Responsible Investment Benchmark Report 2020 New Zealand

SUPPORTING ORGANISATIONS RESEARCH PARTNER Responsible Investment | Benchmark Report 2020 New Zealand

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KPMG’s input into this report has been prepared at the request RESPONSIBLE INVESTMENT of the Responsible Investment Association Australasia (RIAA) in ASSOCIATION AUSTRALASIA accordance with the terms of KPMG’s engagement letter dated Level 3, 478 George Street 04 March 2020. The services provided in connection with KPMG’s Sydney, NSW 2000 engagement comprise an advisory engagement, which is not subject Australia to assurance or other standards issued by The New Zealand Auditing and Assurance Standards Board and, consequently no opinions or +61 2 8228 8100 conclusions intended to convey assurance have been expressed. [email protected] responsibleinvestment.org The information contained in this report has been prepared based on material gathered through a detailed industry survey and other sources (see methodology). The findings in this report are based on a qualitative study and the reported results reflect a perception of the respondents.

No warranty of completeness, accuracy or reliability is given in relation to the statements and representations made by, and the information and documentation provided by, asset managers and owners consulted as part of the process.

The sources of the information provided are indicated in this report. KPMG has not sought to independently verify those sources. Neither KPMG nor RIAA are under any obligation in any circumstance to update this report, in either oral or written form, for events occurring after the report has been issued in final form. The report is intended to provide an overview of the current state of the responsible investment industry, as defined by RIAA. The information in this report is general in nature and does not constitute financial advice, and is not intended to address the objectives, financial situation or needs of any particular individual or entity. Past performance does not guarantee future results, and no responsibility can be accepted for those who act on the contents of this report without obtaining specific advice from a financial or other professional adviser. As the report is provided for information purposes only, it does not constitute, nor should be regarded in any manner whatsoever, as advice intended to influence a person in making a decision, including, if applicable, in relation to any financial product or an interest in a financial product. Neither RIAA nor KPMG endorse or recommend any particular firm or fund manager to the public.

KPMG is under no obligation in any circumstance to update this report, in either oral or written form, for events occurring after the report has been issued in final form. The findings in this report have © Responsible Investment Association Australasia, 2020 been formed on the above basis. Creative Commons Attribution 4.0 Australia Licence: Where Other than KPMG’s responsibility to RIAA, neither KPMG nor any otherwise noted all material presented in this document member or employee of KPMG undertakes responsibility arising is provided under a Creative Commons Attribution 4.0 Australia in any way from reliance placed by a third party on this report. Any licence: https://creativecommons.org/licenses/by/4.0 reliance placed is that party’s sole responsibility. Licence conditions are on the Creative Commons KPMG is an Australian partnership and a member firm of the website as is the legal code for the CC BY 4.0 AU licence: KPMG network of independent member firms affiliated with KPMG https://creativecommons.org/licenses/by/4.0/legalcode International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks The suggested citation for this report is Boele, N & Bayes, S 2020, or trademarks of KPMG International. Liability limited by a scheme Responsible Investment Benchmark Report 2020 New Zealand, approved under Professional Standards Legislation. Responsible Investment Association Australasia, Sydney. Responsible Investment | Benchmark Report 2020 New Zealand

Contents

THANK YOU 4 FIGURES Our sponsors 4 FIGURE 1 Research universe and New Zealand's responsible Survey respondents 4 investment market 5 Data 4 FIGURE 2 AUM of the New Zealand responsible investment market and growth in AUM of the broader Responsible Investment ABOUT THIS REPORT 5 Research Universe 7 About the Responsible Investment Association Australasia 6 FIGURE 3 Responsible investment scores of the 58 investment About KPMG 6 managers in the Responsible Investment Research Universe 8

EXECUTIVE SUMMARY 7 FIGURE 4 Proportion of survey respondent AUM managed using primary and secondary responsible investment approaches 8 Background 7 Responsible investment in 2019 7 FIGURE 5 Existence and disclosure of responsible investment policy 8 Key findings 7 FIGURE 6 Proportion of AUM covered by an explicit and systematic approach to ESG integration 9 INTRODUCTION 12 FIGURE 7 Reporting on corporate engagement activities and outcomes 9 About responsible investment 12 FIGURE 8 Frequency of issues being screened (by number of survey International responsible investment context 12 respondents that negatively screen) 9 New Zealand responsible investment context 13 FIGURE 9 Frequency of exclusionary screening for fossil fuel Responsible investment key drivers and approaches 14 exploration, mining, extraction and production (by survey Defining leading responsible investment in this decade 15 respondents that negatively screen) 10 FIGURE 10 Exclusionary themes – % of consumer searches RESPONSIBLE INVESTMENT LEADERS AND MARKET SHARE 16 on Responsible Returns vs survey respondent exclusions Responsible investment leaders 16 (weighted by % AUM) 10 Responsible investment market share 17 FIGURE 11 Sustainability-themed investments by theme (% AUM) 10 RESPONSIBLE INVESTMENT APPROACHES AND PRACTICES 18 FIGURE 12 Impact investing breakdown in New Zealand by ESG integration 19 investment category ($billion) 11 Negative/exclusionary screening 20 FIGURE 13 Key drivers of market growth by survey respondents 11 Norms-based screening 22 FIGURE 14 Performance of responsible investment funds Corporate engagement and shareholder action 23 (weighted average performance net of fees over 10 years) 11 Positive/best-in-class screening 24 FIGURE 15 RIAA’s responsible investment spectrum 13 Sustainability-themed investing 25 FIGURE 16 How the four key drivers for responsible investment Impact investing 25 align with the seven responsible investment approaches 14 FIGURE 17 Responsible investment scores of the 58 investment FINANCIAL PERFORMANCE 28 managers in the Responsible Investment Research Universe 16 MARKET DRIVERS AND FUTURE TRENDS 29 FIGURE 18 Leading investment managers and their responsible Key growth factors 29 investment scores and associated responsible investment AUM 16 Growth deterrents 29 FIGURE 19 AUM of the New Zealand responsible investment ESG data availability and reliability 30 market and growth in AUM of the broader Responsible Investment Research Universe 17 APPENDICES 31 FIGURE 20 Proportion of survey respondent AUM managed using Appendix 1a: Abbreviations 31 primary and secondary responsible investment approaches 17 Appendix 1b: Definitions 31 FIGURE 21 Existence and disclosure of responsible investment policy 18 Appendix 2: Methodology 32 FIGURE 22 The level of disclosure of investment holdings by the Appendix 3: Responsible Investment Scorecard 33 Responsible Investment Research Universe 18 Appendix 4: Survey respondents 36 FIGURE 23 Proportion of AUM covered by an explicit and systematic Appendix 5: Other organisations used in data (desktop research) 36 approach to ESG integration 19 FIGURE 24 Frequency of themes being screened (by number of survey respondents that negatively screen) 20 FIGURE 25 Frequency of exclusionary screening for fossil fuel exploration, mining, extraction and production (by survey respondents that negatively screen) 21

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FIGURE 26 Frequency of screening for weapons vs controversial weapons (by survey respondents that negatively screen) 21 FIGURE 27 Exclusionary themes – % of consumer searches on Responsible Returns vs survey respondent exclusions (weighted by % AUM) 21 FIGURE 28 Frequency of norms used by investment managers applying norms-based approaches 22 FIGURE 29 Reporting on corporate engagement activities and outcomes 23 FIGURE 30 Positive screening – frequency of themes screened by survey respondents 24 FIGURE 31 Positive screening – consumer searches using the Responsible Returns online tool (% of consumer searches) 24 FIGURE 32 Sustainability-themed investments by theme (% AUM) 25 FIGURE 33 Impact investing breakdown in New Zealand by investment category ($billion) 26 FIGURE 34 Top impact areas of active impact investors by portfolio allocation 26 FIGURE 35 Performance of responsible investment funds (weighted average performance net of fees over 10 years) 28 FIGURE 36 Key drivers of market growth by survey respondents 29 FIGURE 37 Key deterrents to responsible investment market growth by survey respondents 29 FIGURE 38 Key sources of information used to make responsible investment decisions 30

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Thank you

OUR SPONSORS SURVEY RESPONDENTS

We are extremely grateful to the 22 investment managers that responded to the survey. They are listed in Appendix 4.

NZ SUPER The $46 billion New Zealand Superannuation Fund invests globally to help pre-fund the future cost of universal superannuation in New DATA Zealand. The Fund is managed by an Auckland-based Crown entity, the Guardians of New Zealand Superannuation. Thank you to Morningstar Australasia and S&P Global for their data provided for this research. The Guardians believes that environmental, social and governance (ESG) factors are material to long-term investment returns, and is committed to integrating ESG considerations into all aspects of the Fund’s investment activities.

A founding signatory of the United Nations Principles for Responsible Investment, the Guardians also provides responsible investment services to the Accident Compensation Corporation and the Government Superannuation Fund Authority, and is a member of the New Zealand Corporate Governance Forum.

PIMCO As one of the world’s premier fixed income managers, PIMCO’s mission is to deliver superior investment returns, solutions and service to our clients. For nearly 50 years, we have worked relentlessly to help millions of investors pursue their objectives – regardless of shifting market conditions.

Leadership in ESG investing is essential to deliver on our clients’ financial objectives and to support long-term, sustainable economic growth globally.

As at June 30, 2020 we managed US$1.92 trillion on behalf of our clients. Our professionals work in 17 offices across the globe, united by a single purpose: creating opportunities for investors in every environment.

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About this report

The annual Responsible Investment Benchmark Report New Of the 58 investment managers in the Responsible Investment Zealand is published by the Responsible Investment Association Research Universe, 22 provided survey responses (survey Australasia (RIAA). The report details the size, growth, depth and respondents). Survey respondents were split between asset owners performance of the New Zealand responsible investment market (14%) and investment managers (86%). Asset owners were only over 12 months to 31 December 2019 and compares these results included to the extent that they directly manage investments. For with the broader New Zealand financial market. the balance of investment managers in the Responsible Investment Research Universe (36), KPMG conducted desktop research over It comes at a time when there appears to be an inverse relationship their publicly available information. between responsible investment commitments made by the investment industry on one hand (higher than ever before and growing), and Throughout this report, a distinction is made between: the continuing decline in the real-world global condition on the other. This puts into question whether what we promote and celebrate as • the full investment management market (known as the ‘responsible investment’ remains relevant in today’s context. Managed funds industry as defined per the Reserve Bank of New Zealand and other sources); To respond to this observation, in 2020, RIAA has broadened its • the Responsible Investment Research Universe (the 58 definition of leading practice standards across responsible investment investment managers that have self-declared as practising approaches, detailed in the introductory section of this report. responsible investment); and • the Responsible Investment Managers (the 14 assessed RIAA commissioned KPMG to undertake the data collection and by RIAA as applying a leading approach to their responsible analysis for this 2020 report. KPMG provided a platform for a survey investment processes and disclosures). to be distributed to 58 investment managers in New Zealand known to be applying responsible investing approaches (the Responsible Responsible investment assets under management (AUM) reported Investment Research Universe), compiled the data derived from this herein is for the assets managed by the Responsible Investment primary research, and undertook secondary research on publicly Managers to at least one responsible investment approach. available data. There was an uplift in survey responses in 2019 (31% to 38%). RIAA and KPMG undertook a desktop review of: However only 10 investment managers responding in 2018 also responded in 2019, meaning the commentary provided in this • all New Zealand investment managers that are signatories report on screening themes, investor sentiment etc. includes 12 to the Principles for Responsible Investment (PRI) (23 in total, new investment managers (55% of all survey responses in 2019). up from 19 investment managers the previous year); and Twenty-four percent of investment managers in the research • other investment managers on RIAA’s database known to universe achieved a score of ≥75% and are considered to be practise responsible investment (35 in total). practising leading responsible investment.

FIGURE 1 Research universe and New Zealand's responsible investment market

$296.3 billion managed funds industry (RBNZ and other sources) total professionally managed AUm $278.9 billion* (TAUM) now sits at $296.3 billion according to the Reserve Bank of ( ) Responsible Investment Research Universe n=58 New Zealand (RBNZ) and other sources

Responsible Investment Research Universe comprises the investment managers and their AUM declared to be managed to one or more responsible Survey investment approaches respondents $153.5 billion# (n=22) & Responsible Investment managers / the responsible investment market desktop responsible investment market (n=14) research is the responsible investment AUM of (n=36) 14 Responsible Investment Managers who achieved a score ≥75% on the expanded Responsible Investment Scorecard

* Data for 6 of the 58 (mainly boutique and smaller) investment managers was not publicly available to use in the research universe. # Data for one investment manager (Russell Investments) was not received in the survey period and hence ‘responsible investment AUM’ does not include its AUM.

p5 About this report Responsible Investment | Benchmark Report 2020 New Zealand

The project was led by Nicolette Boele, Mark Spicer, Samantha ABOUT KPMG Bayes, Stephan Gabadou and Elyse Vaughan. The report production was managed by Katie Braid, with editing by Melanie Scaife and KPMG has one of the largest dedicated sustainability teams in design by Loupe Studio. New Zealand that works with investment managers, asset owners and private equity to develop environmental, social and governance (ESG) strategy, performance and reporting.

ABOUT THE RESPONSIBLE INVESTMENT KPMG understands that a clear focus on ESG issues is required ASSOCIATION AUSTRALASIA to support organisations in identifying risks and opportunities that may have significant implications to value creation and RIAA champions responsible investing (responsible investment) portfolio performance. There is a growing opportunity for financial and a sustainable financial system in New Zealand and Australia organisations to manage these risks and opportunities and and is dedicated to ensuring capital is aligned with achieving a transparently communicate their impacts and performance to healthy society, environment and economy. members, investors, customers and regulators. KPMG works with organisations to help them manage these emerging risks and With over 300 members managing more than $9 trillion in assets opportunities in an integrated way to enhance all aspects of their globally, RIAA is the largest and most active network of people and risk management, reporting and communication. organisations engaged in responsible, ethical and impact investing across New Zealand and Australia. Our membership includes super funds, fund managers, banks, consultants, researchers, brokers, impact investors, property managers, trusts, foundations, faith-based groups, financial advisers and individuals.

RIAA achieves its mission through:

• providing a strong voice for responsible investors in the region, including influencing policy and regulation to support long-term responsible investment and sustainable capital markets; • delivering tools for investors and consumers to better understand and navigate towards responsible investment products and advice, including running the world’s first and longest-running fund Certification Program, and the online consumer tool Responsible Returns; • supporting continuous improvement in responsible investment practice among members and the broader industry through education, benchmarking and promotion of best practice and innovation; • acting as a hub for our members, the broader industry and stakeholders to build capacity, knowledge and collective impact; and • being a trusted source of information about responsible investment.

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Executive summary

BACKGROUND RESPONSIBLE INVESTMENT For the first time, New Zealand responsible IN 2019 investment managers now favour ESG RIAA’s annual Responsible Investment integration above negative screening as their Benchmark Report New Zealand details the In 2019, funds managed under responsible primary responsible investment approach size, growth, depth and performance of the investment approaches grew as a proportion for constructing portfolios, but managers New Zealand responsible investment market of total professionally managed investments are increasingly driving capital towards over 12 months to 31 December 2019 and in New Zealand. impact investing allocations with AUM being compares these results with the broader managed to this approach growing more New Zealand financial market. Ever more investment managers are than 13 times on last year’s figures. applying a range of responsible investing To do this, RIAA reviewed the practices of 58 approaches – from ESG integration and This year’s findings suggest that investment investment managers known to be applying negative screening to sustainability-themed managers are catching up with consumer responsible investment to some or all of their and impact investing. interest, with a doubling in frequency of investment practices. These managers control investment manager products now applying approximately $278.9 billion in assets under New data points in 2019 indicate that there screens to manage exposures to fossil fuel management (AUM), which is 94% of the total is still a gap between those that claim to explorers, miners, and producers. Frequency professionally managed AUM (TAUM). Twenty- be practising responsible investing and in screening for alcohol and adult content two of those responses were assessed those that have embedded these practices production and sales has also experienced directly via survey, and supplementary through formal policies and accountability significant gains on last year. desktop analysis was undertaken for the commitments including disclosing full remaining 36 investment managers. portfolio holdings. As we enter this new decade, industry analysts and commentators are broadening For a second year, RIAA canvassed Investment manager practices are also their view on responsible investing, as it asset owners including pension funds maturing with just under a quarter of moves into the mainstream for professionally to the extent that they directly manage managers earning the accolade of practising managed investing in New Zealand. The investments, acknowledging the growing a leading approach to responsible investing focus for the decade becomes the extent to trend for pension funds to bring investment against this year’s expanded Responsible which these efforts result not just in better management in-house. Investment Scorecard. risk-adjusted returns for clients, but also for a more stable and sustainable economy based on assets and enterprises that benefit stakeholders and contribute to societal and environmental solutions.

KEY FINDINGS FIGURE 2 AUM of the New Zealand responsible investment market and growth 1 The responsible investment in AUM of the broader Responsible Investment Research Universe market in New Zealand was worth $153.5 billion in 2019. This represents TAUM $296.3 52% of the estimated $296.3 billion of $300 $17.4 total professionally managed assets under TAUM $261.4 management (TAUM) in New Zealand. $250

$200 $73.4

$150 $153.5 AUM ($bn) Responsible Investment $100 Managers (responsible investment market) Mainstream investment Portion of the research $50 Responsible universe applying a Investment $188.0 $278.9 leading approach to RI Research $0 Universe 2018 2019

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2 Many investors now claim to be responsible, and one quarter can FIGURE 3 Responsible investment scores of the 58 investment managers in demonstrate leading practice. Of the 58 the Responsible Investment Research Universe investment managers in the Responsible Investment Research Universe, 14 (24%) are 20 applying a leading approach to responsible investment (score ≥75% on the expanded Responsible Investment Scorecard, which now also rewards allocation of capital 15 towards real-economy outcomes).

Only those that scored 15/20 (75%) or 10 higher in the Responsible Investment

Scorecard have been included in this Investment

Responsible investment score managers report as responsible investment AUM practicing 5 a leading of $153.5 billion, as stated in Figure 2. approach to RI Investment managers 55% of the Responsible Investment not practicing a leading Research Universe is new in 2019. 0 approach to RI

3 For the first time, ESG integration (48%) replaces negative screening FIGURE 4 Proportion of survey respondent AUM managed using primary and (10%) as the responsible investment secondary responsible investment approaches approach that most influences the final construction of responsible investor Impact investing 1.6% portfolios. The findings show a shift in focus Negative screening by survey respondents away from negative screening (44% in 2018) towards corporate 9.6% engagement and shareholder action (40% in 2020).

Primary approach refers to a responsible 48.5% ESG integration investing approach deployed by an investment manager that most influences Corporate engagement & 40.4% shareholder action construction of their portfolios. Secondary note: No survey respondent selected norms-based approach refers to the approach that is used screening, positive screening or sustainability-themed in conjunction with the primary approach. investing as a primary or secondary strategy.

4 71% of investment managers in the Responsible Investment FIGURE 5 Existence and disclosure of responsible investment policy Research Universe have a responsible investment policy and 60% make them 100% publicly available.

This demonstrates a growing commitment 80% to systematically implementing responsible 29% investing through responsible investment 11% policies. 60% Does not have responsible investment policy/it is 40% not evident Responsible investment policy is not publicly 20% disclosed Responsible investment policy is 60% publicly 0% disclosed

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5 62% of investment managers in the Responsible Investment FIGURE 6 Proportion of AUM covered by an explicit and systematic approach Research Universe have at least one to ESG integration asset class (or 50% AUM) covered by an explicit and systematic approach 100% to ESG integration, while 48% have more than three asset classes (or 85% of their 80% AUM) covered. 38% 60% 10% 4% 40%

<50% of AUM 20% ≥50% of AUM ≥75% of AUM 48% 0% ≥85% of AUM

FIGURE 7 Reporting on corporate engagement activities and outcomes 6 Investment managers in the Responsible Investment FIGURE 7 Reporting on corporate engagement activities and outcomes Research Universe are starting to demonstrate greater transparency 100% through their stewardship activities, with 32% reporting on activities and 80% 24% demonstrating leading practice by reporting on activities and outcomes. 44% 60% Investment manager does not report 40% Investment manager 32% reports on activities only 20% Investment manager reports 24% on activities 0% AND outcomes

7 The issues most frequently screened are weapons and FIGURE 8 Frequency of issues being screened (by number of survey respondents tobacco with both themes screened that negatively screen) to some extent by 100% of survey respondents who use negative screening. Tobacco production 100 97 The frequency of negative screening has All weapons (including firearms and 100 generally increased across all exclusionary controversial weapons) 98 themes, except genetic engineering. Fossil fuel exploration, mining, 80 extraction and production 45 Pornography production and distribution 70 Screening for exposure to fossil fuel 47 exploration, mining, extraction and Nuclear power (including uranium mining) 55 production has almost doubled over the 45 period (from 45% to 80% of all survey Alcohol production and sales 55 respondents who apply exclusionary 33 screens). Fossil fuel power generation 30 Meat and meat products 25

Human rights abuses 20 16 Animal cruelty (e.g. cosmetic testing, 20 live exports) 2 Environmental degradation (including air, land 20 and water) 10 Labour rights violations 15

Genetic engineering 10 10 Pesticides 5

Other 20 29

2019 2018 0% 20% 40% 60% 80% 100%

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8 Exclusionary screening for fossil fuel exploration, mining, FIGURE 9 Frequency of exclusionary screening for fossil fuel exploration, extraction and production has increased mining, extraction and production (by survey respondents that negatively screen) significantly in popularity since 2018. The frequency in which investment 100 managers screen to some extent for fossil fuel exploration, mining, extraction and production has increased from 45% in 2018 80 to 80% of survey respondents in 2019.

60

Managers screening for companies that 40% derive >10% revenue 40

Managers screening for companies that 20 25% derive ≤10% revenue

Managers screening for 45% 80% 15% both revenue thresholds 0 2018 2019

9 Exclusionary screening of fossil fuels is beginning to catch up FIGURE 10 Exclusionary themes – % of consumer searches on Responsible Returns to consumer interest. In 2018, only vs survey respondent exclusions (weighted by % AUM) 3% of (negatively screened) responsible investment AUM was screened for some 40% level of exposure to fossil fuels; this figure % Consumer searches was 18% in 2019 - a five-fold increase. Weighted % AUM 30% For consumers using RIAA’s Responsible 1 Returns online tool, the most important 20% exclusionary screens are fossil fuels (36%), human rights abuses (17%) and armaments (12%). 10%

36 18 17 2 10 4 7 2 4 7 5 8 3 9 10 6 14 12 18 0% abuses Alcohol Tobacco violations Gambling Fossil fuels Armaments degradation Pornography Labour rights Human rights Animal cruelty Environmental Nuclear power

10 For those investment managers using a sustainability-themed FIGURE 11 Sustainability-themed investments by theme (% AUM) approach, social impact is the most popular theme, followed by climate change and energy efficiency. In 2018, Social impact 17% the top three themes were agriculture, Climate change 13% climate change and water management. Energy efficiency 12%

Water management 12%

Agriculture 7%

Green buildings 6%

Renewable energy 6%

Waste management 6%

Healthcare 6%

Arts, culture and sports 3% note: ‘Other’ includes sustainable Other 12% fashion and textiles/fashion 0% 5% 10% 15% 20% technology

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11 Impact investing AUM has grown over 13 times from $358 million FIGURE 12 Impact investing breakdown in New Zealand by investment category ($billion) in 2018 to $4.74 billion in 2019 for assets managed by financial intuitions included in the Responsible Investment Research Universe. Green, Social and Sustainability (GSS) Bonds account for 88% of products using this approach.

Green, Social & Total AUM: Other - including private equity Sustainability (GSS) $4.17 $4.74 $0.57 Bonds and venture capital, private debt

12 The three most cited drivers for growth in responsible investment FIGURE 13 Key drivers of market growth by survey respondents funds managed by survey respondents are alignment of investments with mission or values (44%); demand from retail investors Align to mission 44% 29% (38%); and the expectation that responsible Demand from retail investors 38% investments out-perform in the long term or 24% better mitigate risks (26%). Expected long term 26% performance or risk mitigation 29% ESG factors impact on 26% performance 51%

Fiduciary duty 20% 13% Demand from institutional 18% investors 27%

ESG risk management 11% 11%

Social benefit 11% 11% International initiatives 3%

3% Industry competition 7% Regulatory requirements 2% (FMA or TCFD) 2019 0% 20% 40% 60% 2018

13 For the first time, financial performance data for New FIGURE 14 Performance of responsible investment funds (weighted average Zealand's responsible investment funds performance net of fees over 10 years) have been reported. Even though it draws from a low sample size, it can be seen that responsible investment multi-sector new Zealand share funds 1 year 3 years 5 years 10 years growth funds outperformed mainstream Responsible Investment Fund Average (between 1 and 11% 7% 9% 4% indices over some time horizons. 12 funds depending on time period)

International share funds 1 year 3 years 5 years 10 years Responsible Investment Fund Average (between 6 and 22% 14% 12% 9% 12 funds depending on time period)

multi-sector growth funds 1 year 3 years 5 years 10 years Responsible Investment Fund Average (between 9 and 17% 9 % 10% 7% 20 funds depending on time period) Morningstar Multisector KiwiSaver Fund Average 16% 9% 8% 8%

Outperformed by the average RI fund Underperformed by the average RI fund

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Introduction

ABOUT RESPONSIBLE human resources globally. The latest Global on Climate-Related Financial Disclosures INVESTMENT Risks Report by the World Economic Forum (TCFD) – created in 2017 to help financial points to ‘an unsettled world’ where climate sector entities including banks, insurers, Responsible investing, also known as threats and accelerated biodiversity loss investment entities and asset managers ethical or sustainable investing, is a holistic are among the top global risks in terms of identify exposures to climate risk in their approach to investing, where social, likelihood and impact.4 The last five years portfolios – is supported by more than 480 environmental, corporate governance are on track to be the warmest on record, investors representing US$42 trillion in (ESG) and ethical themes are considered natural disasters are becoming more intense assets. From 2020, reporting in line with alongside financial performance when and more frequent, and last year witnessed TCFD metrics is required for all Principles for making an investment. It considers a broad unprecedented extreme weather throughout Responsible Investment (PRI) signatories.7 range of risks and value drivers as part of the world. The current rate of extinction is the investment decision-making process in tens to hundreds of times higher than the In June 2020, the Central Banks and addition to reported financial risk. average over the past 10 million years – and Supervisors’ Network for Greening the it is accelerating. Financial System (NGFS), of which Responsible investment includes the Reserve Bank of New Zealand is a systematically considering ESG factors Financial markets are responding to member, released its guide for climate throughout the process of researching, social, environmental and climate change scenarios.8 The NGFS Climate Scenarios analysing, selecting and monitoring issues, and this response is gaining speed. were developed to provide a common investments, acknowledging that these Countries including China, Canada, the starting point for analysing climate risks to factors can be critical in understanding the United Kingdom and Hong Kong, as well as the economy and financial system. While full value of an investment. the European Union, are taking measures developed primarily for use by central banks to ensure that their economies and financial and supervisors, they may also be useful Responsible investing is also about markets are resilient, inclusive, stable and to the broader financial, academic and earnestly executing stewardship duties prosperous into this century. This is being corporate communities. and working to improve the performance of done through the development of sustainable companies comprising the economy and the finance roadmaps and action plans. The Global Sustainable Investment stability and sustainability of the financial Alliance (GSIA) released its biennial Global system more broadly. In March 2018, the European Commission Sustainable Investment Review 2018, presented its 10-point action plan to enable showing that global responsible investment In 2020, responsible investing is also about sustainable growth. March 2020 saw the assets reached US$30.7 trillion at the start the intentionality of the capital invested – publication of the Technical Expert Group of 2018, a 34% increase from 2016.9 meaning where money is targeted – to avoid on Sustainable Finance’s final report and harm, benefit stakeholders and contribute to subsequently in June 2020, European The COVID-19 pandemic, far from societal and planetary solutions. politicians provided final legal confirmation dampening momentum on sustainable for a taxonomy for sustainable finance finance, has reinforced the sustainability activities.5 This report defines which imperative and prompted campaigns activities can be legitimately marketed to ‘build back better’, including through INTERNATIONAL RESPONSIBLE as green or sustainable to incentivise applying climate and sustainability criteria INVESTMENT CONTEXT green and climate-friendly investments. to government support measures. In economic terms, the taxonomy for According to UN Environment Programme’s sustainable activities provides a model Proposals are afloat to design and create Sustainable Finance Progress Report2 for others to emulate, and a tool for guidelines and mechanisms for the produced for the G20 Sustainable Finance regulators, investors and product issuers Task Force for Nature-related Financial Study Group, ‘there is growing evidence that to provide greater harmonisation, integrity Disclosures in early 2021, and this will demonstrates the sustainable finance policy and transparency around what constitutes be modelled on the TCFD approach. The over the last year has been characterized a ‘sustainable’ economic activity. It is framework will provide companies in all by strong growth, increased scope, and anticipated that a similar taxonomy will be sectors with leading-practice advice for greater maturity’. Globally, there are now developed and adopted in New Zealand measuring the financial risks they are 730 hard and soft law provisions in financial through the Sustainable Finance Forum.6 facing as a result of the over-exploitation regulations that embed such sustainability Aligning taxonomies across key trading of natural resources (i.e. deforestation, considerations across some 500 policy markets is expected to improve investor overfishing, poor soil management) and instruments, with 97% of these laws having confidence and reduce uncertainty and risk, as a result of extreme weather events.10 been enacted since 2000.3 subsequently lowering the cost of capital The COVID-19 pandemic is clearly a big and more efficiently allocating resources. driver or accelerating force for this. Despite momentum to green up finance, environmental and civil society groups, Momentum is growing to embed including UN agencies, consistently report sustainability and climate risks into financial an ever-diminishing quality of natural and sector regulation and policies. The Taskforce

p12 Introduction Responsible Investment | Benchmark Report 2020 New Zealand

NEW ZEALAND RESPONSIBLE The Interim Report sets out proposed financial entities; aligning public finance INVESTMENT CONTEXT pathways for achieving a sustainable and investment with New Zealand’s financial system that are grouped into climate- and sustainability-related goals Drawing on lessons from similar three themes: changing mindsets; aligning and intergenerational wellbeing agenda. international initiatives, the industry- the financial system (‘greening finance’); led Sustainable Finance Forum (SFF) and mobilising capital (‘financing green’). 2) Aligning the financial system: – an initiative of The Aotearoa Circle11 Specific proposed measures include: − integrating sustainability into all levels – is developing recommendations for a of education within society and the sustainable, resilient and inclusive financial 1) Changing mindsets: financial system, including professional system in New Zealand by 2030. − adopting long-term, purpose-based qualifications and training and licensing business models; incorporating requirements as well as consumer In October 2019, the SFF presented its sustainability outcomes into executive education campaigns and resources; Interim Report.12 This sets out the SFF’s performance metrics and incentives and − requiring climate change stress testing by vision for a sustainable financial system, industry codes of conduct; developing banks and insurers; applying sustainability anchored in Te Ao Māori. It proposes a a Stewardship Code for investment criteria to capital adequacy requirements holistic and intergenerational value-creation managers and service providers; for banks; monitoring progress towards model that considers financial and non- − making consideration and management of risk-based pricing in the insurance sector; financial outcomes for multiple stakeholders, ESG factors explicitly part of the fiduciary applying minimum ESG requirements for a system ‘where business and finance are duties of directors, trustees and financial KiwiSaver default providers; understood to operate within natural, human advisers; considering the future evolution − promoting measurement and pricing and social constraints and dependencies. of legal duties, noting international work of social and environmental risks and The economy serves the needs and long- on ‘sustainability impact’ duties;13 impacts, and integration into financial term wellbeing of society, while protecting − developing a whole-of-government accounting plus asset valuation, credit and enhancing natural and human capital. strategy on sustainable finance; rating and capital adequacy models; Financial wealth creation is not the integrating sustainability into the promoting open/shared data models; overriding goal of business and finance, but mandates of financial market policy introducing mandatory disclosure an outcome of, and wholly contingent upon, makers and regulators, as well as requirements for companies, financial the creation of whole system prosperity’. Crown or government-backed funds and institutions and product providers.

FIGURE 15 RIAA’s responsible investment spectrum

TRADITIONAL RESPONSIBLE & ETHICAL INVESTMENT PHILANTHROPY INVESTMENT

ESG Exclusionary/ norms-based Corporate positive / Sustainability- Impact

AppRoACh Integration negative screening engagement and best-in-class themed investing screening shareholder action screening investing

Providing Explicitly Excluding Screening of Executing Intentionally tilting Specifically Investing to achieve Using grants to limited or no including ESG certain sectors, companies and shareholder rights a proportion targeting positive social and target positive regard for risks and companies, issuers that do not and fulfilling of a portfolio investment environmental social and environmental, opportunities into countries or meet minimum fiduciary duties towards solutions; themes e.g. impacts - requires environmental social, financial analysis issuers based standards to signal desired or targeting sustainable measuring outcomes with governance and investment on activities of business corporate behaviours companies or agriculture, green and reporting no direct and ethical decisions based considered not practice based - includes corporate industries assessed property, 'low against these, financial return factors in on a systematic investable due on international engagement and to have better carbon', Paris or demonstrating

mEthod investment process and principally to norms and filing or co-filing ESG performance SDG-aligned the intentionality decision making appropriate unacceptable conventions; shareholder relative to of investor and research downside risk can include proposals, and proxy benchmarks or underlying asset/ sources or values mis- screening for voting guided by peers investee and alignment involvement in comprehensive ESG (ideally) the investor controversies guidelines contribution

Avoids harm

benefi ts stakeholders IntEntIon Contributes to solutions

delivers competitive fi nancial returns

manages ESG risks

Contributes to better system stability and economic sustainability

pursues opportunities and creates real - economy outcomes FEAtURES And oUtComES FEAtURES

* This spectrum has been adapted from frameworks developed by Bridges Fund Management, Sonen Capital and the Impact Management Project

p13 Introduction Responsible Investment | Benchmark Report 2020 New Zealand

3) Mobilising capital: expressly take into account environmental, previous page) as detailed by the GSIA − defining and setting minimum standards social, and/or governance considerations. and applied in the Global Sustainable and labelling requirements for ‘sustainable’ The purpose of the submissions is to help Investment Review 2018, which maps the finance approaches, products and develop guidance for issuers.15 growth and size of the global responsible services; investment market.18 − removing barriers to and incentivising In October 2019, Climate Change Minister positive impact investments, emphasising James Shaw released a consultation Having arrived in 2020, we bear witness to the critical role of government as a document proposing mandatory climate- an ever-increasing expansion of responsible facilitator and partner; related financial risk disclosure by listed investing across even the most established − ensuring access to financial advice, issuers, banks, general insurers, asset areas of finance – this includes the products and services for under-served owners and asset managers, consistent with world’s largest asset manager, BlackRock, segments of the community and consumer the TCFD framework. The Government is announcing its divestment from directly held protection against unethical behaviour; considering feedback on the consultation.16 investments in thermal coal companies.19 − developing a credible and common language on ‘sustainable’ economic Finance in New Zealand is making headway The drivers underpinning the strong investor activities and ‘sustainable finance’ in the transition to a low-emissions economy uptake as well as the surge in consumer (investment, lending, insurance) so as to adapt to the effects of climate interest are based on several factors. For approaches and products to address change. New Zealand Green Investment investment managers, the key drivers are to: ‘green washing’ concerns and accelerate Finance Ltd (NZGIF) was established with the flow of capital into genuine social/ the purpose of accelerating investment to 1. protect or strengthen brand and environmental purpose projects and lower greenhouse gas emissions activities reputation, meaning favourable assets. in New Zealand and has been set up with treatment with stakeholders such initial capital of $100 million. NZGIF recently as clients, regulators, employees; At the time of writing, the SFF was announced its first investment, a $15-million 2. deliver better risk-adjusted returns for developing and consulting on a follow-up credit facility provided to CentrePort to fund clients and outperform the benchmark Roadmap for Action report, to be published low-carbon projects at the Wellington port and/or peers; in late 2020. This will provide practical as part of a wider regeneration program, 3. fulfil fiduciary obligations and contribute recommendations on how to shift New such as the introduction of electric vehicles, to better overall system stability and Zealand to a sustainable financial system. on-site renewable energy generation and performance; and energy-efficient upgrades.17 4. drive real-economy outcomes and use New Zealand is considered a leader on finance to make a difference in the world. climate action with its aggressive policies and ambitious climate targets.14 As such, RESPONSIBLE INVESTMENT KEY These four drivers form the basis of the green loans market is seen as an area DRIVERS AND APPROACHES the expanded Responsible Investment of promising growth in New Zealand. New Scorecard, noting that these – as well as an Zealand’s Financial Markets Authority To enable comparison of New Zealand’s individual investor’s investment beliefs and (FMA) launched a consultation process responsible investment market with those theses, perspective on risks and opportunities in September 2019 to garner issuer and of other regions, this report has been and dominant client groups – will shape the investor input on green bonds and other prepared in line with the seven approaches extent to which each of the seven responsible responsible investment products that for responsible investment (Figure 15, investment approaches is applied.

FIGURE 16 How the four key drivers for responsible investment align with the seven responsible investment approaches

Stronger Walking the talk brand value

Negative/ better risk-adjusted Managing investment ESG Norms-based exclusionary returns risks for clients integration screening screening

better system stability Building better beta for Corporate engagement and sustainability clients and the economy and shareholder action

Positive/best- Sustainability- Real-economy Allocating capital for people, Impact in-class themed outcomes animals and the planet investing screening investing

KEY DRIVERS ACTIONS LIKELY RESPONSIBLE INVESTMENT APPROACH DEPLOYED

p14 Introduction Responsible Investment | Benchmark Report 2020 New Zealand

Why an expanded scorecard on leading practice in responsible investment?

Over the last decade, the number and coverage of AUM by signatories to This inverse relationship between responsible investment commitments the United Nations-backed Principles for Responsible Investment (PRI) made by the investment industry on one hand – higher than ever before have grown from 700 to 2,760 and from US$30 trillion to over US$115 and growing – and the continuing decline in the real-world condition on the trillion, respectively. other, puts into question whether what we have promoted and celebrated as ‘responsible investment’ remains relevant in today’s context. Yet, Earth’s natural systems and its resident species face significant and global challenges, from habitat and diversity loss, climate change This dichotomy underpins RIAA’s efforts to continue to drive leading and acidification of oceans to desertification of farmlands, decreasing practice standards forward across all responsible investment approaches, river health and food insecurity, as well as peace and security issues as detailed in this section of the report. Leading practice now includes facing a global human population of 7.8 billion living in an increasingly activity in all seven responsible investment approaches and for each of the uncertain world. four drivers underpinning investor commitment to responsible investing (see Figure 16, previous page).

For the purposes of this year’s report, if at all – hence the expansion of the The expanded scorecard continues to RIAA has overlaid these four key drivers to Responsible Investment Scorecard reward strong behaviours to integrate ESG undertake responsible investment with the parameters making it more challenging factors but now increasingly considers those GSIA’s seven approaches to responsible to achieve a high score in 2019. Readers committed to building a more sustainable investment (see Figure 16, previous page). will note that between 2018 and 2019, financial services sector and allocating Although not perfectly aligned (i.e. norms- the number of investment managers capital towards solutions for our society based screening can also be applied to practising responsible investing increased and environment. See Appendix 3 for more deliver real-economy outcomes), RIAA from 46 to 58 – a jump of 26% – with information on the expanded Responsible aims to embed the responsible investment RIAA identifying less than a quarter Investment Scorecard used to analyse activities of our region’s investment of these implementing responsible whether leading responsible investing is managers into a story of intent. When investment to a ‘leading’ standard. being practised by investment managers. assessed in the context of their intent, we • The new ‘business as usual’ practices can better make sense of leading practice of investment managers advanced in and whether this results in addressing responsible investment include the one or more of the objectives pursued by execution of a wide range of responsible investment managers in their adoption of investment approaches and a transition responsible investing practices. from two (returns and risk) to three axes of investing to include consideration of impact. • Findings from consumer research DEFINING LEADING RESPONSIBLE in New Zealand demonstrate that INVESTMENT IN THIS DECADE consumers expect their responsible investments to avoid harm and ideally For the purposes of defining the size help to solve our planet’s challenges.20 of the responsible investment market • The inverse relationship between an in New Zealand, RIAA includes only increasing responsible investment those responsibly managed assets commitment and the continuing decline managed by investment managers that in the global condition confirms that are practising a leading approach to activities to date have been insufficient responsible investment. to create significant change in outcomes (see the break-out box Why an expanded From 2014 to 2018, RIAA assessed scorecard on leading practice in investment managers against a scorecard responsible investment?). of leading practice ESG. In 2019, RIAA • We face urgent and pressing societal has expanded its scoring methodology and environmental issues that need to more fully account for the evolution in to be addressed to continue to support responsible investment practices across the ongoing function of the entire the spectrum, from negative screening economic system. and ESG integration to corporate • RIAA updated its Constitution and engagement and investing with impact. revised its mission at the end of 2018.21 This has informed the organisation’s RIAA has changed its assessment method focus on assessing how the growth in response to several developments: of responsible investment in New Zealand and Australia demonstrably • Increasingly, investment managers contributes to future resilience, prosperity publicise a commitment to responsible and wellbeing for New Zealanders investment but fall short of showing and Australians to better align with how this is implemented with effect, international measurement approaches.

p15 Responsible Investment | Benchmark Report 2020 New Zealand

Responsible investment leaders and market share

RESPONSIBLE INVESTMENT LEADERS AT A GLANCE: • Of the 58 investment managers assessed, 14 (24%) are applying a leading approach to The Responsible Investment Research responsible investment (score≥75% on the expanded Responsible Investment Scorecard, Universe was rated against all four drivers for which now also rewards allocation of capital towards real-economy outcomes). undertaking responsible investing: ‘walking- • The 14 investment managers in this group varied in size, from some of the largest in the-talk’, ‘managing risk’, ‘building better beta’ New Zealand through to some of the smaller boutique managers, and across asset classes, and ‘allocating capital towards solutions’ (see from equities to property and infrastructure. figure 16). Only those demonstrating leading practice were included in determining the size of the New Zealand responsible investment market. Accordingly, the findings in this report are conservative in nature. FIGURE 17 Responsible investment scores of the 58 investment managers in the Responsible Investment Research Universe The cut-off score for leading practice has shifted from 80% to 75% this year in 20 acknowledgment of the fact that it has become more difficult to achieve a high score on RIAA’s expanded Responsible 15 Investment Scorecard. This is an important step change that enables RIAA to start 10 rewarding new and deeper responsible Investment managers investing behaviours, such as corporate practicing engagement outcomes and impact reporting, a leading 5 approach to RI and provides RIAA with broader scope Investment managers in assessing the growing competition in not practicing a leading responsible investment leadership practices 0 approach to RI for the coming decade.

The results of RIAA’s desktop research as well as from those who completed FIGURE 18 Leading investment managers and their responsible investment scores the survey are summarised in Figure 17, and associated responsible investment AUM showing that of the 58 investment managers in the Responsible Investment Research 20 60 Universe, 14 (24%) are applying a leading 18 50 approach to responsible investment in their investment approaches. 16 40 14 30 Leading practice investment managers Responsible 12 20 investment demonstrate responsible investing in their score

10 10 Responsible investment process via: investment 8 0 AUM ($bn) • their policies; • integration of ESG factors in new Zealand investment managers valuation and asset allocation; * Investment managers for • their clearly defined approaches AMP Capital Investors (NZ) Limited New Zealand Superannuation Fund whom data was not received within to stewardship; Bay Trust Northern Trust Asset Management the survey period; Booster Investment Management Pathfinder Asset Management their respective • their active ownership (including responsible corporate engagement and voting); Devon Funds Management PIMCO Pty Ltd NZ investment AUM Kiwi Wealth Investments (Kiwi Wealth) Russell Investments* has not been applied screens to reduce downside included in the • Mercer New Zealand Simplicity total responsible investment AUM risk and tilt towards solutions; and New Forests Southern Pastures Management Limited of $154 billion. • provide meaningful disclosures about these aspects of their investment approach. smaller boutique managers, and across the responsible investment scores achieved The 14 investment managers in this group asset classes, from equities to property together with the AUM represented. In New varied in size from some of the largest and infrastructure. Figure 18 lists these Zealand, both large and small investment in New Zealand through to some of the leading investment managers and outlines managers can demonstrate leading practice.

p16 Introduction responsible investment leaders and market share Responsible Investment | Benchmark Report 2020 New Zealand

Evidencing real-economy outcomes

Responsible investors have taken moves to better evidence their their reporting to PRI. Thirty-one percent of signatories (650) now mention responsible investment practices by allocating capital towards solutions the SDGs in 2020, up from 24% last year and 16% in 2018. The PRI says for our society and the environment. One way of demonstrating this is the accounting for the 2030 goals is a critical part of investors’ fiduciary duty.22 adoption of alignment reporting, whereby investment managers report on In August 2019, RIAA launched the Impact Management & Measurement the outcomes of their investments as well as activities for engagement. Community of Practice (IMMCOP) to facilitate the sharing of leading In June 2020, the PRI published guidance on how investors can ‘shape practice knowledge and resources for impact management and the real-economy outcomes’ of their investments by using the Sustainable measurement. IMMCOP helps build RIAA members’ understanding and Development Goals (SDGs), as it prepares to introduce mandatory capabilities in this evolving area of responsible investment, as well as outcomes-based reporting for the first time, from 2021. The PRI has seen connect with local and global developments.23 a ‘spike’ in the number of its signatories that have mentioned the SDGs in

RESPONSIBLE INVESTMENT MARKET SHARE FIGURE 19 AUM of the New Zealand responsible investment market and growth in AUM of the broader Responsible Investment Research Universe In New Zealand, the responsible investment market comprises $153.5 billion of AUM TAUM $296.3 which is managed using a leading approach $300 $17.4 to responsible investment. Figure 19 shows TAUM $261.4 that leading investment managers in the $250 survey are applying responsible investment approaches across 52% of the TAUM in the $200 $73.4 New Zealand investment market. $150 $153.5 AUM ($bn) This year’s report is unable to directly Responsible Investment compare the responsible investment AUM $100 Managers (responsible investment market) Mainstream investment to 2018 data as the methodology has been Portion of the research $50 Responsible revised, whereby only the AUM for those universe applying a Investment $188.0 $278.9 leading approach to RI Research investment managers that score 15/20 $0 Universe (75%) or higher are included in this report 2018 2019 as responsible investment AUM (see the Responsible investment leaders section of the report for more details on this change). FIGURE 20 Proportion of survey respondent AUM managed using primary and However, for the purpose of making a secondary responsible investment approaches comparison on the growth in responsible investing based on previous years’ Impact investing 1.6% methodologies, the data shows that the Negative screening AUM of the Responsible Investment Research Universe has grown by 48% from $188 billion 9.6% in 2018 to $279 billion in 2019 ($153.5 billion + $125.4 billion). The Responsible Investment Research Universe of self-declared responsible investors has also grown from 46 48.5% ESG integration investment managers in 2018 to 58 in 2019. Corporate engagement & 40.4% shareholder action note: No survey respondent This year and going forward, RIAA will apply selected norms-based screening, positive screening a stricter definition of leading responsible or sustainability-themed investing as a primary or investment to cover the AUM of leading secondary strategy. investment managers on the responsible investment leader board, reported as $153.5 billion in 2019.

As in previous years, in 2019 we asked place on certain responsible investment under responsible investment approaches. respondents to indicate the approaches that approaches. They do not indicate the only This demonstrates that when primary most influence construction of their portfolios approaches that are used as part of the and secondary responsible investment – their primary and secondary responsible survey respondents’ tools. approaches are taken into account, the investment approaches. Primary and dominant responsible investment approach secondary approaches are referred to Figure 20 presents a snapshot of both is ESG integration. This is a change from last throughout the report to demonstrate the primary and secondary approaches used by year, when negative screening dominated, importance that investment managers survey respondents over all of AUM managed followed by ESG integration.

p17 Responsible Investment | Benchmark Report 2020 New Zealand

Responsible investment approaches and practices

RESPONSIBLE INVESTMENT POLICY KEY DRIVER: Stronger brand value RESPONSIBLE INVESTMENT PRACTICES: Investment managers are demonstrating a commitment to systematically implementing • 60% of the Responsible Investment Research Universe (35 out of 58 investment managers) responsible investing through the have a commitment to responsible investment as displayed clearly on their website. development and disclosure of responsible • 43% of the Responsible Investment Research Universe (25 out of 58 investment managers) investment policies. Sixty percent of the disclose their full fund holdings, 22% disclose only some holdings and 35% do not make Responsible Investment Research Universe any public disclosure of holdings (although some of these may disclose holdings directly make their responsible investment policy to their clients only). publicly available, while 11% state they have • In future years, the movement in leading responsible investment manager commitments a responsible investment policy but choose and disclosures will be tracked and reported. not to disclose this document publicly – leaving 29% of self-declared responsible investment managers without a responsible A policy is also likely to include a range of periodically to the FMA, just over 43% of investment policy (see Figure 21). commitments for better accountability and the 58 investment managers included in transparency such as through disclosures the Responsible Investment Research The purpose of a responsible investment related to underlying holdings, outcomes Universe disclose their full fund holdings on policy is to articulate the investment from corporate engagement and shareholder their own websites and 22% disclose some manager’s investment beliefs with respect to: activism activities, and real-economy holdings (see Figure 22). However, 35% of • managing extra-financial factors in outcomes resulting from sustainability- investment managers in the Responsible the valuation of assets and allocation themed and impact investing activities. Investment Research Universe do not make of capital; any public disclosure of holdings, although some of these may disclose holdings • exercising its fiduciary duty as stewards HOLDINGS TRANSPARENCY of capital (including voting over all directly to their clients only. relevant holdings and disclosing these Holdings transparency is a new data point publicly); for 2020. RIAA considers transparency a According to Morningstar, New Zealand • its role in working with other members cornerstone of accountability and essential has introduced a number of new disclosure of the investment community in delivering for an efficient and effective market-based initiatives since 2013, which now sees it a more stable financial and economic system. placed equal with many countries in this 24 system; and study of 25 countries. Portfolio holdings • avoiding harm, benefiting stakeholders Investment managers in the Responsible disclosure coverage has increased markedly and contributing solutions through its Investment Research Universe are since 2015 as has the number of funds engagement with investee management demonstrating a commitment to providing holdings on a monthly basis. The and allocation of capital towards transparency through their disclosure of naming of portfolio managers and their sustainable assets and enterprises. fund holdings. Despite the requirement tenures in investment managers’ disclosures for retail issuers to report holdings and reporting is another positive step.

FIGURE 21 Existence and disclosure of responsible FIGURE 22 The level of disclosure of investment holdings investment policy by the Responsible Investment Research Universe

100 100

80 80 29% 35% 11% 60 60 Does not have responsible 22% investment policy/ 40 it is not evident 40 Responsible investment policy is not publicly Holdings are 20 disclosed 20 not disclosed Responsible Some holdings investment are disclosed 60% policy is publicly 43% Holdings are 0 disclosed 0 fully disclosed

p18 Responsible investment approaches and practices Responsible Investment | Benchmark Report 2020 New Zealand

ESG INTEGRATION KEY DRIVER: better risk-adjusted returns DEFINITION: ESG integration continues to dominate Environmental, social and governance (ESG) integration involves the explicit inclusion by in New Zealand, Australia, the United investment managers of ESG risks and opportunities into financial analysis and investment 25 States, and in asset-weighted terms. ESG decisions based on a systematic process and appropriate research sources. This approach integration is the second-largest responsible rests on the belief that these factors are a core driver of investment value and risk. investment approach globally (US$17.5 trillion AUM) after negative/exclusionary AT A GLANCE: screening (US$19.8 trillion AUM) and has • ESG integration is the most popular responsible investment approach employed by survey experienced the greatest growth in dollar respondents. terms over the past two years.26 • In New Zealand, this approach represents 49% of AUM when taking both primary and secondary approaches into account. It is predominantly the primary approach and is often ESG integration that is well-defined and paired with corporate engagement and shareholder action as the secondary approach. systematically embedded in investment • 92% of responsible investment AUM is managed with ESG integration as a primary processes and valuation practices can be approach, representing $140.78 billion. an effective investment approach. Sixty- • 64% of the Responsible Investment Research Universe deploys ESG integration through four percent of investment managers in the factors such as selection of assets, construction of portfolios, risk assessment and selection Responsible Investment Research Universe of managers. have ESG considerations integrated into • 62% of the Responsible Investment Research Universe has at least one asset class (or their investment approach, including but not at least 50% AUM) covered by an explicit and systematic approach to ESG integration. limited to: • 52% of the Responsible Investment Research Universe demonstrates the explicit and • selection, retention and realisation systematic inclusion of ESG factors in investment analysis and decisions (i.e. fundamental of assets; analysis, adjusting financial forecasts, monitoring portfolio weighting and portfolio • construction of portfolios; constituents for changes in ESG exposure). • risk assessment and management; and • selection, assessment and management of managers (if external managers are used). FIGURE 23 Proportion of AUM covered by an explicit and systematic approach to ESG integration Sixty-two percent of investment managers in the Responsible Investment Research 100 Universe have at least one asset class (or >50% AUM) covered by an explicit and systematic approach to ESG integration, 80 while 48% have more than three asset classes (or 85% of their AUM) covered by 38% 60 an explicit and systematic approach to ESG 10% integration (see Figure 23). 4% 40 Fifty-two percent of investment managers within the Responsible Investment Research Universe demonstrate the explicit and 20 <50% of AUM ≥50% of AUM systematic inclusion of at least one of ≥75% of AUM 48% the following four ESG practices in their 0 ≥85% of AUM investment analysis and decisions:

• ESG analysis is integrated into fundamental analysis; • ESG analysis is used to adjust forecasted financials and future cash-flow estimates; • ESG analysis is integrated in portfolio weighting decisions; • companies, sectors, countries and currency are monitored for changes in ESG exposure and for breaches in risk limits.

Only 7% of the Responsible Investment Research Universe can demonstrate that all four key ESG factors are incorporated.

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NEGATIVE/EXCLUSIONARY KEY DRIVER: better risk-adjusted returns SCREENING DEFINITION: Negative/exclusionary screening of investments is the systematic exclusion from a fund Leading practice for investment managers or portfolio of certain sectors, companies, countries or other issuers based on activities using an exclusionary approach involves considered not investable. Exclusion criteria (based on norms and values) can refer, for having a transparent and systematic process example, to product categories (e.g. weapons, tobacco), company practices (e.g. animal of applying the screen. Where revenue testing, violation of human rights, corruption) or controversies. thresholds are included, it is leading practice to disclose them. Within the Responsible AT A GLANCE: Investment Research Universe for this report: • Negative screening is the third-most popular responsible investment approach. • 64% of investment managers have a • 64% of investment managers in the Responsible Investment Research Universe transparent and systematic process of have a transparent and systematic process of applying exclusionary screens. applying exclusionary screening; and • 31% of the Responsible Investment Research Universe discloses revenue/activity • 31% of investment managers disclose thresholds applied to exclusionary screens. revenue and activity thresholds applied • The issues most frequently screened are weapons and tobacco (100% of survey to screens. respondents using this approach); followed by fossil fuel exploration, mining, extraction and production to some extent (80%). • Screening for animal cruelty exploded over the period (from 2% to 20%); screening Figure 24 shows the most frequently for environmental degradation doubled to 20% in 2019. screened issues by survey respondents • Screening for exposures to fossil fuels experienced a five-fold increase between 2018 across their products that are covered and 2019 (from 3% to 18% of responsible investment AUM). by exclusionary screening. Given that a negative screening approach does not cover an entire portfolio of products, this represents a fraction of their entire portfolio of AUM. FIGURE 24 Frequency of themes being screened (by number of survey respondents that negatively screen) Traditional categories such as weapons, tobacco and pornography continue to be 100 the most frequently screened categories Tobacco production 97 (see Figure 24). However, it also shows 100 increasing awareness towards other All weapons (including firearms and controversial weapons) 98 issues being screened such as animal cruelty, environmental degradation, human Fossil fuel exploration, mining, 80 extraction and production 45 rights abuses and pesticides. Frequency of screening for animal cruelty has Pornography production 70 and distribution 47 increased by 18 percentage points, while environmental degradation has increased Nuclear power (including 55 uranium mining) 45 by 10 percentage points from 2018. Alcohol production and sales 55 33 RIAA has expanded the survey questions in 2019 to enable a more detailed view of Fossil fuel power generation 30 the kinds of exclusions being applied by Meat and meat products 25 survey respondents. This has included the Human rights abuses 20 introduction of sub-categories for fossil fuels 16 and weapons (see Figure 25 and Figure Animal cruelty (e.g. cosmetic testing, 20 26 overleaf) and addressing the following live exports) 2 issues in the survey for the first time: Environmental degradation 20 (including air, land and water) 10 companies that don’t pay their • Labour rights violations 15 fair share of tax; meat and meat products; Genetic engineering 10 • 10 • pesticides; • labour-rights violations. Pesticides 5 Other 20 29 For survey respondents who screen out investments in meat and meat products, 2019 2018 0% 20% 40% 60% 80% 100% the primary type is whale meat and whale meat processing. In New Zealand, no survey respondent stated that they screen for companies that don’t pay their fair share 1) exploration, mining, extraction and Overall, screening of upstream fossil fuel of tax, or for sugar or predatory lending. production of fossil fuels with equal to activity has increased among survey or less than 10% of revenue exposure; respondents applying negative screening This year, survey respondents were asked 2) exploration, mining, extraction and from 45% in 2018 to 80% in 2019 (see to provide more detail around their screening production of fossil fuels with more Figure 25). Thirty percent of survey for fossil fuel exposures. Accordingly, ‘fossil than 10% of revenue exposure; and respondents screen companies that fuels’ has been split into three categories: 3) fossil fuel power generation. generate power using fossil fuels.

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FIGURE 25 Frequency of exclusionary screening for fossil fuel FIGURE 26 Frequency of screening for weapons vs controversial exploration, mining, extraction and production (by survey weapons (by survey respondents that negatively screen) respondents that negatively screen)

100 100

80 80 Controversial 30% weapons only

60 60

Managers screening for companies that 40% derive >10% revenue 40 40

Managers screening for companies that 20 25% derive ≤10% revenue 20

Managers screening for 45% 80% 15% both revenue thresholds 98% 100% 70% All weapons 0 0 2018 2019 2018 2019

Among exclusions for upstream fossil fuel Overall, frequency of weapons screening search for when choosing a responsible exposures, 40% of investment managers has increased from 2018 to 2019. Weapons, and ethical KiwiSaver, banking or screen across both revenue thresholds which include controversial weapons and investment product that best matches their across their portfolio of investment civilian weapons, are one of the most interests.27 Figure 27 highlights the variation products. This is because exclusions prevalent exclusionary screens among between exclusions survey respondents often differ across investment products, New Zealand survey respondents, both by apply and the consumer interest. for example one product may screen the frequency of funds applying negative out companies that derive equal to or screens, and by weighted percentage of Survey respondents have responded to less than 10% of revenue from fossil fuel AUM (see Figure 26). Following the deadly consumer interest with respect to screening exploration, mining and production, while Christchurch hate crime in 2019, exclusion out armaments, with 19% of leading simultaneously screening out more than of civilian weapons from investors’ portfolios responsible investment AUM in New Zealand 10% of revenue in another product. was to be expected. covered by a screen. Twelve percent of consumers searched for funds that avoid For survey respondents using only one of The most important exclusionary screens investments in armament manufacturers the revenue screens for fossil fuels, it is according to consumers are fossil fuels and sellers. This increase is likely investor most common to screen out investees that (36%), human rights abuses (17%) and response to new gun laws banning the derive more than 10% of their revenue from armaments (12%). This is based on circulation and use of semi-automatic the exploration, mining and production of data from RIAA’s Responsible Returns firearms, which followed on from the fossil fuels. online tool, which shows the key issues Christchurch shootings on 15 March 2019. consumers from New Zealand and Australia

FIGURE 27 Exclusionary themes – % of consumer searches on Responsible Returns vs survey respondent exclusions (weighted by % AUM) KiwiSaver mandatory exclusion of fossil fuels and illegal weapons 40 % Consumer searches Changes to operational and disclosure Weighted % AUM requirements for registered default 30 KiwiSavers comes into force from December 2021.28 Operational changes are signalled to exclude 20 stocks on the basis of proved or probable fossil fuel reserves, or having a primary business activity 10 in exploration, mining or drilling production of oil, gas or coal. 36 18 17 2 10 4 7 2 4 7 5 8 3 9 10 6 14 12 18 0 Controversial weapons, including land mines, cluster bombs and other illegal

abuses weapons, will be mandatory exclusions Alcohol Tobacco violations Gambling 29

Fossil fuels for all default KiwiSaver funds. Armaments degradation Pornography Labour rights Human rights Animal cruelty Environmental Nuclear power

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NORMS-BASED SCREENING KEY DRIVER: better risk-adjusted returns DEFINITION: Thirty-six percent of survey respondents use Norms-based screening involves the screening of investments that do not meet minimum norms-based screening in their investment standards of business practice. Standards applied are based on international norms approach, however it does not form part of and conventions such as those defined by the United Nations. In practice, norms-based either their primary or secondary approach. screening may involve the exclusion of companies that contravene the UN Convention on Cluster Munitions, as well as positive screening based on ESG criteria developed through Figure 28 illustrates the most popular international bodies such as the United Nations Global Compact, International Labour norms used by the 36% of New Zealand Organization, United Nations Children’s Fund, and the UN Human Rights Council. survey participants to screen their portfolios: the UN Global Compact, the AT A GLANCE: Convention on Cluster Munitions, and the • 36% of survey respondents use norms-based screening as part of their investment approach. UN Framework Convention on Climate • Norms-based screening was not nominated by any survey respondent as a primary or Change/Paris Agreement. Aside from secondary approach of any fund. those norms featured in Figure 28, 13% • The lack of penetration of norms-based screening in New Zealand contrasts with its of survey respondents also indicate that popularity in Europe, where it is used by 77% of investors, according to the Global they screen using the United Nations Sustainable Investment Review.33 Convention against Corruption; OECD Guidelines for Multinational Enterprises; Cartagena Protocol on Biosafety to the Convention on Biological Diversity; Ramsar Convention on Wetlands; Aarhus FIGURE 28 Frequency of norms used by investment managers applying norms- Convention on Access to Information, Public based approaches Participation in Decision-making and Access to Justice in Environmental Matters; and the UN Convention against Transnational The Ten Principles of the UN Global Compact 88%

Organized Crime. Convention on Cluster Munitions 75%

In late November 2019, New Zealand UN Framework Convention on Climate Change/Paris Agreement 75% committed to being carbon neutral by Principles for Responsible Investment 63% 2050. Further, one of the key focus areas and recommendations of the Sustainable Ottawa Convention on Landmines 63% Finance Forum (‘finance green’) is to Treaty on the Non-Proliferation of Nuclear Weapons 63% mobilise new and re-direct existing capital for projects and enterprises that deliver on UN Guiding Principles on Business and Human Rights 50% global sustainability goals, such as the Paris International Bill of Human Rights (comprising the UDHR 1948 and 38% ICCPR 1966) Agreement. These factors will likely cause International Labour Organization's Fundamental Conventions the Paris Accord norms-based screen to 38% increase in usage and frequency next year. Sustainable Development Goals 25%

UN Convention of Rights of the Child The PRI’s Investing with SDG Outcomes, 25% 30 released in June 2020, sets out a five- UN Convention against Corruption 13% pillar framework for investors to understand OECD Guidelines for Multinational Enterprises real-economy outcomes of their investments 13% 31 and align them with the SDGs. Part of this Cartagena Protocol on Biosafety to the Convention on Biological 13% Diversity process involves norms-based screening Ramsar Convention on Wetlands through mapping existing investments to 13% the SDGs and determining the scale of Aarhus Convention on Access to Information, Public Participation in 13% Decision-making and Access to Justice in Environmental Matters investments in SDG-aligned activities. In UN Convention against Transnational Organized Crime addition, investors should take intentional 13% steps towards setting policies and targets Other 38% to achieve specific SDGs, for example food 0% 25% 50% 75% 100% security or action on climate change.

On a practical level, these considerations will cause investors to increase their practice of norms-based screening when considering the UN Guiding Principles on Business and a new investment, by actively looking for Human Rights).32 This tool will help investors, holdings and screening in holdings that are companies, issuers and project promoters transparent about their SDG contribution, navigate the transition to a low-carbon, in addition to screening out those that have resilient and resource-efficient economy. negative SDG outcomes.

The EU’s taxonomy sets sustainability criteria for use in financial products based on minimum safeguards (e.g. OECD Guidelines on Multinational Enterprises and

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KEY DRIVER: better system stability CORPORATE ENGAGEMENT AND and sustainability SHAREHOLDER ACTION DEFINITION: Corporate engagement and shareholder action refers to the employment of shareholder In contrast to 2018, corporate engagement power to influence corporate behaviour. This may be conducted through direct corporate and shareholder action is now the second- engagement such as communications with senior management or boards, filing or co-filing most popular responsible investment shareholder proposals, and proxy voting in alignment with comprehensive ESG guidelines. approach in New Zealand, taking over from negative screening (accounting for primary AT A GLANCE: and secondary approaches). Corporate • Corporate engagement and shareholder action is by far the most popular secondary engagement and shareholder action is approach, applied to $123.9 billion in responsible investment AUM. listed as a primary or secondary approach • 40% of the Responsible Investment Research Universe uses voting and proxy voting by survey respondents with $123.9 billion across all holdings and 32% of investment managers demonstrate transparency by in AUM in 2019, compared to $72.3 billion reporting on either voting or corporate and shareholder action activities. in 2018. • 48% of investment managers within the Responsible Investment Research Universe are members of more than one collaborative initiative, for example the Investor Group During 2019, the AUM of investment on Climate Change (IGCC), PRI or Climate Action 100+. managers in the Responsible Investment Research Universe using corporate engagement and voting as a secondary approach has increased from $628 billion to $840 billion. Active ownership practices FIGURE 29 Reporting on corporate engagement activities and outcomes continue to mature, with more active, considered and targeted use of voting and 100 corporate engagement by responsible investors in our region and across the globe. Within the Responsible Investment 80 Research Universe, investment managers are demonstrating active ownership and stewardship with: 60 44%

• 40% engaged in voting across all Investment 40 manager does possible holdings (e.g. directly held not report equities, or in mandates for fund manager Investment 32% manager and other third parties to action); and reports on 20 activities only • 18% engaged in voting across funds to Investment manager which they are materially exposed. reports on 24% activities and 0 outcomes However, 42% did not vote across any of their holdings.

Globally, voting against boards has increased in support of stronger action Forty-eight percent of investment managers on climate change. Investors have been within the Responsible Investment Research more willing to co-file resolutions and Universe are members of more than withdraw support from industry bodies one collaborative initiative (for example that are lobbying against Paris Agreement RIAA, IGCC, PRI or Climate Action 100+). alignment. This has required companies to Collaborative initiatives across all parts of set emissions targets on scope 1, 2 and 3 financial services, as well as academia, civil emissions, and new standards on mining society and government, are vital to garner tailings dams that improve safety, and even a diversity of opinion as well as provide work to limit the sales of assault weapons skills and experience to realign the financial from retail stores. services sector to support greater social, environmental and economic outcomes for Figure 29 shows that investment managers the country. in the Responsible Investment Research Universe are demonstrating transparency through their reporting around corporate engagement activities and outcomes:

• 32% of the Responsible Investment Research Universe demonstrates reporting on activities; and • 24% of the Responsible Investment Research Universe demonstrates leading practice, reporting on activities and outcomes.

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POSITIVE/BEST-IN-CLASS KEY DRIVER: Real-economy outcomes SCREENING DEFINITION: Positive screening of investments is the inclusion of certain sectors, companies or projects In 2019, 41% of survey respondents were selected for positive ESG or sustainability performance criteria such as the goods and services a using positive screening as part of their company produces, or how well a company or country is responding to emergent opportunities investment approach. such as the rollout of low- and zero-carbon energy assets. The GSIA includes best-in-class screening, the involvement in investment in sectors, companies or projects selected from a Figure 30 shows the most frequently defined universe for positive ESG performance relative to industry peers. However, RIAA and its screened issues by survey respondents are members are increasingly integrating best-in-class as a supplementary lens to ESG integration. low carbon (56%), followed by renewable energy and energy efficiency (44%), AT A GLANCE: and best of sector companies (33%). • 41% of survey respondents declare that they use positive screening as part of their However, issues focusing on building investment approach. resilience of natural systems are also • Positive screening is most often used in combination with negative screening. becoming more prevalent. These include • This regional proportion is slightly below the ~3% reported globally according to the sustainable land management (screened Global Sustainable Investment Review.34 by 33% of respondents), sustainable water • In funds that use positive screening, the most screened theme is low carbon, followed management and use (22%) and healthy by renewable energy and energy efficiency, and best of sector companies. aquatic ecosystems (22%). No survey • Renewable energy and climate change solutions is the most searched inclusion selected by respondent claims to screen issues such consumers using RIAA’s Responsible Returns online tool, accounting for 36% of searches, as employment and vocational training, and it is the second-most screened issue for survey respondents (44%). sustainable fashion/textiles, biodiversity preservation and conservation or reforestation.

Consumer searches on RIAA’s Responsible FIGURE 30 Positive screening – frequency of themes screened by survey respondents Returns online tool – as illustrated in Figure

30 and Figure 31 – demonstrate some Low carbon (at least 30% below benchmark) 56% alignment between consumer searches Renewable energy and energy efficiency 44% and investment manager screening. Green property (environmentally and socially 33% sustainable buildings) The most searched theme for consumers Sustainable land and agricultural management 33% is renewable energy and climate change Best of sector companies 33% solutions (36% of consumer searches). Sustainable transport This is compared with the 44% of survey 22% respondents that currently screen for Sustainable water management and use 22% renewable energy and energy efficiency, Circular economy, reuse and recycling 22% while the second-most searched issue, Healthy river and ocean ecosystems 22% sustainable land management, is screened by 33% of funds. Consumer are also Arts, culture and sports 11% searching for investments that positively Education (includes early childhood and learning) 11% screen more sustainable companies, a Social and community infrastructure (includes 11% category that is screened in by 33% of affordable housing) Healthcare and medical products 11% survey respondents. Income and financial inclusion (includes global 11% poverty and income inequality) Non-energy climate change solutions and adaptation 11%

Other 22% 0% 20% 40% 60%

FIGURE 31 Positive screening – consumer searches using the Responsible Returns online tool (% of consumer searches)

Renewable energy and climate change solutions 36%

Sustainable land and agricultural management 14%

More sustainable companies 9%

Impact investments 8%

Social and sustainable infrustructure 6%

Sustainable water 6%

Education 4%

Healthcare and medical products 4%

Green property 3% 0% 20% 40% 60%

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SUSTAINABILITY-THEMED KEY DRIVER: Real-economy outcomes INVESTING DEFINITION: Sustainability-themed investing relates to investment in themes or assets specifically Sustainability-themed investing does not related to improving social or environmental sustainability. This commonly involves funds feature prominently in New Zealand as that invest in clean energy, green technology, sustainable agriculture and forestry, green either a primary or secondary approach, property or water technology. accounting for less than 1% AUM. Two surveyed investment managers indicate AT A GLANCE: that they use sustainability-themed • Sustainability-themed investing does not feature prominently in New Zealand investing as either a primary or secondary as either a primary or secondary approach, accounting for less than 1% AUM. approach. Survey respondents employing • The most popular themed investments by AUM are social impact (17%), sustainability-themed investing as their climate change (13%) and energy efficiency (12%). primary strategy are predominantly associated with sustainable land, water and agricultural management, followed by green buildings. FIGURE 32 Sustainability-themed investments by theme (% AUM) More broadly, for survey respondents who use sustainability-themed investing as part of their investment approach, the most Social impact 17% popular themes by weighted assets under Climate change 13% management are social impact (17%) followed by climate change (13%) and jointly Energy efficiency 12% energy efficiency and water management Water management 12% (12%) (Figure 32). The ‘other’ category Agriculture (12%) includes investments such as 7% sustainable fashion and textiles. Green buildings 6%

Renewable energy Within the social impact category, social 6% and community infrastructure (for example Waste management 6% affordable housing), and employment and Healthcare 6% vocational training are the most popular. Arts, culture and sports 3% note: ‘Other’ includes sustainable Other 12% fashion and textiles/fashion 0% 5% 10% 15% 20% technology

IMPACT INVESTING KEY DRIVER: Real-economy outcomes DEFINITION: Awareness of, interest in and demand for Impact investing refers to investments made with the explicit intention of generating positive impact investing products in New Zealand social and/or environmental impact alongside a financial return, and measurement of this are on the rise. Impact investing grew by impact. Ideally, an impact investment will also provide additionality, meaning delivery of over 13 times, from $358 million in 2018 to benefits beyond what would have occurred in the absence of the investment. $4.7 billion in 2019, representing 1.6% of New Zealand’s $153.5 billion responsibly AT A GLANCE: managed market. The uptake and growth of • The total disclosed impact investment pool equates to $4.7 billion AUM in 2019. Therefore, impact investing is a response to increasing impact investing represents 1.6% of responsible investment AUM. investor demand and the enduring societal • This approach has grown more than 13-fold, from $358 million in 2018 to $4.7 billion and environmental challenges that we face in 2019 for assets managed by the Responsible Investment Research Universe. globally and locally. • Green, Social and Sustainability (GSS) Bonds account for 88% of products using this approach. • RIAA estimates the growth in impact investing ex-bonds is 261%, from $158 million GSS Bonds in absolute terms dominate the to $570 million in 2019. impact investment approach, with 88% of AUM of impact investment and $4.2 billion in AUM as represented in Figure 33 overleaf. The Climate Bonds Initiative New Zealand Green Bonds and Infrastructure Report – The green loans market is also another area renewable generation assets that meet the 2019 highlighted that despite New Zealand’s of promising growth in New Zealand. Green Bond Principles and the Climate small size and population, it has emerged Bonds Standard.37 as a global leader on climate action with its The largest bond issued in New Zealand in aggressive policies and ambitious climate 2019 was Contact Energy’s Climate Bond, Another notable green bond was raised by targets.35 The existing green bond market certified under the Climate Bonds Standard Westpac New Zealand, which has become is small but has momentum, adopting at the time of execution ($1.8 billion).36 the first New Zealand bank to raise funding global best practice in the shift towards The proceeds of Contact’s programme through the issuance of a green bond. The environmental and economic sustainability. will be used to finance existing and future five-year green bond issued by Westpac

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raised $844 million from European investors to support the funding of climate change FIGURE 33 Impact investing breakdown in New Zealand by investment category ($billion) solutions.38 Proceeds from the green bond will be used to finance or re-finance sustainable New Zealand projects, such as renewable energy and low-carbon commercial property.39

New Zealand’s impact investment Green, Social & market also consists of many small but Total AUM: Other - including private equity Sustainability (GSS) $4.17 $4.74 $0.57 impactful transactions conducted by Bonds and venture capital, private debt trusts, foundations, social enterprises and investment managers. These finances have included small-scale lending, social loans and financial services that have been extended to community enterprises, charitable organisations and families through a range of specialised services and progressive philanthropic organisations. sector and family trusts. The purpose of It is no surprise that environment and A notable example of this includes the the Fund is to invest in innovative solutions conservation is one of the most frequently Impact Enterprise Fund, which has raised to New Zealand’s social and environment cited impact areas for New Zealand. Seventy $8.7 million with two primary objectives: problems, and potential opportunities include percent of New Zealand’s export earnings delivering market-rate financial returns, regenerative agriculture on dairy farms, urban directly rely on natural capital. Around 75% of and delivering tangible societal and transportation, green housing, social housing consumptive freshwater is used for irrigation. environmental outcomes.40 The Impact and social improvement through horticulture In these regions, water demand is exceeding Enterprise Fund invests in for-profit projects partnering with rural Iwi.43 what is available and sustainable, which businesses seeking to make a meaningful will likely continue as the climate warms.44 contribution to life in New Zealand and Survey respondents from RIAA’s 2019 That puts New Zealand’s key economic beyond. The target sectors of the fund Impact Investor Insights report (n=50) sectors at risk of an increasingly insecure include clean energy, agriculture technology, were asked to indicate the impact areas to and unsustainable resource, and hence the education, sustainable food production and which their portfolio is weighted. Figure 34 urgent need for investment in this sector. healthcare.41 One of the Fund’s portfolio outlines the areas that have attracted the companies, Grounded, is committed to largest percentage of current investments Many respondents also report that they have empowering businesses to find sustainable (not the greatest amount of money) among invested in multi-sector funds, while the packaging solutions, and its ethos derives respondents. Overall, respondents indicated remaining impact investments are dispersed from the Ellen MacArthur Foundation’s vision they are interested in a broad range of across the other 15 impact area options. for a circular economy where all packaging is sectors, as shown by the relatively low Trusts, foundations and not-for-profits differ 100% reusable, recyclable or compostable.42 percentages illustrated in the ‘top three’ from other investor groups in that their infographic. current focus areas for impact investment In November 2019, the Purpose Capital are housing and homelessness, children Impact Fund achieved its ‘first close’ target The most common impact investment areas and/or issues affecting young people, and of raising $20 million. The Fund consists of are environment and conservation, and clean employment and vocational training. corporate foundation heavyweights, high energy, making up more than 30% of current net-worth individuals, the philanthropic impact investments.

FIGURE 34 Top impact areas of active impact investors by portfolio allocation 45

diversifi ed Financial Individuals & Investment Impact Investment trusts, Foundations Institutions Family offi ces managers Fund managers & nFps top three

20% Health Environment Environment Environment and Unspecified (including Housing and conservation medical and and homelessness research) conservation conservation

12% Clean energy

Note: The following 18 options were provided: ageing and aged care; children and/or issues affecting young people; clean energy; culture and arts; gender 10% equality or economic opportunities for women; disability; education; employment and vocational training; environment and conservation; financial inclusion; global poverty and income inequality; health (including medical research); housing and homelessness; in-country entrenched disadvantage and income health (including inequality; Maori community development or wellbeing/Tangata Whenua or Iwi member wellbeing; Indigenous peoples outside of New Zealand; minorities and medical research) social inclusion; and other(s).

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To populate this section of the report, data is used from three sources: primary research conducted for this report (survey Impact Investor Insights data), desktop research, and data extracted from RIAA’s Impact Investor Insights 2019 In 2019, RIAA published the Impact Investor Insights 2019 Aotearoa New Zealand report Aotearoa New Zealand report.46 These in partnership with the University of Auckland. The report highlights the level of awareness and data sources draw on different samples of interest, perceived barriers and priorities (impact area, geography and asset class) of investors investment managers with differing intent. in regard to impact investing in New Zealand. Data was sought from investors that are already This report contains data from investment making impact investments (‘active impact investors’) and those ‘investors not yet active in managers that perform impact investing as impact investing.’ A survey was distributed in July 2019 and received a strong response rate one part of their mainstream investment across most investor types, with 99 included in the final survey sample. approach and data from the Impact Investor The key highlights of the report are as follows: Insights 2019 survey New Zealand investors completed about impact investment activity. • Investments that deliver measurable, positive social and environmental impact are set to grow exponentially in Aotearoa New Zealand over coming years. • Survey respondents anticipate allocating a total of $5.9 billion to impact investing in the medium term (5 years +). • Environment and conservation, clean energy and health are the most popular impact areas. • 77% of impact investors expect competitive or above market rates of return, and 81% of impact investors consider their financial expectations are being met or exceeded. • In New Zealand, impact investments have, for example, facilitated recycling carbon waste into valuable fuels and chemicals; provided families with access to rent-to-own affordable housing; and developed AI for special-needs schools.

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Financial performance

For the first time in the New Zealand Benchmark report, investment manager FIGURE 35 Performance of responsible investment funds (weighted average financial performance has been reported performance net of fees over 10 years)47 for the one-, three-, five- and ten-year time horizons. new Zealand share funds 1 year 3 years 5 years 10 years The average performance (see Figure 35) Responsible Investment Fund Average (between 1 and 11% 7% 9% 4% in each time horizon has been determined 12 funds depending on time period) using the asset-weighted returns (net of fees) as reported by survey respondents. International share funds 1 year 3 years 5 years 10 years Responsible Investment Fund Average (between 6 and 22% 14% 12% 9% Due to a relatively small sample size, the 12 funds depending on time period) varying duration of funds in the sample and the impact of these factors on tracking multi-sector growth funds 1 year 3 years 5 years 10 years error, it is not meaningful to compare the Responsible Investment Fund Average (between 9 and 17% 9 % 10% 7% results of the domestic and international 20 funds depending on time period) share funds with mainstream benchmarks. Morningstar Multisector KiwiSaver Fund Average 16% 9% 8% 8% However, a comparison was performed for the responsible investment multi-sector Outperformed by the average RI fund Underperformed by the average RI fund growth fund against Morningstar’s multi- sector KiwiSaver index and the results show that the New Zealand responsible investment fund matched or outperformed this benchmark for all time horizons except the 10-year horizon. COVID-19 and the performance of responsible investments 48

In a time of massive market disruption brought on by responses to the global COVID-19 pandemic, RIAA’s briefing note ‘COVID-19 and the Performance of Responsible Investments’ explores how responsible investment funds that integrate ESG have performed compared to the rest of the market. Research undertaken by MSCI,49 AXA Investment Managers,50 Fidelity International,51 Schroders,52 BlackRock 53 and Morningstar 54 demonstrates that more sustainable companies are performing better and responsible investment funds are largely continuing to outperform the general market. In New Zealand, ethical funds on Mindful Money’s platform were found to have outperformed the Morningstar average for January to March 2020. 55

The thesis that responsible investing supports stronger outcomes for society and the environment, alongside delivering superior financial returns, has been put to one of its toughest market tests with the COVID-19 pandemic. The COVID-19 crisis has highlighted that investment managers executing ESG integration approaches are more resilient to the downside experienced during economic recent economic volatility.56

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Market drivers and future trends

To gain further insight into the increased use of responsible investment approaches, RIAA FIGURE 36 Key drivers of market growth by survey respondents asked survey respondents to indicate the key drivers pushing them towards adopting responsible investment approaches and the Align to mission 44% 29% key factors hindering it. Demand from retail investors 38% 24% Expected long term 26% performance or risk mitigation 29% KEY GROWTH FACTORS ESG factors impact on 26% performance 51% Survey respondents were asked to identify Fiduciary duty 20% the top three drivers for growth in their 13% responsible investment funds; these are Demand from institutional 18% shown in Figure 36. investors 27% ESG risk management 11% 11% Survey respondents indicated that growing interest from underlying investors to align Social benefit 11% 11% investments with mission or values is the International initiatives 3% key reason for growth (44%). Demand from 3% retail investors is the second-largest driver Industry competition 7% for 38% of funds, followed by the expectation Regulatory requirements 2% that responsible investment funds perform in (FMA or TCFD) 2019 the long term or mitigate risks (26%). 0% 20% 40% 60% 2018

International initiatives or commitments for sustainable finance are driving growth in funds managed by survey respondents for 3% of investors, down from 5% in 2018. FIGURE 37 Key deterrents to responsible investment market growth by survey Developments include the EU taxonomy respondents for sustainable activities and PRI. Such initiatives enable investors to contribute systematically to the transition to a more Performance concerns 35% 25% resilient and sustainable economy. Lack of awareness by 34% members of the public 31% No survey manager in 2018 or 2019 Lack of viable product/options 26% considered SDG performance or 33% external pressure from non-government Lack of understanding 19% organisations, media and trade unions. and advice 19% Lack of demand from 18% institutional investors 19% Mistrust/concern 18% GROWTH DETERRENTS about greenwashing 14% Lack of demand from 14% retail investors 19% Survey respondents noted that the key factors restricting growth of AUM into Risk concerns 14% 19% responsible investments are performance Lack of legislative 10% concerns (35%), lack of awareness from requirements 8% members of the public (34%), lack of Lack of external 10% viable product options (26%) and lack of pressure 8% understanding and advice (19%) (see Figure Lack of understanding 9% 37). It is worth noting that ‘lack of viable and capacity 0% 2019 product options’ has decreased since 2018 0% 10% 20% 30% 40% 2018 for survey respondents recording deterrents to responsible investing. This may reflect an increased confidence in the information available and in advisers as well as evidence of an increasing range of Certified

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Responsible Investment products coming to market (see www.responsiblereturns. FIGURE 38 Key sources of information used to make responsible investment decisions co.nz). The growth in ‘mistrust/concern about green washing’ is to be watched closely with local responses to this finding as well as External sustainability 18% data provider 16% developments from connected markets such Company sustainability 15% as the EU. The EU is leading on tightening reporting 13% laws covering investment products that trade Other company 12% in the EU as ‘sustainability’ labelled. produced reporting 10%

Interview with investee 12% 12%

Specialist analysis reports 5% ESG DATA AVAILABILITY 12% AND RELIABILITY Broker reporting 5% 6%

Figure 38 shows sources of information Sustainability indices 4% 6% used in making investment decisions on responsible investment. Survey respondents Carbon performance indices 3% 3% mostly use external ESG data providers, Reference to 3% followed by the prospective company’s ‘controversy index’ 3% 2019 own sustainability reporting, or other target 0% 5% 10% 15% 20% 2018 company reporting, for example the annual report or company website.

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Appendices

APPENDIX 1A: ABBREVIATIONS APPENDIX 1B: DEFINITIONS Definitions for each of the seven responsible investment strategies: AUM Assets under management Responsible investment assets under The following guidance was provided to management (responsible investment participants to help them with self-classifying ESG Environmental, social AUM): Only those investment managers that the style of responsible investment and governance scored 75% or more on the Responsible approaches applied to their investments. EU European Union Investment Scorecard have their AUM included in the responsible investment Integration of ESG FMA Financial Markets Authority AUM total. RIAA took this approach so that GSIA states: the systematic and explicit GSIA Global Sustainable only those demonstrating leading practice inclusion by investment managers of Investment Alliance would be included in determining the size environmental, social and governance of the New Zealand responsible investment factors into financial analysis. GSS Bonds Green, Social and market. This methodology was fairly applied Sustainability Bonds to investment managers across all asset RIAA elaborates: the explicit inclusion by IGCC Investor Group on classes and sizes. investment managers of environmental, Climate Change social and governance risks and Investment manager refers to the opportunities into financial analysis and IMMCOP Impact Management & financial institutions (community trusts and investment decisions based on a systematic Measurement Community foundations, asset managers and asset process and appropriate research sources. of Practice owners to the extent that they directly This approach rests on the belief that these IMP Impact Management Project manage investments in-house) included in factors are a core driver of investment value the report’s analysis that were assessed and risk. NZGIF New Zealand Green directly via the online survey or their data Investment Finance Ltd was included via desktop research. Negative or exclusionary screening PSF Platform on Sustainable Negative screening of investments is the Finance Primary approach refers to a responsible systematic exclusion from a fund or portfolio investing approach deployed by an of certain sectors, companies, countries or PRI Principles for Responsible investment manager that is used in the other issuers based on activities considered Investment first instance when guiding the investment not investable. Exclusion criteria (based on RBNZ Reserve Bank of approach of the company’s products and norms and values) can refer, for example, to New Zealand services. The secondary approach refers to product categories (e.g. weapons, tobacco), the approach that is in conjunction with the company practices (e.g. animal testing, RI Responsible investment primary approach when making responsible violation of human rights, corruption) or RIAA Responsible Investment investing decisions. controversies. Association Australasia Responsible investing, also known as Norms-based screening RI AUM Responsible investment ethical investing or sustainable investing, Norms-based screening involves the assets under management is a holistic approach to investing, where screening of investments that do not SDGs Sustainable Development social, environmental, corporate governance meet minimum standards of business Goals and ethical themes are considered practice. Standards applied are based on alongside financial performance when international norms and conventions such SIBs Social Impact Bonds making an investment. There are many as those defined by the UN. In practice, SFF Sustainable Finance Forum different ways to engage in responsible norms-based screening may involve the investment, and investors often use a exclusion of companies that contravene the SRI Socially responsible investing combination of strategies such as negative UN Convention on Cluster Munitions, as well TAUM Total assets under or positive screening; environmental, social as positive screening based on ESG criteria management and governance (ESG) integration; and developed through international bodies such impact investing. as the United Nations Global Compact, TEG Technical Expert Group on International Labour Organization, United Sustainable Finance (EU) Nations Children’s Fund, and the UN Human TCFD Taskforce on Climate-Related Rights Council. Financial Disclosures Corporate engagement and UN United Nations shareholder action Corporate engagement and shareholder action refers to the employment of shareholder power to influence corporate behaviour. This may be conducted through

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direct corporate engagement such as Measurability The Reserve Bank of New Zealand’s funds communications with senior management 3) an investor or manager has an under management data has been used as or boards, filing or co-filing shareholder impact thesis; and the basis of approximating the size of the proposals, and proxy voting in alignment 4) has a demonstrated process professionally managed investment market with comprehensive ESG guidelines. for managing impact; and in New Zealand. This data specifically 5) at least annually reports impact excluded funds from the New Zealand Positive or best-in-class screening performance to relevant external Superannuation Fund (NZ Super) and the Positive screening of investments is the stakeholders; and Accident Compensation Corporation (ACC). inclusion of certain sectors, companies Consequently, to estimate TAUM, the AUM of or projects selected for positive ESG or Contribution both NZ Super and ACC (less mandates to sustainability performance criteria such 6) at a minimum, the investor or manager New Zealand investment managers already as the goods and services a company can demonstrate that they signal included in the analysis) were added to the produces, or how well a company or country that impact matters (this means Reserve Bank AUM figures. is responding to emergent opportunities to proactively and systematically such as the rollout of low- and zero-carbon consider measurable positive and This research is primarily targeted at energy assets. negative enterprise impacts in their investment managers, rather than asset investment decision-making); and owners, with a focus on capturing the The GSIA includes best-in-class screening, 7) communicates this consideration to underlying managers of the capital being the involvement in investment in sectors, external stakeholders. deployed responsibly in this market. companies or projects selected from Data was captured from asset owners a defined universe for positive ESG The Impact Management Project (IMP) to the extent that they directly managed performance relative to industry peers. convention classifies the impact performance investments in-house. However, RIAA and its members are (or goals) of an enterprise as either: increasingly integrating best-in-class as a DATA COLLECTION supplementary lens to ESG integration. A. (Act to avoid harm) – the enterprise prevents or reduces significant effects Data used to compile this report was generously provided and collected from the Sustainability-themed investing on important negative outcomes for following sources: Sustainability-themed investing relates to people and planet; or B. (Benefits stakeholders) – the investment in themes or assets specifically directly supplied by investment managers enterprise not only acts to avoid harm, • related to improving social or environmental and asset owners; but also generates various effects on sustainability. This commonly involves funds RIAA’s databases; positive outcomes for people and the • that invest in clean energy, green technology, RIAA's Impact Investor Insights 2019 planet; or • sustainable agriculture and forestry, green Aotearoa New Zealand study; and C. (Contributes to solutions) – the property or water technology. desktop research of publicly available enterprise not only acts to avoid • information regarding assets under harm, but also generates one or Impact investing management, performance data and more significant effect(s) on positive GSIA states: targeted investments aimed investment approaches from sources outcomes for otherwise under-served at solving social or environmental problems including company websites, annual people and the planet. where capital is specifically directed to reports and PRI Transparency Reports. traditionally underserved individuals and communities, as well as financing that is A total of 58 investment managers were provided to businesses with a clear social targeted as respondents to this survey; or environmental purpose. APPENDIX 2: METHODOLOGY 22 financial institutions responded by providing information directly while 36 RIAA elaborates: impact investments REPORTING BOUNDARY were assessed through desktop analysis. satisfy three core principles: intentionality, This report covers the 2019 calendar year In total, this research managed to gather measurability and contribution: and, where possible, data disclosed has a comprehensive summary of the full been recorded as of 31 December 2019. responsible investment market in New Intention Data from some investment managers was Zealand. Responses that identify the key 1) the investor and/or manager intend to not available on a calendar year basis and in drivers of responsible investment and benefit stakeholders and/or contribute these cases, data was taken from the closest detractors were only taken from survey to solutions through their investments available reporting date. All financial figures respondents. No data has been extrapolated (as evidenced in the ‘impact thesis’); are presented in New Zealand dollars. from its original source. and 2) the impact performance objectives The financial sector is a globalised industry. of each asset being invested in are Responsible investment funds may be DATA SELF-CLASSIFICATION principally (meaning equal to or held in one country, managed in another Those investment managers that completed greater than 50% with impact intention and sold in a third, meaning that a level of the online survey were asked to self- aligned with B and C; balance of fund estimation is applied in order to demarcate classify their funds under management at least A) benefiting stakeholders or the boundary of the New Zealand market. covered by the seven responsible contributing to solutions; and This report is intended to inform readers investment approaches. For example, an of the range of responsible investment investment manager would indicate that products that are available in New Zealand. 40% of their asset classes are covered by a As such, it includes assets managed within sustainability-themed investment approach. the New Zealand region, as well as assets managed outside the region where these Through discussion with the investment are on behalf of New Zealand clients. managers and an analysis of survey

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responses, it was ascertained that there is DATA COMPLETENESS RIAA assessed New Zealand and a a grey area when classifying sustainability- selection of international investment Many of the products in the New Zealand themed investing and impact investing. managers that have an active presence responsible investment market are not The latter term is being used in the market in New Zealand based on their publicly bound by any public reporting, disclosure as a colloquial term for any style of available information including websites, PRI requirements or independent review themed allocation towards solution-style transparency reports and all other available (assurance). This report includes both investments, such as renewable energy. material. All investment managers were retail and wholesale investment products, scored using the Responsible Investment and increasingly, superannuation fund The research methodology includes cursory Scorecard criteria. mandates, individually managed accounts checks over self-declared data, but the data and separately managed accounts. Some is not assured. RIAA continues to inform and This year, investment managers were given investment custodians are reluctant to educate the market about the differences the opportunity to score themselves against supply information for reasons of privacy or between these styles of investment and how the Responsible Investment Scorecard commercial confidentiality. Data pertaining to to self-classify. via completion of an online survey. These funds held outside of managed responsible results were then cross-referenced against investment portfolios was not accessible. For the responsible investment score awarded, DATA ANALYSIS AND REPORTING this reason, as well as matters identified in and some allowances have been given The RIAA online survey aimed to capture the reporting boundary section above, this for funds taking credit in areas where it data from funds where the investment report provides a conservative depiction of was possibly not clear enough and/or for decision is made internally/directly at the responsible investment environment in measuring other factors, and scores were the asset level and where the funds are New Zealand. harmonised if required. managed on behalf of New Zealand beneficial owners. Only those investment managers that scored 75% or more have their AUM As many investment managers apply APPENDIX 3: RESPONSIBLE included in the responsible investment several investment strategies, the data INVESTMENT SCORECARD AUM total. RIAA took this approach so that collection survey required respondents only those demonstrating leading practice to identify a single primary responsible The expanded scorecard examines and would be included in determining the size investment approach. The survey also scores organisations against the four of the New Zealand responsible investment requested that respondents nominate any drivers for responsible investing (of equal market. This methodology was fairly applied secondary strategies, identify any overlap weighting): to investment managers across all asset of approaches and help in categorising classes and sizes. funds. This approach was used to create 1. Walking-the-talk an accurate depiction of the responsible − coverage of total AUM by responsible See table for detailed scoring methodology investment environment in New Zealand. investment or ESG practices; for this year’s report: − publicly stated commitments to Where investment managers have applied responsible investment; multiple responsible investment approaches − responsible investment policy; and (e.g. a fund may apply ESG integration as − commitments to the transparency. well as approaches such as negative or positive screening), we have categorised the 2. Managing risk fund according to the primary responsible − systematic processes for ESG investment approach being pursued. integration as well as evidence The primary approach is identified by the demonstrating how this process is organisation in its survey response, however, applied as part of traditional financial RIAA performs a review of all survey analysis; responses to ensure that approaches are − disclosure of ESG integration; and categorised consistently across the cohort of − evidence of systematic and responses and that investor responses are transparent application of screens. categorised consistently year-on-year. 3. Building better Beta Fund overlaps between survey respondents − evidence of activity in other areas of have been removed, where identified, from active ownership and stewardship the reported figures. RIAA is continuously including voting and engagement; and working to improve its data collection − membership of a collaborative investor process to enhance the quality of reported initiative. figures and to ensure that all products in the New Zealand market are identified. 4. Allocating capital − systematic and transparent positive It is important to note that all information screening and/or sustainability in this survey is ‘self-reported’ by survey investment criteria; and respondents and only limited analysis is − intentional, systematic and transparent performed over statements made. There is process of contributing to solutions by no assurance of statements. way of impact investment criteria and measurement.

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Core pillars and weighting Question description Scoring methodology

1. Stronger brand value: Walking-the-talk = 5 points

1.1 Coverage of total AUM by What proportion of all AUM is being managed with a 1.0 = 100% responsible investment responsible investment strategy? 0.75 = 75% – 99% 0.5 = 50% – 74% 0.1 = 10%-49%

1.2 Responsible investment Does your organisation have a responsible investment policy? 2.0 = yes and publicly disclosed policy Is your responsible investment policy disclosed publicly? 1.0 = yes, not public The policy needs to outline your organisation’s principles, 0 = no commitments and approach to responsible investment.

1.3 Commitment to transparency

1.3.1 D isclosure of Does your organisation report its approach to responsible 1.0 = responsible investment approach is disclosed in responsible investing and its implementation clearly on its website? greater detail, such as including link to PRI Report investment and/or responsible investment approach commitment 0.5 = self-declared as doing responsible investment but no detail 0 = no disclosure

1.3.2 D isclosure of Does your organisation disclose a FULL list of its 1.0 = disclosure of FULL fund holdings fund holdings investments? 0.5 = some holdings are disclosed 0 = no

2. Better risk-adjusted returns: Managing risk = 5 points

2.1 Systematic process for ESG: Is there evidence of integrating ESG into traditional financial analysis described?

2.1.1 ESG embedded How embedded is ESG integration into strategy? Does 0.5 = at least one aspect considered or all 4 into strategy responsible investment approach account for the explicit 0 = no aspects considered inclusion of ESG factors? Select all that are relevant to your approach to ESG integration. ESG factors are systematically considered in the: A. selection, retention and realisation of assets B. construction of portfolios C. risk assessment and management D. selection, assessment and management of managers (if you use external managers).

2.1.2 Extent of relevant What is the extent of relevant asset classes covered by your 0.5 = equities, fixed income corporate, fixed income asset class that explicit and systematic approach to ESG integration? sovereign OR at least 85% of AUM ESG covers 0.3 = at least two main asset classes OR 75% of AUM 0.1 = at least one main asset class OR 50% of AUM 0 = no option selected

2.1.3 ESG factors in Consider how your organisation demonstrates the explicit and 1.0 = all 4 investment analysis systematic inclusion of ESG factors in investment analysis 0.75 = at least 3 and investment decisions. Select all that are relevant. 0.5 = at least 2 A. ESG analysis is integrated into fundamental analysis 0.2 = at least 1 B. ESG analysis is used to adjust forecasted financials and 0 = no option selected future cash flow estimates C. ESG analysis is integrated in portfolio weighting decisions D. Companies, sectors, countries and currency are monitored for changes in ESG exposure and for breaches in risk limits

2.1.4 D isclosure of Does your organisation disclose its approach to ESG 1.0 = yes ESG integration integration? (such as through PRI reporting, website etc.) 0 = no

2.2 Evidence of systematic and transparent application of screens

2.2.1 Applying screens Does your organisation have a transparent and systematic 1.0 = yes to investments process of applying screens (such as norms-based, 0 = no controversies and negative screens)?

2.2.2 Revenue and activity Does your organisation disclose revenue and activity 1.0 = yes thresholds applied to thresholds applied to screens? 0 = no screens

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3. Better system stability and sustainability: Building better Beta = 5 points

3.1 Evidence of activity in other To what extent does the organisation demonstrate 2.0 = voting across all possible holdings (e.g. directly areas of active ownership & stewardship and active ownership commitments, such as held equities, or in mandates for fund manager stewardship: voting through voting and proxy voting? and other third parties to action) OR 1.0 = voting across those holdings for which the fund is materially exposed 0 = no voting

3.2 Evidence of activity in other Thinking about how the organisation demonstrates 1.0 = company engagement reporting on activities AND areas of active ownership stewardship commitments, such as corporate engagements, 1.0 = company engagement reporting on outcomes & stewardship: corporate select all of the following that are true. 0 = no engagement engagement

3.3 M ember of collaborative Is the organisation a member of a collaborative initiative? E.g. 1.0 = member of more than one group OR initiative Investor Group on Climate Change, Principles for Responsible 0.5 = member of one group Investment, Climate Action 100+, other groups? 0 = no groups

4. Real-economy outcomes: Allocating capital = 5 points

4.1 Evidence of systematic What evidence exists of a systematic and transparent 1.0 = explanation of positive social or sustainability- and transparent positive process of benefiting stakeholders (positive screening and/or themed screen, including disclosure of thresholds screening and/or sustainability themed investing)? Select all that apply. and materiality for investment (e.g. GRESB, Green sustainability investment Star rating etc.) criteria 1.0 = extra-financial targets set (e.g. at least 30% lower carbon intensity than index) 1.0 = company engagement case studies or other evidence demonstrating benefit to stakeholders

4.2 Evidence of intentional, Is there evidence of an intentional, systematic and transparent 1.0 = investment criteria including intentionality as systematic and transparent process of contributing to solutions (impact investing and evidenced by publicly disclosed impact thesis and/ process of contributing to measurement of impact)? or setting of impact targets, for example AND solutions by way of impact 1.0 = measurement and reporting on real-economy investment criteria and outcomes from investment measurement

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APPENDIX 4: SURVEY RESPONDENTS

AMP Capital Investors (NZ) Limited Milford Asset Management

Anglican Financial Care Mint Asset Management

ANZ New Zealand Investments Limited New Forests

ASB Group Investments New Zealand Superannuation Fund

Bay Trust Northern Trust Asset Management

Booster Investment Management Pathfinder Asset Management

BT Funds Management PIMCO Pty Ltd NZ

Devon Funds Management Simplicity

Harbour Asset Management Southern Pastures Management Partners Limited Kiwi Wealth Investments (Kiwi Wealth) Trust Management Medical Assurance Society

Mercer (N.Z.) Limited

APPENDIX 5: OTHER ORGANISATIONS USED IN DATA (DESKTOP RESEARCH)

Accident Compensation Corporation Otago Community Trust

Antipodes Partners Limited Pencarrow Private Equity Management

Aon Master Trust Pie Funds Management

Auckland Council Pioneer Capital Partners

Avoca Investment Management QuayStreet Asset Management

BNZ Investment Services Ltd (Bank of New Rata Foundation Zealand) Revolution Asset Management Castle Point Funds Management Limited Russell Investments Dairy Farms NZ Limited Salt Funds Management Direct Capital Smartshares Farm Ventures Ltd Soul Capital Fiducian Funds Management Stride Property Fisher Funds Management The New Zealand Anglican Church Pension Forsyth Barr Investment Management Board

Generate Investment Management Trust Waikato

Government Superannuation Fund Authority WEL Energy Trust

HRL Morrison & Co Ltd

Impact Enterprise Fund

New Ground Capital

New Zealand Green Investment Finance

New Zealand Methodist Trust Association

Nikko Asset Management

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