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Investing in a better world

Interest in sustainable investing is growing, and attendees at the first ever Assembly of Investment Chairs were warned that not taking environmental, social and governance considerations into account would see them left behind, writes Otago University's Associate Professor Ivan Diaz-Rainey.

Sustainable finance and managing climate risk are becoming two of the most important issues facing the investment world. Investors obviously want their returns to be strong and steady, meanwhile climate risks such as drought, wild fires and flooding are posing new and difficult problems for financial stability across the globe.

In response, this month a gathering of chairs of investment committees of New Zealand’s community trusts, iwi, family offices, charitable foundations and investment houses came together to consider these themes and how they can play their part in building a more resilient economy.

The investment community is key to this goal, given how internally interconnected it is, and the role it plays with businesses and entities that ultimately make decisions that impact the climate. Most importantly, those who attended got to hear that you do not have to sacrifice short term returns in order to invest sustainably, which should lead to more investment committees approving sustainable strategies.

The 2019 Assembly of Investment Chairs (AOIC), hosted at the University of Otago’s Auckland Centre, was the first of its kind in New Zealand.

The event was co-hosted by NZ Super Fund, a world leader in sustainable investing, and the Otago Business School’s newly created Climate and Energy Finance Group (CEFGroup), one of the largest climate finance research groups in the world and a founding member of the prestigious Global Research Alliance for Sustainable Finance and Investment.

The inaugural event was attended by 50 participants and included speakers from the Super Fund, Reserve Bank of New Zealand, CEFGroup, Auckland University of Technology, Jarden and the Responsible Investment Association of Australasia.

Aside from not impeding returns, attendees heard that incorporating climate change considerations into portfolios presents considerable investment opportunities as the world transitions to a more sustainable economy.

Combined with a growing awareness and desire by stakeholders for sustainable investing, particularly from younger stakeholders, this could be a powerful force for good.

Interest in sustainable investing is even growing amongst the “boomer” generation, even if it still lags that of younger generations.

The overall message was that not incorporating environmental, social and governance considerations into the allocation of scarce capital will see you left behind.

NZ Super Fund CEO Matt Whineray presented on the work of the Aotearoa Circle’s Sustainable Finance Forum.

The Forum’s work highlights the key issues of investment horizons being too short, and externalities not being priced in by businesses and investors. This tied in with Mr Whineray’s discussion of Maori investment/business principles, where there are no externalities as both environment and people are integral to a systemic view of investment decisions. Indeed, we have a lot to learn from the history and practices of tangata whenua.

Three main barriers for investment committees were identified from the day’s presentations. The first was a lack of knowledge of how to approach sustainable investing, given many committee/board members lack specialised skills in this area.

Secondly, relatively smaller investment committees (by dollars invested) do not have the resources or bargaining power that larger investors have in order to create their own or demand sustainable investment portfolios from asset managers.

Lastly, poor corporate investee transparency and disclosure of sustainable practices (such as using Environmental Social and Governance (ESG) rating methodologies) is a real issue.

This was highlighted by a presentation from Hamish Kennett (CEFGroup) illustrating poor climate transition risk disclosure practices by half the corporates listed on the NZX50. The issue of improved environmental disclosures was discussed at length and is particularly timely given the Government’s current consultation on climate-related financial disclosures, which closes on 13 December.

As a result of the event, further research collaboration and the launch of professional development workshops is planned. Both the CEFGroup and NZ Super Fund will provide further access to their specialist knowledge to help encourage the shift toward more sustainable investment strategies - creating better value, less risk and improved outcomes for New Zealand.

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This article was authored by Ivan Diaz-Rainey, Director, CEFGroup, in collaboration with Sebastian Gehricke, Co-Director, CEFGroup;  Craig Stobo, Taumata, Otago Business School; and Matt Whineray, CEO, NZ Super Fund

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