Welcome to the new and improved RIAA Window newsletter, informing you about all things responsible investment. We’re including some new additions including a regular update on corporate engagement and profiling a different RIAA member each edition. In coming weeks, you will also receive the first of our monthly news roundups providing you with a summary of all the news and developments in responsible investment covering Australia, New Zealand and internationally.
RI AUSTRALIA 2017
Last week RIAA hosted Australia’s foremost annual gathering for responsible investment – RI Australia 2017 – at the Powerhouse Museum in Sydney. This year’s conference was our biggest yet, attended by over 350 people and featuring over 60 local and international leaders in responsible, ethical and impact investing. From integration of the SDGs across investment portfolios to ESG trends to watch to the latest in shareholder engagement, our event covered a broad range of themes and attracted a diverse array of participants with a strong appetite to drive responsible investment into the mainstream.
A conference highlight was hearing from global expert Tony Seba on how the disruption of transport with electric vehicles (EV) and autonomous vehicles will reshape cities, industries and expose investors to both risks and opportunities. Stay tuned for a video of the informative and provocative session that captured the attention of conference-goers.
To read these visit www.thesustainabilityreport.com.au and access your free one day pass to the news site using the code ‘RIAAPASS’.
9 in 10 AUSTRALIANS EXPECT THEIR SUPER AND OTHER INVESTMENTS TO BE INVESTED RESPONSIBLY
At RI Australia 2017, we launched important new consumer research that shines a light on the growing demand from Australians for superannuation, banking and investment products that are responsibly invested.
Conducted by Lonergan Research on behalf of RIAA, the research shows 9 in 10 Australians expect their superannuation or other investments to be invested responsibly and ethically.
In an important signal to Australia’s superannuation, banking and wealth management sectors, 4 in 5 Australians would consider switching their super or other investments to another provider if their current fund engaged in activities inconsistent with their values, and just over half will consider making ethical or responsible investments in the next 1 to 5 years.
To read our research report ‘From Values to Riches’ click here.
HOLD THE DATE - RIAA'S AGM
RIAA will be holding is Annual General Meeting on the 12th December 2017 from 5:30pm – 6:30pm in Sydney.
Members will receive a formal notice of meeting shortly.
RIAA’s membership continues to grow and we now have over 200 members today who combined, manage over $5 trillion in assets globally. We welcome our newest members:
- Anne Reeves (Supporting Individual)
- Brad Hopwood (Supporting Individual)
- David Lewis (Financial Adviser)
- John Green (Financial Adviser)
- Mercer Australia (Asset Manager)
- Mercer New Zealand (Asset Manager)
- Murray Nicol (Financial Adviser)
- Nanuk Asset Management (Asset Manager)
- Nicolette Boele (Supporting Individual)
- Pathfinder Asset Management (Asset Manager)
- Sarah Barker (Supporting Individual)
- Vijay Nandan (Financial Adviser)
- Yen Wong (Supporting Individual)
CORPORATE ENGAGEMENT UPDATE
It is the AGM season with investors looking at how they vote on various resolutions with companies. This year has seen an increasing push for shareholder resolutions around a number of ESG issues and RIAA has been working with our members to more deeply engage with companies in the spirit of active ownership and more responsible investment.
Human rights remains at the fore of corporate engagement. In October, the Australian Centre for Corporate Responsibility (ACCR) and Centre for Australian Ethical Research (CAER) released a benchmarking report on the human rights performance of 23 ASX listed companies operating in the medical devices, extractives and agricultural sectors. ACCR filed a resolution with Woolworths regarding identifying, addressing and disclosing human rights impacts across the company’s operations and supply chains. Ahead of the company’s AGM this week, ACCR withdrew the resolution announcing that Woolworths and the National Union of Workers had established a partnership to ensure that the human rights of workers in Woolworths’ fresh food supply chains are upheld. A similar resolution put to Wesfarmers by ACCR was rejected.
RIAA has also been working with the ACCR in recent months on engagement with BHP around its membership of industry bodies. The shareholder resolution filed by ACCR called for BHP to terminate paid membership of industry bodies like the Minerals Council of Australia that have demonstrated a pattern of advocacy on policy issues at odds with the company’s positions over the period 2012 to the present day. As a result of the resolution, BHP committed to a review of industry associations to which it belongs. Watch RIAA’s Simon O’Connor discussing why this is an issue of concern to investors, on ABC’s The Business.
RIAA has also been working collaboratively with our members to ask Australia’s biggest banks to review their positions on offering credit card facilities to merchants that operate in the Australian online gambling sector and instead replace those facilities with a debit-only system. This work is continuing.
The impact that Australian investors are having is noteworthy. Earlier this year, Market Forces filed a resolution at the Santos AGM requesting the company better acknowledge and assess the risks posed to its business by climate change. After a month of active engagement by investors, Santos responded with a climate change statement that stepped up its commitments to reporting on climate risks and reconfirmed commitments to aligning its business strategy to a 2 degree world. Although the commitment lacked some details – namely a clear timeline, the specific commitment defining the scenario planning – it was nonetheless a clear step in the right direction, and a vast step forward for the company. A similar shareholder resolution coordinated by Market Forces, calling for improvements to Origin Energy’s climate risk disclosure, received significant support from institutional investors at the company’s October AGM garnering 13.77% of shareholder votes.
In a welcome move to reduce the current challenges faced around shareholder resolutions ACSI has launched a report Shareholder Resolutions in Australia: Is there a better way?, recommending the introduction of a non-binding shareholder resolution in Australia, maintaining the current threshold of 5% of capital or 100 shareholders for bringing proposals forward.
If you are a RIAA member and would like to join our Corporate Engagement Working Group, please get in touch with Alex Hamilton here.
IMPACT INVESTMENT FORUM
As part of RIAA’s role supporting the development of the market for impact investing in Australia and New Zealand through our Impact Investment Forum, we attended the Social Enterprise World Forum in Christchurch in September 2017. The Forum brought together over 1600 delegates from 45+ countries, and shined an important spotlight on New Zealand’s flourishing and diverse community of social enterprises.
The World Forum was also a launching pad for New Zealand’s dedicated work to grow the market for impact investing. A new report Growing Impact in New Zealand was launched by the Ākina Foundation (with contributions from EY and JBWere), making the case for growing impact investing in New Zealand and suggesting that an impact investment market of around NZ$5 billion is achievable. Two market development initiatives were also announced. The first was the development of a New Zealand Advisory Board on impact investing to provide leadership and strategy for the growth of impact investing in New Zealand as well as to participate in the Global Social Impact Investment Steering Group. Secondly, a web-based platform to promote impact investment was launched: the Impact Investing Network. Read the piece from Carly Hammond, our Impact Investment Forum Program Manager, to hear more about these important developments in New Zealand
In October, RIAA’s Impact Investment Forum hosted a webinar on global and local developments in impact investing, with the Global Impact Investment Network’s Amit Bouri unpacking the results of the GIIN’s Annual Impact Investor Survey 2017, Rosemary Addis discussing the importance of market development work in Australia and Alex Hannant discussing the opportunities for impact investing to help tackle social challenges in New Zealand. If you are a RIAA member you can access the webinar in our members-only resources here.
RIAA’s Impact Investment Forum hosted impact investment pioneer Brian Trelstad in Sydney for the RI Australia 2017 conference, in partnership with the Impact Investment Summit Asia Pacific. Bridges+ is leading the groundbreaking Impact Management Project, a new global initiative to develop a convention for how we integrate impact into investment processes. If you missed Brian at RI Australia 2017, don’t miss his blog post.
RIAA MEMBER PROFILE - REGNAN
Each edition of RIAA Window we will be talking with and profiling a different RIAA member. For our first member profile, we spoke with the team at Regnan.
Regnan provides a range of stewardship and advisory services to long-term investors that seek to understand and manage intangible risks to long term value creation, apply certain values across portfolios or build the capability to do so. Its vision is a financial system that genuinely serves society. Its value-focused, bottom up research together with its philosophy of constructive engagement positions it to provide tailored to full partnership services that meet its long term investor client’s needs to be active owners and best practice investment stewards.
- Tell us a bit about the history of Regnan and your role in the development of responsible investment in Australia.
Regnan was established in the early 2000s through two predecessor organisations which eventually merged. The name Regnan was launched in 2007 and it is owned by BT Investment Management and Commonwealth Superannuation Corporation.
Regnan was established by investors, for investors to fill a gap in the availability of rigorous research and data on the long-term risks to value. Specifically, risks arising from poor governance practices in listed companies, including a disregard for their social licence to operate and the pursuit of short term performance at the expense of enduring financial sustainability.
Regnan’s mandate is to focus on long term value, the efficient pricing of externalities and maintaining constructive investee/investor dialogues, framed by the principles of active ownership and stewardship.
This pursuit of constructive dialogues has helped create the type of collaborative relationships amongst diverse and disparate groups that did not exist 15 years ago. Today we see representative trustees, directors of ASX-listed companies, key decision makers in financial services and even civil society groups engaging in constructive dialogues on ESG issues.
- According to Regnan, what are the characteristics of leading practice ESG?
Being a true leader in ESG requires a relentless focus on impact. In regards to research, this means that ESG-focused research must make a difference to investment decisions. For corporate engagement, that means targeted changes are actually achieved and can be attributed, at least in part, to that engagement.
In an ideal world, ESG would be completely and seamlessly embedded into the thinking of those who analyse companies, and embedded into any investment decision processes.
We can learn from history that blind spots always exist, so leadership in ESG means a dedication to identifying today’s blind spots, and continually questioning the dynamics at play in financial markets. Such thinking will support truly responsible investment that can achieve positive impacts for society as a whole. In essence, driving an outcome where corporate leaders take a proactive approach in thinking about what matters now and what will matter into the future.
- What’s changing in the research and engagement landscape and what impact is this having on corporate governance in Australia?
In terms of change, ESG research is being shaped by both consolidation and fragmentation. We’re seeing a lot of small and middle-sized players be swallowed up by larger players. MiFID II is also set to impact the way research is paid for in the market, though it’s too early to tell how. We think the changes to corporate practices in the Australian market are more due to active ownership, rather than to funds management integrating ESG – at least so far.
Engagement is happening in much greater volumes. Which is not always well targeted informed or outcome focused. This is driven in part by a number of asset owners wanting to establish direct relationships with corporates. We hear from companies about the change this has made to their own practices – the need to devote more time and resources to communication and the need to consider a different set of skills for certain directors (such as remuneration committee chairs).
- Corporate engagement is central to your work. What is your approach and how do you measure your impact in improving a company’s ESG performance? How do you know engagement works?
First and foremost, our engagement is led by rigorous research. Through that, we can identify ESG issues that are most material to a company, and then use these insights to establish targeted change objectives.
Engagement is then measured by assessing if change objectives have been met. We look for public evidence, not private reassurances.
- Anti-money laundering and energy/climate policy have featured prominently as areas of interest for investors over the past year. What other issues are you seeing emerge?
Anti-money laundering/ counter terrorism, executive remuneration and climate policy are issues we’ve been watching for a number of years. We have also been actively engaged with corporate conduct and culture including ethics. What’s new is the recent very public recognition by corporate leaders that public trust has fallen to critical levels, and that this is impairing its social licence to operate. It is also being highlighted by regulators, so it is not surprising that there has been renewed investor focus on this issue, but it goes far beyond the compliance issues that have hit the press.
We’re also seeing a focus on the role of public companies in shaping public policy. This has been evidenced by special shareholder resolutions focusing on membership of third party lobbying groups, for example.
We’re also seeing an increasing focus on corporate boundaries. That is, where a company’s accountability stops. Scandals born out of joint ventures (Samarco dam failure) and franchisee issues, for example, have resulted in greater investor scrutiny of company supply chains, use of contractors, labour issues, complex corporate structures and the like. Investors are joining the dots and increasingly consider that a company’s boundary of responsibility doesn’t end where its legal boundaries do.
NEW RIAA CERTIFICATIONS
RIAA’s Certification Program has now certified over 150 products, funds and financial advisers. Here are the latest advisers and products that have been certified.
You can find the full list and more detailed information about each certified product and fund at Responsible Returns, RIAA’s dedicated consumer portal for finding certified responsible investment opportunities.
Renewing certified financial advisers:
Nat Chell, Sky Summit Financial
Stuart Barry, Ethical Investment Advisers
New Certified Products
- BetaShares Global Sustainable Leaders ETF
- BT Investment Management:
- BT Sustainable Australian Fixed Interest Fund
- BT Sustainable International Fixed Interest Fund
- BT Sustainable International Share Fund
- BT Sustainable Australian Share Fund (returning)
- BT Sustainable Balanced/Conservative Fund (returning)
- DMP Asset Management – Tailored Portfolio Service
- Kiwi Wealth KiwiSaver Scheme (Growth, Balanced, Conservative, CashPlus, Cash, Default)
- Medical Assurance Society
- Retirement Savings Plans (Cash, Defensive, Conservative, Balanced, Growth, Aggressive, Global Equities)
- KiwiSaver Scheme (Cash, Defensive, Conservative, Balanced, Growth, Aggressive, Global Equities)
- Pengana WHEB Sustainable Impact Fund
- Russell Investments Low Carbon Global Shares Fund (hedged and unhedged)
- State Street International Equities Index Trust Ex Tobacco Ex Controversial Weapons
- UniSuper Global Environmental Opportunities option
IMPACT 'MANAGEMENT' - THE KEY TO GROWING RESPONSIBLE INVESTING
From ESG integration to dedicated impact investing, the analysis and consideration of the impact our investments are having remains a challenge for many investors.
In our guest blog, Brian Trelstad from Bridges Fund Management looks at the opportunities and emerging convention around impact management to help investors of all types better communicate, analyse and evaluate impact.
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