The Interim Report of the Sustainable Finance Forum was launched on 31st October. The report is part of an initiative ‘to shift New Zealand to a sustainable financial system — from one which focuses primarily on (often short-term) financial wealth creation, to one that supports long-term social, environmental, and economic wellbeing and prosperity for all New Zealanders, protecting natural resources for future generations’. As noted in the report, ethical and responsible investors are playing a key role in bringing about this change.
Money Matters was the financial adviser representative in a group of ‘key players in NZ's financial system — including Māori leadership, representatives from banks, insurance companies, industry, professional services, civil society, academia, and government — to explore how to re-design NZ's current financial system to meet the challenges as well as capture the opportunities’.
The report notes ‘the growing awareness that sustainability is a key driver of long-term economic and financial value creation, or destruction, at the macro and micro level’. It notes that: ‘Companies with strong governance and sustainable products, services, or business conduct, are more likely to be rewarded by markets and stakeholders. Conversely, companies with poor governance and unsustainable products, services or business conduct are negatively exposed to policy and regulatory interventions, market disruption, and consumer or societal backlash. At a macro-level, countries with sustainable economies and financial systems are more like to be stable, resilient and competitive in international markets.’ Ethical investors understand this and can benefit by capitalising on opportunities for sustainable investment and avoiding threats of unsustainable and irresponsible investments.
In addition to making money, ethical investors can make a difference by addressing environmental and social challenges as investment opportunities. This ‘making a difference’ aspect is being increasingly referred to as ‘impact’. The ability to have a real world impact is far greater when investors move from simply ‘avoiding harm’ to seeking to have a positive impact. This is reflected in ethical investment where investors can go well beyond negative screening (e.g. avoiding tobacco) to investment strategies of positive screening and sustainability themed investments.
A related issue highlighted in the report is the ‘greenwashing’ in which products, such as managed funds, claim ‘green credentials that in reality have little positive environmental (or social) benefit’. This issue has been taken up by the regulator, the Financial Markets Authority, that has recently stated: ‘With the growing popularity of these products we want to ensure investors are protected from 'greenwashing' and have a clear understanding of what is on offer. They should be able to determine just how green, ethical, or responsible a financial product is.’ Part of the role that Money Matters plays is advising investors on the authenticity of investment options.
The report also stresses the need for ‘sustainability education’: ‘Low levels of awareness on sustainability and capability exist across all financial system participants, from consumers to directors. Providing all New Zealanders with education on sustainability concepts, such as ESG risk management, and responsible or impact investment will be a key enabler for shifting behaviour, and capital, toward positive social and environmental outcomes.’ Money Matters seeks to play an education role ranging from seminars to individual guidance.
The report is available at: https://www.theaotearoacircle.nz/sustainablefinance From November to the end of February there is an opportunity for you to provide feedback on the findings and recommendations: https://www.surveymonkey.com/r/Z5CFJW9