The Responsible Investment Association Australasia (RIAA) has recently published their fourth annual New Zealand Responsible benchmark report[i] that shows the size and growth of responsible investing in New Zealand over the 2017 calendar year.
Harbour is delighted to have been included for the third consecutive year as one of four domestic asset managers that are using a leading approach to Environmental, Social and Governance (ESG) integration in a ‘broad’ responsible investment approach.
Responsible investment has continued to grow significantly in New Zealand, up 40% compared to 2016, to a total of $183.4 billion in assets under management.
‘Broad’ responsible investment which involves an integrative approach to ESG, saw modest growth of 9% since 2016, to $97.0 billion. This is the type of approach that Harbour utilises, as we believe that incorporating ESG issues into the investment process enhances outcomes for our clients over the medium term. This approach represents a more active style of management compared to screening as it involves multiple elements such as research, engagement and proxy voting.
‘Core’ responsible investment approaches (mainly negatively screened funds) constituted the majority of the total growth, more than doubling to $86.4 billion since 2016, with more managers introducing screens over controversial issues such as fossil fuels and tobacco. There was also a rise in the number of controversial issues that were screened compared to the prior year.
For the first time, the performance of screened funds in NZ against relevant benchmarks were analysed in the report. The results showed that the average responsible investment fund in the NZ shares category outperformed the benchmarks over every time horizon (1,3, 5 and 10 years). The benchmarks used were the S&P/NZX 50 Index and the average of equivalent mainstream funds. Multi-asset funds also showed outperformance over the time horizons analysed while international share funds had mixed results.
A survey commissioned by the RIAA revealed what investment organisations across NZ, believe to have contributed and detracted from responsible investment growth. The main driver of growth according to this survey has been from clients aligning investments with their mission. It is also encouraging to see that performance concerns are less of a deterrent to growth compared to survey responses from the prior year, with more respondents believing that ESG impact on performance is contributing to the growth. The primary deterrent now is the lack of demand from retail investors which suggests a need for educating these participants on the benefits of responsible investment.
Harbour is continuously monitoring new developments in the ESG space. We have recently made a new addition to our Corporate Behaviour Survey in the form of questions on cybersecurity. This follows from other additions in prior years such as questions on the appropriateness of incentive schemes and the living wage. Cybersecurity has been a growing issue off the back of global data breaches such as the WannaCry attack and Facebook-Cambridge Analytica data scandal which have prompted companies to take a more active stance on their cybersecurity. A recent report published by the PRI[ii] highlights some of the key cyber risks and what companies should be doing to align themselves with best practice in this area.
The PRI has also released their annual assessment reports on how signatories are performing on their ESG process, in accordance with the principles. Harbour is delighted to have received an A+ rating for our overall strategy and governance once again, with improved scores in the Listed Equity Active Ownership and Fixed Income Corporate Financial sections. Harbour strives to keep improving on all aspects in our responsible investing journey.
In addition, below is a link to the PRI’s assessment methodology[v].
More information on Harbour’s approach to responsible investing can be found on the Responsible Investing page of our website[vi].
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Harbour Asset Management Limited is the issuer and manager of the Harbour Investment Funds. Investors must receive and should read carefully the Product Disclosure Statement, available at www.harbourasset.co.nz. We are required to publish quarterly Fund updates showing returns and total fees during the previous year, also available at www.harbourasset.co.nz. Harbour Asset Management Limited also manages wholesale unit trusts. To invest as a Wholesale Investor, investors must fit the criteria as set out in the Financial Markets Conduct Act 2013. This publication is provided in good faith for general information purposes only. Information has been prepared from sources believed to be reliable and accurate at the time of publication, but this is not guaranteed. Information, analysis or views contained herein reflect a judgement at the date of publication and are subject to change without notice. This is not intended to constitute advice to any person. To the extent that any such information, analysis, opinions or views constitutes advice, it does not consider any person’s particular financial situation or goals and, accordingly, does not constitute personalised advice under the Financial Advisers Act 2008. This does not constitute advice of a legal, accounting, tax or other nature to any persons. You should consult your tax adviser in order to understand the impact of investment decisions on your tax position. The price, value and income derived from investments may fluctuate and investors may get back less than originally invested. Where an investment is denominated in a foreign currency, changes in rates of exchange may have an adverse effect on the value, price or income of the investment. Actual performance will be affected by fund charges as well as the timing of an investor’s cash flows into or out of the Fund. Past performance is not indicative of future results, and no representation or warranty, express or implied, is made regarding future performance. Neither Harbour Asset Management Limited nor any other person guarantees repayment of any capital or any returns on capital invested in the investments. To the maximum extent permitted by law, no liability or responsibility is accepted for any loss or damage, direct or consequential, arising from or in connection with this or its contents.