INSIGHTS

   Published in Sunday Star Times News.

As well as seeking healthy returns, investors are increasingly considering non-financial factors balancing traditional investing with sustainable investing to improve long-term outcomes.

Tying personal beliefs to investments can be a meaningful way to help reach your financial goals. Today, more Kiwis are seeking investments with targeted environmental, social and governance (ESG) standards that aim to have positive ESG goals with financial returns.

Responsible investment assets under management reached a record $142 billion in New Zealand in 2020. That’s up from $111 billion in 2019, according to the latest benchmark report from Responsible Investment Association Australasia.

Craigs Investment Partners Sustainability Analyst Vanessa Stevens says a couple of factors are facilitating a shift to sustainable investing: investors are increasingly focused on companies’ environmental and societal impacts, and escalating government regulation is driving corporate change. The Global Sustainable Investment Alliance estimates that the value of assets invested with some sort of sustainability focus has increased by at least 250% in the last 8 years alone to $US35trillion, this demonstrates the increasing importance of sustainable investing to investors. “New Zealand is the first country to require climate-related disclosures,” says Vanessa. “Worldwide, we’re seeing more and more regulations come into play, so you’ve got pressure from the top and from the bottom. Company leaders can’t ignore the fact that people are examining sustainable aspects of their organisations.”

From exclusions to more active choice

Many investors may have previously had a ‘no buy’ list for investment portfolios that included weapons, alcohol, tobacco, gambling and animal testing. Today, Vanessa says investors have broadened their outlook to consider pro-environment, pro-social policies encompassing a range of issues such as clean energy, gender equality and climate action, as well as healthcare and technology access during the pandemic.”

Vanessa says political issues and conflicts such as the overturning of Roe v Wade in the US and the war in Ukraine affect Kiwi investors’ behaviour. Even during market downturns, she says clients continue supporting ESG standards. “Of course, people become worried, but you don’t throw away your values overnight.”

Craigs Investment Partners has developed its own sustainability scoring framework which considers a range of non-financial measures to build a company’s comprehensive sustainability picture. Each organisation gets an environmental, social and governance score, and an overall combined sustainability score out of five reflecting that each client has different values and therefore may be interested in how a company performs in a specific area. Analysts also provide a sustainability overview highlighting key issues for investors.

Vanessa says Craigs’ research and leadership in the ESG arena give the firm a chance to engage with New Zealand companies if analysts find information gaps. This encourages organisations to become more upfront and accountable to shareholders and to the wider community. “Over the past few years we’ve seen a shift with more clients interested in the ESG aspects of their investments. With every dollar you’re investing, you’re effectively endorsing what the company does and how they go about it so I think investors will continue to pay attention to the non financial attributes of an investment.”

Not a one-size-fits all approach

Craigs’ investment advisers partner with clients to tailor portfolios using the sustainability framework in a way that aligns with each client’s values. “It’s important to note that it’s not a one-size-fits-all approach when it comes to how sustainability considerations are used. It’s not our role to tell clients what they should value or care about. The sustainability scores act as a starting point, and how much weight each of us personally places on the E, the S or the G is an individual decision,” she says.

This article is general in nature and is not financial advice. It does not take into account your financial situation, objectives, goals, or risk tolerance. All investments involve risk and can go down as well as up. The Craigs Investment Partners Limited Financial Advice Provider Disclosure Statement can be viewed at craigsip.com/tcs. Visit craigsip.com.