Responsible investing is the bedrock of engaged philanthropy
As Aotearoa New Zealand’s largest non-Government philanthropy entity by volume, Perpetual Guardian’s responsible investment philosophy and strategy are informed by its stewardship of charitable trusts; it has $650 million in charitable and philanthropic funds under management. On behalf of its generous clients, Perpetual Guardian has stewarded the distribution of $288m in the last six years, or more than $41.2 million in philanthropic grants per year on average.
Thursday, November 10th 2022, 10:12AM
By Perpetual Guardian
The Perpetual Guardian Group’s inaugural philanthropy report, ‘Engaged Philanthropy 2017-2022’, provides a detailed overview of giving in this period and indicates the importance of a strategic, responsible investment approach which takes a long-term view:
- $110 million was stewarded to the social services sector by Perpetual Guardian (representing 50 percent of all funds given).
- An average of $12.7 million p.a. went to the health and well-being sector, including medical research (30 percent).
- $10 million went to education scholarships (5 percent).
- The remaining 25 percent went (mainly) to the environment, animals, and the arts, heritage and culture sector.
- Between 3,000 and 5,000 grants are paid annually, with an average grant value of $9,000.
While the ultimate beneficiaries of Perpetual Guardian’s investment approach may be generally different than for other large-scale investors such as major financial institutions, its process is nonetheless aligned with global best practice and mindful of the demands and concerns of the investor base.
The rise of ESG as a cornerstone of responsible investing has been part of its response to these investor and broader consumer demands. Its ESG process incorporates environmental (carbon emissions, energy use, waste, environmental policies and risk management), social (health and safety, modern slavery, positive human and animal rights, stakeholder relations, and diversity), and governance principles (board composition, executive remuneration and incentives, ethics, anticompetitive practices, and promotion of fair and transparent workplaces).
Its commitment is that Perpetual Guardian, alongside investment partner Openly Investing Limited, makes and will adopt all reasonable endeavours to ensure its Conservative ESG Fund, Balanced ESG Fund, and Growth ESG Fund are compliant with ESG principles and considers these factors alongside financial factors in the investment decision-making process.
Tim Chesterfield, Chief Investment Officer of Openly Investing Limited (part of the Perpetual Guardian Group), says the focus of the approach to ESG was to provide easy access to national and global investment markets. “We do this by adopting a well-researched approach to local shares selection, with exposure to global shares provided through the use of geographic and sector specific Exchange Traded Funds (ETFs). Typically, large global markets are efficient and generally fairly priced, which leaves little room to consistently enhance returns through active management. However, the use of ETFs enables us to be nimble in the allocation of capital to opportunities in geographies and sectors without taking stock-specific risk.
“Our high-conviction approach to local markets is complemented by a big building block approach to global markets, where we can access global exposures through ETFs at highly competitive prices. We do not operate a high stock or fund turn-over approach, preferring instead to adopt a long-term outlook with a focus on quality. This means we can keep our trading costs down and concentrate on providing quality investments with consistent returns, rather than chasing the latest trend or fashion.
“We continue to see significant growth in this approach to investing, with demand for ESG considerations forming an integral part of the decision-making process. Business-to-business relationships are also demanding high ethical standards, and we are observing charitable trusts driving ESG mandates, with many regarding ‘investing with a conscience’ as a must-have when aligning corporate, trustee and personal values.
“Often the terms ESG and Socially Responsible Investing (SRI) are used interchangeably; however, there are important distinctions between the two. As part of our investment process, we overlay both strategies when narrowing down our investment universe into manageable opportunities. This will result in us removing any exposures to undesirable industries but also ensuring that the companies in which we invest have a clearly defined strategy that is demonstrably addressing their ESG credentials and footprint.
“This strategy is symbiotic in nature to our desire to invest in companies that we consider to be of the highest quality. This approach is embedded in our philosophy and belief that over any given cycle, companies that invest capital efficiently and in a responsible way will lower the risk of missteps whilst simultaneously lowering the risk of ownership. This is particularly important in times of economic and geopolitical stress in which we find ourselves in 2022. Our natural bias is to allocate capital in such a way as to preserve capital in periods where the investment outlook is uncertain, while continuing to provide long-term capital and income growth through investment in companies that enjoy favourable end market dynamics. This approach is of particular importance to those organisations engaged in philanthropic giving; their work does not stop simply because investment markets are volatile.
“Both ESG and SRI investment strategies are decades old but more relevant today than at any point in the past. Increasingly, investors are focused on the impact of the companies in which they invest on the environment as a whole. In part this has been a gradual genesis over the years; however, it has accelerated with the younger generations looking to have their money invested in a way that mitigates the harms of old and provides for their future. This is not a fad and we do not simply pay this lip service. It is embedded in our process.”
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