Investors joining forces on systemic ESG issues

New Zealand and Australian investors are starting to understand the systemic nature of ESG issues and collaborating to influence companies towards more sustainable outcomes, according to a new study by the Responsible Investment Association Australasia (RIAA) and KPMG.

Wednesday, November 30th 2022, 11:16AM

by Andrea Malcolm

Engage, Advocate, Collaborate: Unpacking Stewardship in Australasia in 2022 looks at investor stewardship activities including shareholder voting, direct engagement, shareholder resolutions, and advocating for policy changes. Seventy investment managers, asset owners, banks and trusts/foundations were surveyed for the report.

The results found 82% of investors collaborate to achieve ESG outcomes, and 71% engage or advocate on public policy issues, challenging previous ideas of what it means to be a prudent investor. Hot topics for engagement are climate change (83% of investors surveyed), diversity, equity and inclusion (69%) and human rights, including modern slavery (68%). Others include public health/medical issues, biodiversity and nature conservation, and the rights of Indigenous peoples.

“We know from other research that the majority of individuals expect their funds to be invested responsibly. This means that, more and more, financial advisers who want to understand their client’s sustainability and ethical preferences need to be equipped to explain to their clients the concept of stewardship. They need to make sure they can communicate the stewardship practices of the funds and make sure that the stewardship practices of funds align with their clients’ values,” says Estelle Parker, RIAA Executive Manager, Programs.

Parker says advisers can do this by looking at asset owners and investment managers’ stewardship policies and checking if they have formally adopted the Aotearoa New Zealand (or other) Stewardship Code.

“To determine whether funds align with their clients’ values, financial advisers can ask the funds which ESG issues they engaged on or plan to engage on in the future. This would normally be in the stewardship policy or in a stewardship report or potentially periodic communication with funds’ members. This research shows that investors are moving towards more transparent reporting on how their stewardship activities are leading to real-world outcomes - this should be welcome news for financial advisers and their clients.”

The survey revealed that 85% of respondents publish stewardship policies as part of their RI/ESG policies or as a standalone policy. Globally more than 40 stewardship codes or initiatives have been issued across 20-plus jurisdictions, with most being voluntary, each aiming to provide a framework that helps investors to get started, and principles and standards to follow. Of those surveyed, 51% have adopted at least one stewardship code, with the most common being the UK Stewardship Code, the Australian Asset Owner Stewardship Code among Australian super funds, and the ICGN Global Stewardship Principles among investment managers. The recent launch of the NZ Stewardship Code is expected to lead to an acceleration in stewardship activities here.

The three main stewardship approaches identified among investors are proactive which targets ESG issues if they are considered financially material for an asset or portfolio, aiming to decrease financial risks and sustain long term value; strategic which involves setting priority ESG areas and aligning stewardship policies, objectives and activities to create positive change with real-world outcomes; and reactive stewardship which occurs in response to a controversial event or incident such as when New Zealand Super Fund led fund managers to collaborate and engage with Facebook and Twitter after the Christchurch terror attack.

Following proactive advocacy from Kiwi investors, New Zealand became the first country to mandate climate-related disclosures for publicly listed companies and large entities. “This will greatly help New Zealand meet its Paris Agreement commitments, and help investors price and value companies, as well as realign portfolios to contribute to a lower carbon world,” says Parker.

Tags: RIAA