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Has the time come to invest responsibly?

Thursday, June 3rd 2010, 1:50PM 2 Comments

by Philip Macalister

Something unusual happened yesterday. I got excited at a conference! Yes that sounds scary (and strange) but let me explain. I spent the day at the Responsible Investing (RI) conference organised by Matt Mimms at The Investment Store (and ably support by Jen and the AMP Capital team). For years I have been a supporter of RI. I always figured it was a no brainer for Kiwi investors. We are clean green. We are proudly anti-nuclear and anti-whaling. We were the first to give women the vote. The list goes on. To me these values are part of our collective DNA. But do we transport those values to our investments? No. For years we have written articles in ASSET Magazine and www.goodreturns.co.nz about how big RI is around the world, yet it remains a small part of our collective investment universe. There are changes starting though. Our big institutional funds like the NZ Super Fund are leaders in RI. More and more KiwiSaver funds which invest responsibly are in the market. Added to that there are a number of fund managers who have signed up to the UNPRI. The group gathered yesterday was also a change. RI has been a very quiet space in the past couple of years. However there is now renewed interest in it. Yesterday’s conference was well attended. Indeed I understand they had to turn people away. One of the sessions which resonated with me was what I would call a keynote speech from the head of the Responsible Investment Association of Australasia Louise O’Hallaron. The presentation was modelled on Al Gore’s movie An Inconvenient Truth, and the message was (as you’d expect) simple and stark. Everyday we read about things like the oil slick in the US, the global financial crisis, climate change and wars. We are concerned about what is happening with our planet and change needs to come. We can’t rely on oil and fossil fuels forever. We need to ensure there is food and water to sustain the population growth. We need to deal with climate change and global warming. One of the things we can do is change the way we invest. Instead of filling portfolios with “sub prime” assets we need to spend more time understanding what the companies we invest in actually do and we need to invest in the other areas like alternative energy. The price of carbon will have to be accounted for at some stage. Maybe New Zealand is sensible to adopt and ETS as it may make our companies more attractive in the long term. On top of this throw in the changes to the financial adviser world. Under a regulated advisor world talking to clients about RI may become a requisite of a good financial plan. Here at Good Returns we are keen to help advisers understand more about RI and how (and why) they should consider it as part of their business. One idea is to build up a network of advisers and get some discussion going. Included in here would be the ability to ask others advisers about how they use RI. If you would like to become part of this group then drop me an email (philip@goodreturns.co.nz).
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Comments from our readers

On 4 June 2010 at 1:01 pm Tui said:
The difficulty is matching individual preferences to the investments and greenwash. No animal exploitation? No mining? Pro nuclear power (some greens are) antinuclear? Pro defense? Drug manufacturers? Womans rights? Child labour (opportunity or exploitation?).
Pick a country and there will be people who do not wish to invest in them Korea?, Norway? USA? Japan? China?
Is it better to invest and raise issues at AGMs?
I doubt that you can pick a company that does not offend somebody somewhere.
In the meantime donating to opposing causes to the "bad" bits of a portfolio seems like a possible strategy.
On 6 June 2010 at 10:29 am Louise O'Halloran said:
There are plenty of tools and approaches now that can help you to cut through any concerns about product greenwashing and also trying to match clients with products. What is not widely understood about responsible and ethical investment products is that they incorporate between 100 and 200 research datapoints covering an enormous range of issues of common concern to your "average" thoughtful citizen.
Most of these issues are captured in RI products, in fact all of the issues you raise above are included in the methodologies of the lion's share of the funds I am familiar with, in some way or another.
What is extremely important when talking to clients is to discuss the broad range of issues that CAN be captured in most products and to ask clients to think about the holistic and interconnected nature of these issues. Most clients don't understand the contribution they can make and the depth of research that goes into creating products that will serve this discerning marketplace.
Sustainability issues do not exist in isolation, and once educated about this, most clients are pleased to be contributing in a significant way across a broad range of issues. Products based on single issues, if they are peculiar to just a small circle of people, are costly and impractical and clients are best to be advised about this.

The Responsible Investment Association Australasia is the non profit membership body for responsible investment advisers and fund managers and runs a terrific online course for advisers to help with all of these concerns and provide a template for managing responsible investment clients (see www.responsibleinvestment.org)

Regarding greenwash, most funds operating in NZ and Australia have now been certified and independently audited by Grant Thornton to ensure that they do what they say they do. Full methodologies, full stock listings, performance and a full explanation of how a fund sources and applies its research can be found at the same website.
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