Mandatory investor carbon reporting could spread to NZ
New Zealand, Australia, and Canada could be among the first countries outside the European Union to follow France's pioneering move this year to introduce mandatory climate change-related reporting for institutional investors.
The reporting obligations are set out under Article 173 of France's law on Energy Transition for Green Growth which came into effect in January this year. The law applies to a wide range of investors including pension and social security funds and they have until the end of June 2017 to deliver the information.
The law requires them to say how they will integrate environmental, social and governance (ESG) factors into their investment policies along with risk management where appropriate.
They also have to state how they're incorporating climate change considerations, including how they are contributing to international efforts to cap global warming and support France's energy transition.
Because France is the first country to bring in mandatory carbon reporting for investors, it has attracted a lot of interest from other legislators, AXA Investment Managers global head of responsible investing Matt Christensen says.
Mr Christensen told the Responsible Investment Association conference that it would take another two years before the law spread to the rest of the European Union while it assessed how industry participants dealt with the new requirements.
"It's unusual for French law because it is prescriptive," he said, taking it beyond previous "tick the box" exercises.
Asset owners, including the New Zealand Superannuation Fund, that already disclose their carbon footprint and report on their climate change strategy, have done so off their own bat.
He says it is natural to think this type of legislation may extend to countries like New Zealand, although it will require a less "investment-type approach" to fiduciary duty to investors.
The UN Principles for Responsible Investment published a report last year that found fiduciary duty is not a barrier to asset owners' action on ESG factors, despite it being a controversial issue, particularly in the United States.
Asset managers and advisers have often claimed including non-financial indicators in their investment decision-making would breach their fiduciary duty and used that as a reason not to incorporate ESG factors. But the UNPRI said there was growing recognition that ESG issues were financially material to a portfolio.
An RIA poll of New Zealand consumers showed 81% believe it is important KiwiSaver funds consider ESG factors as part of delivering good investment products and financial returns, although only a third weighted other factors as important as financial returns.
The poll followed controversy earlier this year when it was revealed a significant number of KiwiSaver investors had unwittingly put their money in funds that were invested in arms manufacturers and big tobacco companies.
More respondents - 42% - think it is better to keep an investment and try to influence a company's behaviour than sell up, but 39% had no opinion.
When it came to exclusions under ethical investing, whaling, nuclear power industries, and tobacco ranked highest ahead of military armaments and fossil fuels.