New Zealand’s responsible investment market now accounts for more than half of the country’s total managed funds universe for the first time, reaching a record NZ$183 billion (A$172 billion) in 2022.
An annual Responsible Investment Association Australia (RIAA) study listed NZ Super, AMP, ANZ New Zealand Investments, Trust Waikato and Accident Compensation Corporation among the country’s asset owners and managers deemed “responsible investment leaders”.
The funds were judged against the RIAA scorecard, which ranks them on the proportion of overall assets managed in an ethical fashion and the disclosure surrounding those investments. A growing number of Kiwi institutional investors met the “leaders” threshold compared to 2021.
This upward movement of the responsible sector came despite a 3.4 per cent drop in size of the overall managed and super funds market in New Zealand.
In comparison, Australia’s responsible investment funds accounted for 36 per cent of the overall market, valued at $1.3 trillion in 2022, per RIAA’s Australian findings released last month.
This reflected a 14 per cent dip from a 42 per cent share in 2021, which the report said to have been caused by a drop in total market value and outflows from funds.
Another first in New Zealand came in institutions’ responsible investing approaches, where corporate engagement and shareholder action became the most popular method with NZ$154 billion (A$144 billion) AUM under its belt. It surpassed negative screening and ESG integration methods by a small margin.
Australia was a similar story, as corporate engagement and shareholder action informed A$790 billion AUM in 2022, followed by ESG integration (A$783 billion) and negative screening (A$664 billion).
Norms-based screening – assessing investments in light of their compliance with global agreements such as those enacted by the UN or OECD — has gained significant momentum in both markets, with AUM in this category growing almost eightfold in New Zealand and by 85 per cent in Australia over the year.
Greenwashing fears deter
The report found different perceptions about challenges and opportunities in responsible investing were present in both markets.
Australian fund managers were noticeably more concerned about performance, with 70 per cent mentioning it as a key deterrent to responsible investing – a 29 per cent increase year-on-year – whereas only 24 per cent of New Zealand fund managers quoted the worry.
Concerns about greenwashing also grew exponentially in Australia (39 per cent). This came amid ASIC’s close examination of greenwashing in the investment sector during the 2023 financial year, which saw institutions including Active Super and Vanguard taken to court over ESG claims.
Some parts of the industry have voiced their doubts about the tough ASIC actions, with retail industry super fund Rest’s CEO, Vicki Doyle, describing the federal government’s greenwashing crackdown before setting standards around ESG claims as putting “the cart before the horse”.
The RIAA report concluded that fund managers would likely have to manage the risk of greenwashing more carefully in the near future as investors’ demand for responsible investment products increases.
When it comes to opportunities, demand of institutional investors was revealed as the top sector growth driver for Australian fund managers, followed by the growing interest in aligning investments with mission or value and the improvement of long-term performance or risk mitigation
Their New Zealand counterparts were thinking of similar things, but placed more importance on the demand from retail investors and the acceptance of ESG factors’ financial impact on investment.