- The climate transition is driven increasingly by the economics as technology takes over, says Dr Rod Carr
- More than $1bn a day globally is needed for climate transition and adaptation over the next thirty years and the private sector has a pivotal role to play
- FMA focusing on greenwashing given the uptake by consumers
- Modern Slavery and Nature are likely the next frontiers of responsible investing.
The recent RIAA Aotearoa New Zealand conference convened sustainability practitioners from the investment, government, and corporate sectors to address pressing issues in sustainability and responsible investment. As always, the conference featured a packed agenda. Here are our key highlights and insights from the sessions.
Policy, Politics, and the Role of the Private Sector
The political divide on responsible investing might be narrowing. Climate Minister Simon Watts and former Minister Dr. Megan Woods underscored the necessity for clear, comprehensive plans to meet New Zealand’s emissions reduction targets and enhance climate resilience. Despite political disagreements on government spending for decarbonisation, there was a consensus on New Zealand’s overarching goals and the importance of a regulatory framework for offshore wind energy was an insight into the next dimension of energy transition.
Dr. Rod Carr from the Climate Change Commission provided valuable insights into the climate challenge and opportunities. He emphasised that the transition is underway but it will not be linear, with disruptions expected. The economics support the transition but will require significant investment, and the business community will play a pivotal leadership role this decade. Dr. Carr highlighted the growing dialogue on carbon capture and storage (CCS) and its necessity as part of the toolkit, noting substantial investments in CCS technology.
Minister Watts concluded with a discussion on the Government’s climate strategy pillars. The Government remains committed to New Zealand’s net-zero targets, focusing on ‘how’ to achieve them.
The Government is open to collaborating with the market on specific decarbonisation initiatives but will not provide blank cheques. Sometimes, the best role for the Government is to step aside, facilitating the right players’ involvement and occasionally deploying capital.
Regulation and Sustainability Claims
A responsible investment conference would be incomplete without addressing greenwashing. Liam Mason, Executive Director of Evaluation and Oversight at the FMA (Financial Markets Authority), stressed the importance of avoiding greenwashing to maintain financial market integrity. While 75% of funds include sustainability or ethical claims, half of the respondents in the Voices of Aotearoa report expressed concerns about greenwashing. It is this growth in importance of sustainability claims in investment decisions that makes it a focus for the FMA. Mason emphasised the need for greater clarity and certainty in investor information, noting the language used currently could be more investor friendly.
A common theme from the investment industry regarding Climate-related Disclosures was the cost of reporting relative to the impact of the disclosures. Producing these disclosures required significant time, money, and resources, with the published CRD report supported by extensive behind-the-scenes information, most of which still involves significant estimation.
The Role of Stewardship in Investment
Corporate engagement and shareholder action have become more prevalent than negative screening in New Zealand for the first time, as noted in RIAA’s Aotearoa New Zealand benchmark report last year. The high use of negative screening in the past may have been influenced by KiwiSaver default fund providers needing to exclude certain sectors. Stewardship leverages investor rights and influence to protect and enhance value. Effective stewardship involves setting objectives, having systems in place, and knowing when to escalate engagement efforts.
Sustainability in Real Estate
The real estate industry has a goal to transition to green buildings.
There is strong demand for green buildings over non-green alternatives, primarily driven by tenants. Market evidence shows that green buildings command a rental and investment value premium over non-green buildings. While the initial investment is higher, the increased rental premium provides higher returns for green buildings over the medium to long term.
There was a consensus on the need for regulation to support green building in New Zealand, with suggestions to prominently display building ratings and remove impediments to installing solar panels. The focus on adaptation has increased following recent weather events in New Zealand having raised awareness of the need for adaptation measures. Globally, weather events are impacting the insurance market, driving interest in sustainability and adaptation.
NZX CEOs Passionate About Sustainability
CEOs from Tourism Holdings Limited, Spark, and Vector discussed how they integrate sustainability into their organisations. Sustainability needs to be embedded holistically across an organisation, not confined to one department. These companies are working towards integrating sustainability into their business strategies, focusing on practical implementation and balancing ambition with reality. Challenges remain in quantifying and forecasting climate-related risks and opportunities. Engagement with investors and stakeholders is driving progress in sustainability efforts.
The “S” in ESG
Modern slavery was a key topic for investors, brought to life by an emotional session on young girls exploited through human trafficking. The session underscored the prevalence of modern slavery in global supply chains and the finance sector’s role in addressing this issue. The global economy relies on cheap, vulnerable labour, and New Zealand companies are part of these global value chains. Effective legislation, like that in the United States, requires companies to prove their supply chains are clean.
Investors can be more effective by asking about incidents of modern slavery uncovered in the last 12 months rather than just focusing on policies. Working with companies to improve supply chains and workers’ rights is crucial, as severing ties with suppliers can reduce the ability to influence change. Although challenging, transparency is emerging, and investors should urge companies to openly address issues.
Māori Entrepreneurship for Sustainable Growth
A packed session on Māori entrepreneurship highlighted the significant role of Iwi investors and Māori businesses in Aotearoa NZ’s economy. With around 30% of under-15-year-olds in Aotearoa NZ being Māori, the potential for growth in investors looking for solutions aligned to Te Ao Māori is substantial. Engaging with Iwi Māori on their investment needs is relationship-driven, requiring long-term partnerships (“a thousand cups of tea”) and authentic engagement. It’s essential to consider the role of capital in a transformational system and lead with values.
Nature Needs Nurture
Protecting nature and biodiversity requires significant investment, estimated at US$1 trillion per annum, with current investment sitting around US$1 billion per annum. Understanding the risks and opportunities associated with nature is complex and these risks are not well priced in the market. Investors can take action by using tools like heatmaps to assess the impact of their investments on deforestation and other environmental issues. The recently launched RIAA Nature Investor Toolkit also provides valuable guidance for investors.
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This article is provided for general information purposes only. The information provided is not intended to be financial advice. The information provided is given in good faith and has been prepared from sources believed to be accurate and complete as at the date of issue, but such information may be subject to change. Past performance is not indicative of future results and no representation is made regarding future performance of the Funds. No person guarantees the performance of any funds managed by Harbour Asset Management Limited.
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