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Advisers yet to get responsible investing
Thursday 13th of June 2013
The New Zealand Superannuation Fund announced this week that it had excluded a group of nuclear base operators from its investment portfolio.
As at March 31, the Fund’s holdings in these companies totalled $2.2 million. The holdings have now been sold.
Mimms said both the NZSF and ACC were strong on responsible investing but few financial advisers were actively adopting the responsible investing approach for retail clients, or specifically looking to invest in ethical funds.
“From an institutional investor’s perspective there’s more of an alignment because they’ve got trustees and they have to be aware of their place in the community.”
He said they tended to be more sophisticated and aware of the issues. Retail investors might not consider the prospect unless it was pointed out to them.
“I liken it to prompted/unprompted brand awareness. If you don’t talk about it with people they probably won’t say anything but if you say ‘are you comfortable investing in [tobacco firm] Philip Morris’, they might say no.”
He said consumers would have to get excited about the idea for it to gain traction in the retail market.
Mimms said there had traditionally been an idea that responsible investing came at a cost but recent studies disputed that.
The Responsible Investment Association of Australasia found that an index of responsible funds did better than non-responsible funds. “A lot of stuff is going to come down to sustainability issues. A big argument is the cost of negative externalities… such as law suits or emissions trading schemes.”
In 2011, there was $20.7 billion of funds managed using a responsible investing approach in New Zealand. Updated data is due to be released soon.
Comments (5)
Brent Sheather
One of the funny things about many if not all of the ethical funds available to retail investors is that they have higher management fees than other similar unit trusts, not that ethical really is it...
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11 years ago
Matthew Mimms
I think most financial advisers do indeed get responsible investing; however I don’t think they have yet embraced it.
Responsible investing is not solely about investing in cleaner forms of energy. At a broad level, it is about maximising investor returns whilst at the same time taking into account environmental, social and governance issues. With ever great litigation and legislation aimed at protecting the environment and society, it makes sense that if a company’s business activities damage the environment, their employees or their clients, there is a greater likelihood of a price to pay (including to shareholders). Would you not want to ensure that the stocks and bonds you (or your client invests in) are less exposed to these types of risks?
Typically, ethical or socially responsible funds are more expensive than their mainstream counterparts (running ethical screen or ESG assessments doesn’t come free). I guess the question is does the net return justify this. The Responsible Investment Association of Australasian publishes a benchmark report on Responsible Investing in Australasia every two years. In its last report in 2011, responsible funds outperformed the relevant index and the average return from mainstream funds over almost every time period (in the Australian equities, global equities and balanced fund sectors). The next report is due out next month and it will be interesting to see the results (or whether I will need to eat my words).
Finally, I read earlier this year some interesting news about research done by Bloomberg New Energy Finance. The study shows that electricity can be supplied from a new wind farm at a much lower cost when compared to new coal or new gas. Even without a carbon price (which the study factors in) wind energy is according to the report 14% cheaper than new coal and 18% cheaper than new gas.
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11 years ago
Matthew Mimms
A slightly delayed response but…
No intention of side-stepping the points you make and maybe we are at slightly crossed purposes here.
Responsible Investing is not just about wind or renewable energy. As mentioned above it is about investing for profit whilst taking into account environment, social and governance issues. It may include investments in renewable energy.
I agree that renewables have been privy to government funds. HSBC, in their 2009 report, “A Climate for Recovery”, identified over $US430 billion in fiscal stimulus for key climate change themes. Renewable energy targets exist in over 100 countries, so no doubt will be recipient of more support in the years to come.
But the important issue is why and I think it is because governments recognize that there is a real sustainability crisis taking place. The Global Footprint Network estimated in 2008, that each year we (Mankind) consume 1.5 earths (i.e. it takes 1.5 years for the earth to renew the resources consumed in any one year). By 2050, it predicts (on current trend) we will be using 2.9 earths per year. This places an increasing burden on the earth’s resources. Climate change is a symptom of this (as are other issues such as depleted fishing stocks, severe environmental damage etc).
Major organisations such as the International Energy Agency, The World Bank and the IMF have all issued dire warning over the past 12 months. Without strong action, “future generations will be roasted, toasted, fried and grilled” (quote IMF Chief, Christine Lagarde). Without a fundamental shift from fossil fuels to low carbon sources of energy, and quickly, the 2 degree cap on global temperature increase (which appears to be the agreed consensus for limiting damage from climate change to acceptable levels) will not be met and this could prove disastrous for future generations. Nuclear energy could well be part of the solution but appears to be out of favour post Fukushima (for the time being at least). Nuclear fusion is possibly the answer but commercially viable reactors are most likely 30 – 40 years away. Therefore cleaner renewable sources of energy are the most likely solution. Hence, that is why I suspect many more billions will be poured (from private and public sources) into renewable technology and energy sources in the coming decades.
So yes, it is politically driven to a large degree, but needs to be.
Here’s a couple of links…
Global Footprint Network - http://www.footprintnetwork.org/en/index.php/GFN/page/world_footprint/
Guardian Article - http://www.guardian.co.uk/environment/2013/jun/10/waiting-climate-deal-set-world-path-5c
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11 years ago
Daryl McAlinden
Responsible investing comes in many shapes and definitions. For example, BP could be included in such a fund due to the company's implementation of strategies for waste reduction and enhanced environmental protection policies. Alternatively, a fund may bar investments in certain industries, such as the tobacco and armament industries. The majority of responsible investment funds do not have an extreme green only policy.
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11 years ago
Matthew Mimms
Hopefully I haven’t been inadvertently captured by a political agenda. Whilst I remain open minded on the climate debate and did read with interest about the pause in global temperature rises (and this article form the Guardian which adds a bit more colour; http://www.guardian.co.uk/environment/climate-consensus-97-per-cent/2013/jun/24/global-warming-pause-button ) I also have sympathy for Obama’s sentiment in his climate change speech earlier this week when he stated, “we don’t have time for a meeting of the flat earth society”.
Back to responsible investing. As I pointed out above , I see responsible investing as being about maximizing profit whilst at the same time taking into account environmental, social and governance issues as part of he process. It need not be extreme or lead to certain sectors being avoided (though this is one approach). It is also about managing risk. For example, if a company has a poor environmental record, treats its employers poorly or makes products (or services) that are damaging to the health of its customers, then I would suggest it has added risk from purely an investment perspective (notwithstanding some obvious moral issues). It makes good investment sense to factor this into any decision as to whether to invest or not.
Therefore responsible investing can be applied from an investment perspective (as well as from a purely moral perspective).
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11 years ago
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