Survey finds “disappointing progress” in new net zero commitments, but notes progress on policies by asset owners and fund managers.
New Zealand and ESG investing ought to be a match made in heaven.
In the popular imagination, the country is clean, green and very environmentally conscious, not least due to its beautiful landscapes and spectacular scenery.
But it seems its investment sector has yet to live up to this admirable image.
A new report says New Zealand’s investment industry is displaying “a keenness for climate action but slow progress”. Slower indeed than Australia, and “significantly slower” than international leaders, such as the European Union.
“For a country that takes pride and capitalises economically on its green image… this is surely a long way from where our investment industry collectively wants to be,” said the report.
“Not proactively setting mandates”
It has been compiled by the Aotearoa Investor Coalition for Net Zero, which consists of Toihu Tahua: Centre for Sustainable Finance, the impact investment charity Mindful Money and the Investor Group on Climate Change, an Australia-New Zealand group of asset managers and owners responsible for the investment of 7.5 million people.
The survey – which is based on responses from 50 investors, covering in aggregate NZD 331 billion in assets, and capturing over 80% of the fund management market – found that key sectors of the New Zealand investment market are insufficiently active in seeking climate-conscious asset allocations.
“Most wealth managers have yet to engage meaningfully on climate issues,” it said. “Most asset owners are not proactively setting mandates to incorporate climate risk and opportunities.”
The report went on: “There has been disappointing progress in new net zero commitments, although new internal policies have been put in place by a number of asset owners and fund managers. Investors recognise the importance of setting interim targets to kickstart meaningful climate action, including asset alignment targets, engagement threshold targets and climate solutions targets, but progress remains slow in New Zealand.
“These targets are a crucial component of short-term progress and accountability, but few targets or implementation plans have yet been set.”
Larger New Zealand investment institutions – fund managers, asset owners and wealth managers with more than NZD 5 billion AUM – were more advanced, with almost three quarters measuring portfolio emissions and around half having set a net zero target. This compares with just under six in ten and a quarter respectively of the overall sample.
But only a third of asset owners responding to the survey reported having investment mandates that refer to emissions, net zero or decarbonisation. “Especially once Crown Financial Institutions are excluded, this leaves a picture where the vast majority of asset owners in NZ are not requiring the fund managers they employ to explicitly consider climate factors in investments,” the report said.
The report also highlighted relatively low levels of collaborative climate engagement with local companies. Only 29% of New Zealand investors said they were engaging with firms in their home market on climate-related issues, compared with 79% of Australian investors.
“Climate corporate engagement by investors to drive the transition remains low in New Zealand. To ensure long-term value protection and creation, investors should implement climate engagement strategies,” it observed.
The country’s government has been encouraging green investment for some years, not least through its agency New Zealand Green Investment Finance, which has a mandate to invest in business opportunities that accelerate reductions in domestic greenhouse gas emissions, provide a commercial return on the investment and serve as a catalyst for the green investment market.
But the report found the financial sector lagging. “Investment in climate solutions (and associated targets) are low, indicating that most investors are not yet redirecting investment decisions to favour companies and projects that will thrive in a net zero world (or are not effectively reporting on this, if they are),” it said.
The report found some progress. Investors of all sizes are progressing with climate reporting, even those for which it is not a requirement, and 58% of investors now have a climate policy. But for the moment, the report found that not only an environmental but a commercial opportunity is being missed: “New Zealand’s enviable international reputation for sustainability creates a significant, immediate opportunity for the financial sector.
“If the sector ramps up its commitments to climate action and its support for climate solutions, it will attract a larger share of the growing pool of international capital seeking net zero-aligned investments and meet the growing demands of individual and institutional investors.”
Read more articles like this on Regulation Asia’s sister publication, ESG Investor.