ESG

The UN Principles for Responsible Investment, the Global Sustainable Investment Alliance and the CFA Institute have been working together over many years on joint programmes relating to ESG disclosure standards, definitions and understanding practices. They are acutely aware of the increasing pressure on their members and signatories to clearly present approaches to ESG investment so that beneficiaries, regulators and other stakeholders are able to understand ESG approaches taken in investment products and strategies. This public resource is intended to be used by the investment industry, regulators and policy makers with the objective of providing greater clarity and alignment in their usage in literature and across the industry.

The Responsible Investment Association Australasia (RIAA) is pleased to the launch of the first comprehensive study on investor stewardship practices in Australia and New Zealand conducted with research partner KPMG.

ASB is one of the largest fund managers in New Zealand with over $20 billion in assets under management for around 500,000 investors. ASB Group Investments is owned by ASB Bank Limited, which was the first savings bank in New Zealand, established in 1847. RIAA spoke with Emma Lavelua, Product Manager Wealth, Managed Funds and Merrin Laurenson, Senior Product Manager at ASB about their approach to stewardship and responsible investment journey.

Through volatile markets and increased public scrutiny, the responsible investment industry is maturing – setting in place stronger standards, better frameworks for increased transparency, and ensuring these are consistent and comparable across regions. So what practices are responsible investment managers improving on, and how did the sector grow in 2021?

The portion of New Zealand assets managed using a rigorous, leading approach to responsible investment reached 49% totalling $179 billion in 2021, up from 43% in 2020, a new study by the Responsible Investment Association Australasia (RIAA) found. The Responsible Investment Benchmark Report Aotearoa New Zealand 2022, researched in collaboration with EY, shows a step up in responsible investment activity. Investment managers are expanding their responsible investment offerings to investors across their portfolios, improving transparency and disclosures, ramping up their engagement with companies on sustainability issues, and increasingly excluding sectors deemed unethical. The study also shows excellence in responsible investment typically materialises into superior financial returns. In 2021, products certified by RIAA as quality, true-to-label responsible investments on average outperformed benchmarks across all categories and almost all timeframes, while non-certified products labelled responsible investments stayed on par with benchmarks.

Through volatile markets and increased public scrutiny, the responsible investment industry is maturing – setting in place stronger standards, better frameworks for increased transparency, and ensuring these are consistent and comparable across regions. So what practices are responsible investment managers improving on, and how did the sector grow in 2021?

The number of Australian assets managed using a rigorous, leading approach to responsible investment has hit a record value of $1.54 trillion, now accounting for 43% of the total market, according to a new study by the Responsible Investment Association Australasia (RIAA). In addition, a record 45% of investment managers are holding companies to account on matters relating to environmental and social issues, and reporting back to investors on the outcomes achieved. This number has more than doubled in the past two years, with only 21% of investment managers engaging in such activity in 2019. The findings come as part of the latest Responsible Investment Benchmark Report, researched in collaboration with EY. Responsible investment, also known as sustainable or ethical investment, is a broad-based approach to investing which factors in people, society and the environment, along with financial performance, when making and managing investments. Recent high profile action from shareholders with companies such as AGL shows investors have significant influence in shaping their future direction and strategies on issues such as climate change.This year’s report found that this approach – also known as corporate engagement – saw the greatest increase out of any responsible investment strategy in 2021. Approximately $726 billion in assets under management is now being used by fund managers to agitate for change on ESG issues, up 54% from 2020. The study also shows excellence in responsible investment materialises into substantial financial returns.Products certified under RIAA’s Responsible Investment Certification Program on average outperformed the market in the medium to long term, and over some time frames achieved two or three times the returns. This outperformance is seen both when comparing RIAA certified funds to the overall market, as well as to products of investment managers who self-declare as practising responsible investment.

ISS ESG weapons research expert Henning Weber, provided an overview of controversial weapons and how they are defined, along with a discussion from product providers who have been addressing controversial weapons exposure in their portfolios.

RIAA’s member ‘drop-in’ session provided members with an update on the annual planning cycle, including an insight into our strategy and priority work plans. RIAA’s CEO and executive team gave an update on the progress RIAA has made in the past 12 months, and an insight into our strategic thinking on how we deliver on our mission in this current context.

Excluding defence companies has long been common practice for responsible investors. At a minimum, most negatively screened ‘ethical’ funds exclude the controversial weapons banned under international law: for example, chemical weapons and cluster bombs.