ESG investing: Hotter than a mad dash across a Bay beach in bare feet
| Date | 19 December 2020 |
| Published date | 19 December 2020 |
| Publication title | Hawkes Bay Today |
Identifying companies rated highly on ESG metrics is an increasingly popular way for investors to deploy their money.
In April-June, as the Covid-19 pandemic gained speed worldwide, funds that prioritised ESG investing saw global assets under management hit a record $1 trillion, according to Morningstar.
That was on the back of net inflows of $7.1 billion in those three months alone.
But it wasn’t just a trend that picked up in 2020. The year 2019 has also been a memorable one for ESG investments as it saw a significant jump in sustainable fund flows.
In New Zealand, the responsible investment market was worth $153.5b in 2019.
This represents 52 per cent of the estimated $296.3b of total professionally managed assets under management in New Zealand, according to the Responsible Investment Association Australasia (RIAA).
So it is clear that ESG Investing has taken centre stage in the financial sector for a while now.
Yet, currently, not many countries properly regulate how fund managers apply the ESG label.
It’s very much like a farm calling itself “organic” without having to run it by a regulator.
Eric Balchunas, ETF analyst for Bloomberg Intelligence, said: “If you go in there thinking that you want to go responsible and sustainable with your investments, and then you see some of the companies on the ESG funds, you’re going to be like, ‘What? That’s not what I signed up for’.”
So if you are looking to invest with a conscience, it might pay to check under the hood.
According to a background paper on Responsible Investment in New Zealand by KPMG, fund managers, investors and regulatory bodies are finding it challenging to keep pace.
It has reviewed publicly available information for funds from KiwiSaver providers as of April 2019.
The most significant shortcomings and risks to responsible investment by KiwiSaver funds and providers include ambiguous and inconsistent terminology; vague policies; confusing documentation; redundancy; and immature processes.
Currently, the European Union (EU) is leading in the ESG regulatory space to protect well-intentioned investors and enable the financial sector to play its part in the transition to a sustainable economy.
Meanwhile, efforts in New Zealand have lagged behind and been very much a work-in-progress.
Just last month, the Financial Markets Authority (FMA) announced the appointment of two new specialist roles focused on deepening the...
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