Creating a brighter, more sustainable future

By Kiwi Wealth

Wednesday, November 9th 2022, 10:04AM

Social licence is key

Maintaining a social licence is one of the key elements for companies to be able to operate, and a strong risk management tool for investors. High-profile disasters, such as the destruction of the 40,000-year-old Aboriginal heritage site Juukan, can almost immediately erase a company’s social licence; smaller issues, such as abhorrent comments by executives, can have an impact too.

Losing social licence can, at its worst, lead to a company’s collapse and significant financial loss for its shareholders. Social media, mining, and chemical companies have all stumbled through the court of investor verdicts in the last couple of years.

To build social licence, companies must hold themselves accountable to society’s expectations of tomorrow. This means continuously re-evaluating supply chains, environmental impact, and labour practices with a critical eye. The reputational damage borne from problematic activities can negatively impact the investors’ value of the holding, while the misalignment of values reduces the tolerance of consumers.

Investors have awoken

Investors are waking up to competing crises negatively affecting both their investment performance and their everyday life. According to the FMA’s research, 68% of New Zealanders are interested in ethical investment. These investors are letting companies and investment managers know this in two ways: taking a hands-on approach to investing directly into capital markets, and taking a keener interest in the decisions made by their provider of products including KiwiSaver.

Individual retail investors are also driving an increase in shareholder proposals that push for ethical change. They have been enabled through both financial innovation – such as shareholder activism platforms – as well as the ability in the US for any shareholder who has held $25,000 in stock for at least a year to raise a proposal. This has seen a rise in overall shareholder proposals. At Kiwi Wealth, we supported 33% more shareholder proposals aligned with socially responsibly investment principles than the same period of last year.

The outcomes of these individual proposals include simple majority voting, decarbonisation targets, the amendment of executive compensation principles and pay equity reports, and disclosures on political spending.

We’re taking action

At Kiwi Wealth, we are closing the distance between the day-to-day actions of our clients and their expectations of us. Each decision is sharply focused by customer feedback and a philosophy of guardianship – both of your wealth and also our children’s and grandchildren’s futures.

As kaitiaki (guardians) of wealth, we value the trust you place in our ability to make responsible investment decisions and duties that are not to be delegated. Our active approach means we assess company structure, the independence of boards, whether controlling owners are also executives, and whether the business operates in a way that has the potential to devalue the business.

Active investments have the power to shape a prosperous, sustainable future. We seek to engage with companies where harm in reversible and use exclusion as a last resort for companies that are resistant to change.

In the past year, through active ownership at more than 20 listed companies, and incremental improvements in the boardrooms of more than 1,200 companies, we believe we are driving positive structural change. Our first Stewardship Report is available now on our website: www.kiwiwealth.co.nz/stewardship22 which details the depth of Kiwi Wealth’s engagement in responsible investment outcomes.

At Kiwi Wealth, we believe that responsible investing and active engagement will deliver sustainable investment products that enable investors to have a brighter financial future. For more information on our responsible investment approach visit www.kiwiwealth.co.nz/ri

Tags: responsible investing