NZ responsible investments grow 10% in 2014 on back of consumer, charities' demand
New Zealand responsible investment assets have grown 10% in 2014 to $63.6 billion, mainly on the back of rising consumer interest in how their retirement savings are invested.
Some 86% of those responsible investments, though, is accounted for by the New Zealand Superannuation Fund and the Accident Compensation Corporation.
A new New Zealand report from the Responsible Investment Association Australasia, the first in 14 years as a standalone from Australia, found growing consumer confidence in responsible and ethical investments along with the finance sector taking stronger positions on their management of environmental, social and governance issues.
Some 2.5 million Kiwis are now signed up to KiwiSaver and RIAA chief executive Simon O'Connor said more consumers were waking up to the fact they could invest their retirement savings profitably without compromising their values.
"There has been also been a surge in private wealth investors, charities in particular, that are demanding more alignment with their beliefs and their investments," he said.
The rise in the consumer demand is demonstrated in particular by the 19% growth in 2014 in New Zealand's core responsible investment funds – those referred to as ethical or socially responsible funds – to $3.2 billion assets under management. Half of that came from a lift in average fund returns and the rest by new money coming in. These funds include religious organisations, community trusts and a number of retail ethical funds including KiwiSaver accounts.
Retail demand under these core SRI funds now represent 4% of total assets under management in New Zealand, above 2.% in Australia.
Data showing Australian equities responsible investment funds out-performed their mainstream counterparts dispel the myth that responsible investment will lower returns, O'Connor said. For example, the 10-year return for the average responsible investment fund was 8.1% compared to 6.8% for the Large-Cap Australian Share Fund average and 7.% for the S&P/ASX 300 Index.
"That's not to say responsible investment funds will always outperform but it does show there's no reason why they should underperform relative to the rest of the market," Mr O'Connor said.
The report said there had been an increase in activist and civil society groups engaging the finance sector as a means of affecting change within investee companies.
Only three of the top 10 asset managers have signed up to the UN-supported Principles for Responsible Investment, which is an international investor network working together to put the six principles for responsible investment into practice. And those three only did so because their offshore parents were signatories.
The report said that indicates at the institutional level, beyond the large and mainly government-owned asset owners, there remains a lot of scope for improvement in responsible investment take-up.
But NZ Superannuation Fund head of responsible investment, Anne-Maree O'Connor said the New Zealand uptake was better than it seems with asset owners like the super fund mandating asset managers to include environmental, social, and governance standards into their thinking and as part of their selection of managers.
"When I look back to where we were eight years ago or even five years ago, the focus on these issues has grown in New Zealand and internationally and has got to the stage where it has just become part of the due diligence and selection process for asset owners like us."
She said while consumers were getting more interested in responsible investing, it has not yet been well integrated into the investment adviser area, with advisers often failing to ask clients on their preferences or trying to dissuade them from doing so based on claimed poor returns.
KiwiSaver providers could also do a better job of advertising to prospective clients when they do follow a responsible investment approach because that information is currently hard to find, she said.