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Fund managers hypocritical on RI: Stubbs

Fund managers that offer both “ethical” and “normal” investment strategies to clients are “hypocritical” in their approach to responsible investing, according to the managing director of KiwiSaver provider Simplicity.

Thursday, September 20th 2018, 6:00AM 7 Comments

Speaking at the Responsible Investment Association Australasia (RIAA) Conference in Auckland yesterday, Simplicity’s Sam Stubbs said investors should make more of an effort to put the strategy at the centre of their business: “Investment firms that have ethical and normal portfolios are really saying what matters more is getting clients’ revenue, rather than the fundamental ethics of their business. You either are thinking that way, or you are being hypocritical.”

Stubbs said fund managers could be failing their fiduciary duty to clients by not following a responsible investment strategy. He said thousands of “compelling” studies proved responsible investing delivered better returns. “The question is not why would you invest in this way, but why wouldn’t you? And are you failing your fiduciary duty to clients to make them more money, by not doing it? It is not a “nice to have” anymore, this is an absolute necessity if you are going to do your job as a fund manager.”

In a later session, Booster's David Beattie defended asset managers offering ethical and "normal" strategies, saying the extent of responsible investing was down to clients. 

Stubbs took part in a panel discussion on climate change at yesterday’s conference. He said climate change was one of several issues for fund managers to consider, rather than the most important. A study from RIAA and responsible investing platform Mindful Money this week revealed Kiwis considered animal welfare their biggest ESG concern. Stubbs added: “Is climate change more important than animal welfare? Is it more important than other issues that matter to our investors? I think the conversation for New Zealand fund managers has been very easy. We all ran off and excluded arms and tobacco easily. Now we have a whole raft of exclusions to talk about.”

The growing number of exclusions demanded by ESG-conscious clients could create tension between investors and banks that lend to “excluded” sectors, Stubbs added: “We are getting to the sharp end of the stick in New Zealand. We have to make domestic decisions that could see us piss off clients of other divisions of the businesses we work for.”

In the panel on climate change, Slade Robertson, managing director at Devon Funds Management, said domestic fund managers had become more active on climate change, helped by global initiatives led by investment giants such as CalPERS, the Californian pension fund. He said managers could “collaborate” to hold companies to account on climate change matters. He added: “We are moving in the right direction. As investors, we now know how to target our efforts as shareholders. We have a much better ability to gather data. There has been a level of collaboration between asset owners and managers.”

Tags: Devon FM KiwiSaver responsible investing Responsible lending

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Comments from our readers

On 20 September 2018 at 9:08 am Pragmatic said:
Mr Stubbs’ announcement reeks of self promotion that is devoid of facts. Thank you Mr Beattie for defending the industry on this one.

Whilst there are some funds management entities who actively promote themselves as being “ethically biased” when this is merely a marketing campaign, many others are making strong advances towards meeting minimum ESG criteria. These include being signatories to the UNPRI, having committed ESG resources, processes & overlays, & genuinely adhering to positioning their businesses as ESG sensitive entities. Other groups simply don’t wish to position themselves in that way (for their own reasons) which is ok also.
On 20 September 2018 at 10:13 am John Milner said:
Sam as ironic as this comment is; you’re sounding more like a reformed smoker every day. Bagging everyone else around you.

I doubt very much you would have the same conviction if you were just entering the industry with a fortune yet to be made.

I suspect these are merely marketing angles: low cost, RI. etc. Some of us came to those startling revelations of fiduciary standards some years ago and implemented them well before your marketing department dreamed them up.
On 20 September 2018 at 2:19 pm Marie Quinn said:
I very much doubt Sam's claim that thousands of reviews have come down on the side of ethical investing as being more profitable

This is not a black and white discussion. There are many shades of grey, always have been. Carried
to its conclusion this argument could result in no investing being moral and acceptable.

It is a nonsense argument.

Helping clients to increase their wealth is why we exist and have been doing this job to the best of our ability for many years.

Come down from your Ivory Tower, Sam. Stop acting like the holier than thou Whited sepulchre and acknowledge that there is good and bad mixed up together in everything we do in life.

Marie Quinn
On 20 September 2018 at 4:07 pm Steven Popodopolus said:
https://www.depositrates.co.nz/news/976497824/six-into-one-doesn-t-add-up.html

Speaking of hypocritical, this is my favourite part:

He also said a lower cost scheme, achieved through indexing, would provide lower investment returns over time and that the SWG, "forgot to mention how much lower returns people will get - this is not theory, this is fact."
On 21 September 2018 at 9:33 am MartyMcFly said:
Let’s not forget Simplicity only went ethical after the NZ Hearld exposed Vanguard (which Simplicity invested in) from investing in cluster bombs, weapons and other unethical industries caught up in global Index funds.

Sam could you please explain why you invested in those industries then and now you claim it is a breach of fiduciary duty? “You are either thinking that that way, or you are being hypocritical”?
On 21 September 2018 at 9:52 am FastJimmy said:
Sam. Not wanting to call you a hypocrite, but...... Given that you use Vanguard ETF's how do you reconcile using them with your black and white view on hypocrisy?

Most Vanguard ETF's do not use any form of SRI screen, Simplicity happens to use the very small minority of Vanguard funds that do. So your primary provider of risk units is exactly the sort of manager you are pontificating about avoiding. There is a serious mismatch between your self promotion and the reality of how you do business. Care to justify or just happy to "lob hand grenades".
On 21 September 2018 at 10:39 am DavidBeattie said:
"Normal" investing can be just as responsible as "ethical"; they are NOT mutually exclusive.

Most managers offering "ethical" fund options to cater for investors with strong personal values are also actively developing their "normal" responsible fund options by integrating ESG factors into their selection process.

This approach to RI is arguably more likely to deliver better long-term return outcomes than a blanket exclusions approach.

And btw, if Sam truly believes in his headline statement, why does he use Vanguard? They offer both "normal" and "ethical" funds.

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