Investment Newsletter - September 2023

The Rise of ESG and SRI Investing

An increasing number of investors are demanding responsible investing (ESG and SRI) practices in their investment portfolios. But what does this actually mean?

The term ESG refers to the practice of considering environmental, social, and governance (ESG) criteria when making investment decisions. This means that in addition to financial returns, investors consider how a company's operations and policies impact the environment, society, and the way it is managed.

Socially Responsible Investing (SRI) is an investment practice which is considered socially responsible due to the nature of the business the company conducts. This investment practice involves avoiding investments in companies that produce or sell addictive substances or activities (like alcohol, gambling, and tobacco) in favour of seeking out companies that are engaged in social justice, environmental sustainability, and alternative energy/clean technology efforts.

The rising popularity of ESG and SRI investing is a testament to the fact that investors are no longer content with simply chasing financial returns. They are embracing investments that align with their values and contribute to the betterment of the planet and society, and with rising concerns around climate change, social justice and war crimes, investors are pushing companies and regulators to adopt and focus on the ESG and SRI issues.

In New Zealand, sustainable investing is on a remarkable upward trajectory. This trend is reflected in the surge of interest in sustainable investment options as more investment providers worldwide integrate this practice into their investment process. A report by the Responsible Investment Association Australasia (RIAA), the largest certifier of responsible investing in Australia and New Zealand titled “New Zealand responsible funds surpass laggard funds”, highlighted that responsible investment funds have overtaken traditional funds for the first time in 2022, reaching a record $183 billion in 2022, while traditional funds dropped to $169 billion. This covers 52% of the total managed funds market in New Zealand, surpassing traditional funds for the first time.

“It’s only a few years since responsible investment was seen as a niche market. But the landscape has now turned on its head – today, funds not actively engaged in responsible investment are not just lagging; they’re stranded at the starting line of a race that’s already in full swing”, said Dean Hegarty, Executive Manager at RIAA. There is growing acceptance that ESG factors impact long-term financial performance, and a combination of other factors such as new climate-related regimes and high-profile investment in renewable energy projects all contribute to driving up the demand for responsible and ethical investing.

For investors, the message is clear: it's high time to factor ESG and SRI considerations into your investment planning. There's mounting evidence demonstrating a strong correlation between adept ESG risk management and corporate financial performance. This isn't just about feeling good; it's an empirical reality that savvy investors should not overlook.

Source: Responsible Investment Association Australasia. (2023, October 10). New Zealand responsible funds surpass laggard funds. https://responsibleinvestment.org/wp-content/uploads/2023/10/Media-release_-NZ-RI-Benchmark-Report-2023.pdf

We are only a phone call or an email away should you wish to discuss anything. Please get in contact with your adviser or contact us on 0800 NO STRESS (0800 667 873) or email at info@foxplan.nz if you have any questions or would like your adviser to talk through your current investment plan.

Kind Regards,
The FoxPlan Team