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Social Responsibility - I give NZ an A so what about your KiwiSaver/Investment Portfolio?
Articles posted on 01 / 09 / 20

NZ is great at being Socially Responsible.  Our team of 5 million has proven this with our compliance to government directives in respect of Covid-19 and community lockdowns, both initially and now in version 2.0. 

The government has also shown strong Governance by implementing protective measures to keep NZ’ers safe from the virus, and also by supporting the many individuals, families and businesses who have been affected throughout this pandemic whether this be from lack of customers or loss of employment.

The Reserve Bank of NZ has had a major part to play in this social response ensuring there is sufficient liquidity within the economy by sharply dropping interest rates to encourage spending and to discourage savings to bank deposit in preference to investing in more “productive assets” such as bonds and dividend paying shares; and also by increasing their large scale asset purchasing programme (buying up of government and corporate bonds themselves).

Nobody in NZ has been spared some type of pain from this pandemic but our team of 5 million has reacted with strong social awareness, strong social compliance and strong governance.  While this hasn’t been perfect, such perfection is impossible to achieve when we are enduring unprecedented times.

Being socially responsible has left NZ in great shape to battle the ongoing challenges that Covid-19 will continue to present, and the myriad of other possible future challenges likely also.

Similarly having an investment portfolio that is structured with a strong social and governance base, puts these portfolios in a good place to weather future storms.  When you invest with a focus on “doing no harm” and working towards good Environmental, Social and Governance outcomes, everyone wins.  This is why Socially Responsible investing is no longer a nice to have, but rather a must have for the prudent investor.

In 2005, the UN Secretary General, Kofi Annan, invited a group of the world’s largest institutional investors to develop the Principles for Responsible Investment (PRI).  Today PRI is a United Nations supported international network of investment signatories who collectively oversee more than US$70 trillion in funds.  Its goal is to support and ensure an adherence to six aspirational principles relating to environmental, social, and corporate governance:

  • incorporate ESG issues into investment analysis and decision-making processes.
  • be active owners and incorporate ESG issues into our ownership policies and practices.
  • seek appropriate disclosure on ESG issues by the entities in which we invest.
  • promote acceptance and implementation of the Principles within the investment industry.
  • work together to enhance our effectiveness in implementing the Principles.
  • each report on our activities and progress towards implementing the Principles.

 

There are many ways to meet the principles of social responsibility and this will have different meanings for different view perspectives, but at least some of our NZ investment managers are endeavouring to take their investors along a more sustainable path.

The first line of defence is negative screening – that is where specific businesses are excluded because of the harm they do to the environment or society. The most common negative screenings include nuclear weapons; cluster munitions, anti-personnel mines, armaments and chemical weapons; firearms; tobacco related products; pornography; gambling services; exploration or production of fossil fuels or power generation from fossil fuels.

Then there is positive screening, where your investment provider actively searches for new technological companies that are providing goods or services to decrease environmental impact or improve efficient use of resources. 

The third defence mechanism is to actively engage with companies to encourage better management decisions, to improve their worker’s rights and conditions or better environmental results.  This governance aspects extends to those times when accidents occur, and it is not so much that the accident happened, but the test is to see how well companies react and remediate any lapses.

Not all screens are created equal, with some funds not investing in fossil fuel extraction, but happy to invest in businesses that provide services to these extraction companies.  This seems counter intuitive.

So how Socially Responsible (SR) is your KiwiSaver / Investment Portfolio when you lift the lid?  What is their SR policy, what extent do they negatively or positively screen investments and is this policy adopted across all funds?

As mentioned earlier, the aim is not to seek perfection here but rather align your investments for the changing world we live in.

If these considerations are as important to you as they are to us, then please contact us to see how we can help you towards a more sustainable investment path.