10 things we learned from the responsible investment forum

Saturday, 21 September 2024

The great and good of responsible investing gathered in Auckland this week were united on one thing: Modern slavery was a blight that needed serious attention from fund managers.

The Responsible Investment Association of Australasia, which convened the conference, surveyed members to find out the single thing they most wanted to hear about.

It was modern slavery.

Here are 10 things we learned from the conference:

1. Modern slavery is a massive concern

Modern slavery covers everything from the most diabolical pure form of slavery through to bonded labour and working conditions so awful they beggar belief.

The message was this: 100% of large companies have modern slavery taking place somewhere in their supply chains.

Modern slavery expert Gary Shaw, who left the conference horror-struck by his experiences of child-trafficking by Asian brothels to cater to paedophile tourists, said any big company that didn’t think it had modern slavery somewhere in its supply chain wasn’t looking very hard.

“The first question that we tend to ask companies is, have you identified any incidents of modern slavery or labour exploitation in your operations or your supply chains in the last 12 months?

“Because we know with 50 million victims, it's in the supply chain of every company. So if they haven't found it, why not?”

2. Biggest bank taking modern slavery seriously

There was concern the Government doesn’t have matching Australia’s and Europe’s modern slavery laws near the top of its agenda.

However, Australia’s modern slavery laws are bleeding into New Zealand.

The conference heard that large trans-Tasman companies were already implementing modern slavery processes into their New Zealand operations.

ANZ has hired modern slavery expert Rebecca Kingi as the bank moves to do due diligence on business customers.

But there is a deeper, structural issue, Shaw told the conference. “Policy is only going to go so far in , in a broken system, in a broken world, until we start making dramatic changes in the way that we consume.”

3. KiwiSaver climate disclosures are unreadable

Under laws brought in by the last government, larger KiwiSaver schemes have had to start publishing climate disclosure reports.

These were, by all estimates, overly long, unreadable to the ordinary person, and so varied investors could not use them to compare funds.

They failed what was referred to as “the pub test”.

The conference heard that the word salad of responsible investing claims made by fund managers defied comprehension by the ordinary investor.

Helen Skinner, head of responsible investment at ANZ, said it was hard enough to get people to read anything, let alone 60-page documents.

“Climate disclosure cost New Zealand a hell of a lot of money,” she said.

“As a disclosure tool, it’s not been very effective.”

However, the practice of having to prepare them was driving a greening of the funds industry, forcing big fund managers to face up to the impact of their investment choices on the climate.

4. Minister for Climate Change cares about the climate

Climate change minister Simon Watts might have been anticipating a tough time, given his Government’s policy has knocked New Zealand off track to hit its emissions reductions targets.

But as he spoke, the frostiness in the room noticeably reduced, as he insisted the Government intended to meet its targets, though it intended to take a different course than the previous one.

The Government saw emissions reductions from a competitive viewpoint: Electrifying the power supply and transport to achieve energy security and emissions reductions, and developing agri-tech to tackle methane emissions.

It was focused on getting in foreign capital to drive the doubling of clean energy production by 2050, as well as getting the clean energy projects built faster.

He said the Government worked with industry to co-design policy to execute to solve problems, like access to green finance.

“I can tell you what the prime minister and his cabinet and his government are committed to ensure that … New Zealand is competitive on the world stage in this area,” he said.

“And anything that is slowing us down or blocking the pipe is in our sights.”

He couldn’t stay for drinks. It’s a busy life being a minister. He hadn’t seen his family in seven days, and was heading home to spend a few hours with them.

5. Opposition climate leader doesn’t believe him

Megan Woods, Labour’s climate spokesperson, accused the Government of “backsliding” on green progress, of the need for New Zealand to “get our ambitious groove back on”.

She, and she was not alone in this, wondered whether the Government planned to renege on the emissions reduction targets it had pledged to hit.

The Government had “knocked us off that ambitious course that we were on”, she said.

“We need a committed government to drive investment, see ambitious targets, keep those clear targets and ensure a just transition that leaves no community or worker behind. Renewable energy could create millions of new jobs globally,” she said.

“We also need to make sure that we have clear price signals coming through carbon prices and taxes and we need effective carbon pricing mechanisms here in New Zealand, we have progressed many of these but we are currently seeing that it is imminently possible to backslide on progress,” Woods said.

Green taxes are taxes on things like waste disposal, high-emitting vehicles, and water use.

Was that a signal that the country would get higher green taxes under Labour?

6. But bi-partisan work is going on

Many delegates felt a lack of political consensus was letting the country down, leading to policy flip-flopping.

Both Woods and Watts did agree on some things. They both believed New Zealand could be a clean energy powerhouse.

And Watts stressed that Parliament was working in a non-partisan way on the country’s climate adaptation inquiry.

7. Get ready for nature-based reporting

Climate reporting is in its infancy, and the message to investors is that soon it will be possible to actually know how filthy the sum total of the activities the companies their funds invest in really are.

However, the next cab off the rank for large funds to disclose is their impact on nature, which is more than just climate.

It includes deforestation, biomass loss, biodiversity loss and fresh water.

8. Regulator’s big stick

When fund managers think they are responsible investors, they can apply for their funds to get the RIAA certification.

The conference heard a large proportion are told that to get certification, they need to go away and make some changes.

Greenwashing has seen some fund managers publicly shamed by regulators in Australia. Our regulator, the Financial Markets Authority Te Mana Tātai Hokohoko, has taken a more softly, softly approach with fund managers.

“Our first preference is to support them to manage issues that arise through engagement, through feedback without the need to escalate that further,” its chief legal counsel told conference delegates.

“Where we see cynical misuse of ethical labels or no real effort to provide good information for investors, we will take a quite different approach.”

9. Hard definitions needed, or are they?

In a world where fund managers with “fast fashion” in their portfolios claim to be responsible investors, perhaps it was time for New Zealand to set some minimum standards on what responsible investing is.

There were mixed views on show, but some felt the public needed precise, official definitions, just as exist in other industries.

Greg Liddell, director for responsible investments at Australian fund manager Beta Shares, said: “If you're building a house, and you've got a six-metre beam in the house, it doesn't say the builder should use a beam which maintains the structural integrity of the house.

“It says the builder will use a grade a 192 steel beam or higher, that is 100 millimetres wide and 300 millimetres deep, and have a maximum deflection of 28 millimetres.”

Mason said: “Northwards of a 90% of Kiwisaver funds, and 75% of other funds, now say they include some responsible, sustainable or ethical elements in the investment decision making that there is a problem.

“People are finding it very difficult to navigate this world of ethical claims.

“People found that this category was filled with difficult language that they didn't feel was designed for non-professional investors,” he said.

10. ‘Obfuscation lies in offsets’

Rod Carr, chairperson of the Climate Change Commission, was the undoubted star of the conference.

The very first speaker of the day, he had the conference believing a better future was not only necessary, but possible.

He painted a picture of hard economics driving the electrification of New Zealand homes and transport.

However, he warned the conference that investors should beware companies and funds getting to “net zero” emissions by buying offset credits.

“Why would we the developed west not pay the Congo for not burning down its forests?

“I can see the attraction in development, economics of paying the guardianship of carbon stores,” Carr said.

“But it is a small step from there to a protection racket where you need a want and think you should justify compensating the owners of fossil fuel reserves for their unlisted coal, oil and gas.”

He likened offsets to medieval papal indulgences which effectively gave people permission to behave badly.