of these laws having confidence and reduce uncertainty and risk, as a result of extreme weather events.10
been enacted since 2000.3 subsequently lowering the cost of capital The COVID-19 pandemic is clearly a big
and more efficiently allocating resources. driver or accelerating force for this.
Despite momentum to green up finance,
environmental and civil society groups, Momentum is growing to embed
including UN agencies, consistently report sustainability and climate risks into financial
an ever-diminishing quality of natural and sector regulation and policies. The Taskforce
p12Introduction Responsible Investment | Benchmark Report 2020 New Zealand
NEW ZEALAND RESPONSIBLE The Interim Report sets out proposed financial entities; aligning public finance
INVESTMENT CONTEXT pathways for achieving a sustainable and investment with New Zealand’s
financial system that are grouped into climate- and sustainability-related goals
Drawing on lessons from similar three themes: changing mindsets; aligning and intergenerational wellbeing agenda.
international initiatives, the industry- the financial system (‘greening finance’);
led Sustainable Finance Forum (SFF) and mobilising capital (‘financing green’). 2) Aligning the financial system:
– an initiative of The Aotearoa Circle11 Specific proposed measures include: − integrating sustainability into all levels
– is developing recommendations for a of education within society and the
sustainable, resilient and inclusive financial 1) Changing mindsets: financial system, including professional
system in New Zealand by 2030. − adopting long-term, purpose-based qualifications and training and licensing
business models; incorporating requirements as well as consumer
In October 2019, the SFF presented its sustainability outcomes into executive education campaigns and resources;
Interim Report.12 This sets out the SFF’s performance metrics and incentives and − requiring climate change stress testing by
vision for a sustainable financial system, industry codes of conduct; developing banks and insurers; applying sustainability
anchored in Te Ao Māori. It proposes a a Stewardship Code for investment criteria to capital adequacy requirements
holistic and intergenerational value-creation managers and service providers; for banks; monitoring progress towards
model that considers financial and non- − making consideration and management of risk-based pricing in the insurance sector;
financial outcomes for multiple stakeholders, ESG factors explicitly part of the fiduciary applying minimum ESG requirements for
a system ‘where business and finance are duties of directors, trustees and financial KiwiSaver default providers;
understood to operate within natural, human advisers; considering the future evolution − promoting measurement and pricing
and social constraints and dependencies. of legal duties, noting international work of social and environmental risks and
The economy serves the needs and long- on ‘sustainability impact’ duties;13 impacts, and integration into financial
term wellbeing of society, while protecting − developing a whole-of-government accounting plus asset valuation, credit
and enhancing natural and human capital. strategy on sustainable finance; rating and capital adequacy models;
Financial wealth creation is not the integrating sustainability into the promoting open/shared data models;
overriding goal of business and finance, but mandates of financial market policy introducing mandatory disclosure
an outcome of, and wholly contingent upon, makers and regulators, as well as requirements for companies, financial
the creation of whole system prosperity’. Crown or government-backed funds and institutions and product providers.
FIGURE 15 RIAA’s responsible investment spectrum
TRADITIONAL RESPONSIBLE & ETHICAL INVESTMENT PHILANTHROPY
INVESTMENT
AppRoACh
ESG Exclusionary/ norms-based Corporate positive / Sustainability- Impact
Integration negative screening engagement and best-in-class themed investing
screening shareholder action screening investing
Providing Explicitly Excluding Screening of Executing Intentionally tilting Specifically Investing to achieve Using grants to
limited or no including ESG certain sectors, companies and shareholder rights a proportion targeting positive social and target positive
regard for risks and companies, issuers that do not and fulfilling of a portfolio investment environmental social and
environmental, opportunities into countries or meet minimum fiduciary duties towards solutions; themes e.g. impacts - requires environmental
social, financial analysis issuers based standards to signal desired or targeting sustainable measuring outcomes with
governance and investment on activities of business corporate behaviours companies or agriculture, green and reporting no direct
mEthod
and ethical decisions based considered not practice based - includes corporate industries assessed property, 'low against these, financial return
factors in on a systematic investable due on international engagement and to have better carbon', Paris or demonstrating
investment process and principally to norms and filing or co-filing ESG performance SDG-aligned the intentionality
decision making appropriate unacceptable conventions; shareholder relative to of investor and
research downside risk can include proposals, and proxy benchmarks or underlying asset/
sources or values mis- screening for voting guided by peers investee and
alignment involvement in comprehensive ESG (ideally) the investor
controversies guidelines contribution
Avoids harm
IntEntIon
benefits stakeholders
Contributes to solutions
FEAtURES And oUtComES
delivers competitive financial returns
manages ESG risks
Contributes to better system stability and economic sustainability
pursues opportunities and creates real - economy outcomes
* This spectrum has been adapted from frameworks developed by Bridges Fund Management, Sonen Capital and the Impact Management Project
p13Introduction Responsible Investment | Benchmark Report 2020 New Zealand
3) Mobilising capital: expressly take into account environmental, previous page) as detailed by the GSIA
− defining and setting minimum standards social, and/or governance considerations. and applied in the Global Sustainable
and labelling requirements for ‘sustainable’ The purpose of the submissions is to help Investment Review 2018, which maps the
finance approaches, products and develop guidance for issuers.15 growth and size of the global responsible
services; investment market.18
− removing barriers to and incentivising In October 2019, Climate Change Minister
positive impact investments, emphasising James Shaw released a consultation Having arrived in 2020, we bear witness to
the critical role of government as a document proposing mandatory climate- an ever-increasing expansion of responsible
facilitator and partner; related financial risk disclosure by listed investing across even the most established
− ensuring access to financial advice, issuers, banks, general insurers, asset areas of finance – this includes the
products and services for under-served owners and asset managers, consistent with world’s largest asset manager, BlackRock,
segments of the community and consumer the TCFD framework. The Government is announcing its divestment from directly held
protection against unethical behaviour; considering feedback on the consultation.16 investments in thermal coal companies.19
− developing a credible and common
language on ‘sustainable’ economic Finance in New Zealand is making headway The drivers underpinning the strong investor
activities and ‘sustainable finance’ in the transition to a low-emissions economy uptake as well as the surge in consumer
(investment, lending, insurance) so as to adapt to the effects of climate interest are based on several factors. For
approaches and products to address change. New Zealand Green Investment investment managers, the key drivers are to:
‘green washing’ concerns and accelerate Finance Ltd (NZGIF) was established with
the flow of capital into genuine social/ the purpose of accelerating investment to 1. protect or strengthen brand and
environmental purpose projects and lower greenhouse gas emissions activities reputation, meaning favourable
assets. in New Zealand and has been set up with treatment with stakeholders such
initial capital of $100 million. NZGIF recently as clients, regulators, employees;
At the time of writing, the SFF was announced its first investment, a $15-million 2. deliver better risk-adjusted returns for
developing and consulting on a follow-up credit facility provided to CentrePort to fund clients and outperform the benchmark
Roadmap for Action report, to be published low-carbon projects at the Wellington port and/or peers;
in late 2020. This will provide practical as part of a wider regeneration program, 3. fulfil fiduciary obligations and contribute
recommendations on how to shift New such as the introduction of electric vehicles, to better overall system stability and
Zealand to a sustainable financial system. on-site renewable energy generation and performance; and
energy-efficient upgrades.17 4. drive real-economy outcomes and use
New Zealand is considered a leader on finance to make a difference in the world.
climate action with its aggressive policies
and ambitious climate targets.14 As such, RESPONSIBLE INVESTMENT KEY These four drivers form the basis of
the green loans market is seen as an area DRIVERS AND APPROACHES the expanded Responsible Investment
of promising growth in New Zealand. New Scorecard, noting that these – as well as an
Zealand’s Financial Markets Authority To enable comparison of New Zealand’s individual investor’s investment beliefs and
(FMA) launched a consultation process responsible investment market with those theses, perspective on risks and opportunities
in September 2019 to garner issuer and of other regions, this report has been and dominant client groups – will shape the
investor input on green bonds and other prepared in line with the seven approaches extent to which each of the seven responsible
responsible investment products that for responsible investment (Figure 15, investment approaches is applied.
FIGURE 16 How the four key drivers for responsible investment align with the seven responsible investment approaches
Stronger
Walking the talk
brand value
better risk-adjusted Managing investment ESG Negative/
Norms-based
risks for clients integration exclusionary
returns screening
screening
better system stability Building better beta for Corporate engagement
and sustainability clients and the economy and shareholder action
Real-economy Allocating capital for people, Positive/best- Sustainability-
Impact
animals and the planet in-class themed
outcomes investing
screening investing
KEY DRIVERS ACTIONS LIKELY RESPONSIBLE INVESTMENT APPROACH DEPLOYED
p14Introduction Responsible Investment | Benchmark Report 2020 New Zealand
Why an expanded scorecard on leading practice in responsible investment?
Over the last decade, the number and coverage of AUM by signatories to This inverse relationship between responsible investment commitments
the United Nations-backed Principles for Responsible Investment (PRI) made by the investment industry on one hand – higher than ever before
have grown from 700 to 2,760 and from US$30 trillion to over US$115 and growing – and the continuing decline in the real-world condition on the
trillion, respectively. other, puts into question whether what we have promoted and celebrated
as ‘responsible investment’ remains relevant in today’s context.
Yet, Earth’s natural systems and its resident species face significant
and global challenges, from habitat and diversity loss, climate change This dichotomy underpins RIAA’s efforts to continue to drive leading
and acidification of oceans to desertification of farmlands, decreasing practice standards forward across all responsible investment approaches,
river health and food insecurity, as well as peace and security issues as detailed in this section of the report. Leading practice now includes
facing a global human population of 7.8 billion living in an increasingly activity in all seven responsible investment approaches and for each of the
uncertain world. four drivers underpinning investor commitment to responsible investing
(see Figure 16, previous page).
For the purposes of this year’s report, if at all – hence the expansion of the The expanded scorecard continues to
RIAA has overlaid these four key drivers to Responsible Investment Scorecard reward strong behaviours to integrate ESG
undertake responsible investment with the parameters making it more challenging factors but now increasingly considers those
GSIA’s seven approaches to responsible to achieve a high score in 2019. Readers committed to building a more sustainable
investment (see Figure 16, previous page). will note that between 2018 and 2019, financial services sector and allocating
Although not perfectly aligned (i.e. norms- the number of investment managers capital towards solutions for our society
based screening can also be applied to practising responsible investing increased and environment. See Appendix 3 for more
deliver real-economy outcomes), RIAA from 46 to 58 – a jump of 26% – with information on the expanded Responsible
aims to embed the responsible investment RIAA identifying less than a quarter Investment Scorecard used to analyse
activities of our region’s investment of these implementing responsible whether leading responsible investing is
managers into a story of intent. When investment to a ‘leading’ standard. being practised by investment managers.
assessed in the context of their intent, we • The new ‘business as usual’ practices
can better make sense of leading practice of investment managers advanced in
and whether this results in addressing responsible investment include the
one or more of the objectives pursued by execution of a wide range of responsible
investment managers in their adoption of investment approaches and a transition
responsible investing practices. from two (returns and risk) to three
axes of investing to include consideration
of impact.
• Findings from consumer research
DEFINING LEADING RESPONSIBLE in New Zealand demonstrate that
INVESTMENT IN THIS DECADE consumers expect their responsible
investments to avoid harm and ideally
For the purposes of defining the size help to solve our planet’s challenges.20
of the responsible investment market • The inverse relationship between an
in New Zealand, RIAA includes only increasing responsible investment
those responsibly managed assets commitment and the continuing decline
managed by investment managers that in the global condition confirms that
are practising a leading approach to activities to date have been insufficient
responsible investment. to create significant change in outcomes
(see the break-out box Why an expanded
From 2014 to 2018, RIAA assessed scorecard on leading practice in
investment managers against a scorecard responsible investment?).
of leading practice ESG. In 2019, RIAA • We face urgent and pressing societal
has expanded its scoring methodology and environmental issues that need
to more fully account for the evolution in to be addressed to continue to support
responsible investment practices across the ongoing function of the entire
the spectrum, from negative screening economic system.
and ESG integration to corporate • RIAA updated its Constitution and
engagement and investing with impact. revised its mission at the end of 2018.21
This has informed the organisation’s
RIAA has changed its assessment method focus on assessing how the growth
in response to several developments: of responsible investment in New
Zealand and Australia demonstrably
• Increasingly, investment managers contributes to future resilience, prosperity
publicise a commitment to responsible and wellbeing for New Zealanders
investment but fall short of showing and Australians to better align with
how this is implemented with effect, international measurement approaches.
p15Responsible Investment | Benchmark Report 2020 New Zealand
Responsible investment leaders and market share
RESPONSIBLE INVESTMENT
LEADERS AT A GLANCE:
• Of the 58 investment managers assessed, 14 (24%) are applying a leading approach to
The Responsible Investment Research responsible investment (score≥75% on the expanded Responsible Investment Scorecard,
Universe was rated against all four drivers for which now also rewards allocation of capital towards real-economy outcomes).
undertaking responsible investing: ‘walking- • The 14 investment managers in this group varied in size, from some of the largest in
the-talk’, ‘managing risk’, ‘building better beta’ New Zealand through to some of the smaller boutique managers, and across asset classes,
and ‘allocating capital towards solutions’ (see from equities to property and infrastructure.
figure 16). Only those demonstrating leading
practice were included in determining
the size of the New Zealand responsible
investment market. Accordingly, the findings
in this report are conservative in nature. FIGURE 17 Responsible investment scores of the 58 investment managers in the
Responsible Investment Research Universe
The cut-off score for leading practice
has shifted from 80% to 75% this year in 20
acknowledgment of the fact that it has
become more difficult to achieve a high
Responsible investment score
score on RIAA’s expanded Responsible 15
Investment Scorecard. This is an important
step change that enables RIAA to start
10
rewarding new and deeper responsible Investment
managers
investing behaviours, such as corporate practicing
a leading
engagement outcomes and impact reporting, approach to RI
5
and provides RIAA with broader scope Investment
managers
in assessing the growing competition in not practicing
a leading
responsible investment leadership practices 0 approach to RI
for the coming decade.
The results of RIAA’s desktop research
as well as from those who completed FIGURE 18 Leading investment managers and their responsible investment scores
the survey are summarised in Figure 17, and associated responsible investment AUM
showing that of the 58 investment managers
in the Responsible Investment Research 20 60
Universe, 14 (24%) are applying a leading
Responsible investment AUM ($bn)
18 50
Responsible investment score
approach to responsible investment in their
investment approaches. 16 40
14 30
Leading practice investment managers Responsible
12 20 investment
demonstrate responsible investing in their score
10 10 Responsible
investment process via: investment
AUM ($bn)
8 0
• their policies;
• integration of ESG factors in
valuation and asset allocation; new Zealand investment managers
*Investment
• their clearly defined approaches AMP Capital Investors (NZ) Limited New Zealand Superannuation Fund
managers for
whom data was
not received within
to stewardship; Bay Trust Northern Trust Asset Management the survey period;
• their active ownership (including Booster Investment Management Pathfinder Asset Management their respective
responsible
corporate engagement and voting); Devon Funds Management PIMCO Pty Ltd NZ investment AUM
has not been
Kiwi Wealth Investments (Kiwi Wealth) Russell Investments*
• applied screens to reduce downside Mercer New Zealand Simplicity
included in the
total responsible
investment AUM
risk and tilt towards solutions; and New Forests Southern Pastures Management Limited of $154 billion.
• provide meaningful disclosures
about these aspects of their
investment approach.
smaller boutique managers, and across the responsible investment scores achieved
The 14 investment managers in this group asset classes, from equities to property together with the AUM represented. In New
varied in size from some of the largest and infrastructure. Figure 18 lists these Zealand, both large and small investment
in New Zealand through to some of the leading investment managers and outlines managers can demonstrate leading practice.
p16Introduction responsible investment leaders and market share Responsible Investment | Benchmark Report 2020 New Zealand
Evidencing real-economy outcomes
Responsible investors have taken moves to better evidence their their reporting to PRI. Thirty-one percent of signatories (650) now mention
responsible investment practices by allocating capital towards solutions the SDGs in 2020, up from 24% last year and 16% in 2018. The PRI says
for our society and the environment. One way of demonstrating this is the accounting for the 2030 goals is a critical part of investors’ fiduciary duty.22
adoption of alignment reporting, whereby investment managers report on
In August 2019, RIAA launched the Impact Management & Measurement
the outcomes of their investments as well as activities for engagement.
Community of Practice (IMMCOP) to facilitate the sharing of leading
In June 2020, the PRI published guidance on how investors can ‘shape practice knowledge and resources for impact management and
the real-economy outcomes’ of their investments by using the Sustainable measurement. IMMCOP helps build RIAA members’ understanding and
Development Goals (SDGs), as it prepares to introduce mandatory capabilities in this evolving area of responsible investment, as well as
outcomes-based reporting for the first time, from 2021. The PRI has seen connect with local and global developments.23
a ‘spike’ in the number of its signatories that have mentioned the SDGs in
RESPONSIBLE INVESTMENT
MARKET SHARE FIGURE 19 AUM of the New Zealand responsible investment market and growth in
AUM of the broader Responsible Investment Research Universe
In New Zealand, the responsible investment
market comprises $153.5 billion of AUM
which is managed using a leading approach TAUM $296.3
$300
to responsible investment. Figure 19 shows $17.4
TAUM $261.4
that leading investment managers in the $250
survey are applying responsible investment
approaches across 52% of the TAUM in the $200 $73.4
New Zealand investment market.
AUM ($bn)
$150
$153.5
This year’s report is unable to directly Responsible Investment
$100 Managers (responsible
compare the responsible investment AUM Mainstream
investment market)
to 2018 data as the methodology has been Portion of the research
investment
$50 Responsible
revised, whereby only the AUM for those universe applying a Investment
$188.0 $278.9 leading approach to RI Research
investment managers that score 15/20 $0 Universe
(75%) or higher are included in this report 2018 2019
as responsible investment AUM (see the
Responsible investment leaders section of
the report for more details on this change).
FIGURE 20 Proportion of survey respondent AUM managed using primary and
However, for the purpose of making a secondary responsible investment approaches
comparison on the growth in responsible
investing based on previous years’
Impact investing 1.6%
methodologies, the data shows that the Negative screening
AUM of the Responsible Investment Research
Universe has grown by 48% from $188 billion 9.6%
in 2018 to $279 billion in 2019 ($153.5 billion
+ $125.4 billion). The Responsible Investment
Research Universe of self-declared
responsible investors has also grown from 46 48.5% ESG integration
investment managers in 2018 to 58 in 2019.
Corporate engagement & 40.4%
shareholder action note: No survey respondent
This year and going forward, RIAA will apply selected norms-based
screening, positive screening
a stricter definition of leading responsible or sustainability-themed
investing as a primary or
investment to cover the AUM of leading secondary strategy.
investment managers on the responsible
investment leader board, reported as
$153.5 billion in 2019.
As in previous years, in 2019 we asked place on certain responsible investment under responsible investment approaches.
respondents to indicate the approaches that approaches. They do not indicate the only This demonstrates that when primary
most influence construction of their portfolios approaches that are used as part of the and secondary responsible investment
– their primary and secondary responsible survey respondents’ tools. approaches are taken into account, the
investment approaches. Primary and dominant responsible investment approach
secondary approaches are referred to Figure 20 presents a snapshot of both is ESG integration. This is a change from last
throughout the report to demonstrate the primary and secondary approaches used by year, when negative screening dominated,
importance that investment managers survey respondents over all of AUM managed followed by ESG integration.
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