Research across the globe has found that investors are increasingly conscious of the social and environmental consequences of the decisions that companies make. Responsible investing – also known as ESG – is defined as environmental, social and governance factors playing a role in investment processes and decision-making.
According to Forbes, aspects of a company that a responsible investor might look at include supply chain management, worker treatment, company culture, and response to climate change. This has led to a criteria being formed and investment models being created that address the concerns of investors, so companies can meet their expectations.
In 2018, US$11.6 trillion of all professionally managed assets in the States was under ESG investment strategies. That’s $1 of every $4 invested. In 2010, this figure was sitting at just US$3 trillion.
What’s more, investment banking company Morgan Stanley might have found the culprit driving this trend. Its research discovered that millennial investors are twice as likely to invest in companies that incorporate these ESG practices, showing care for the environment and the issues humankind is facing are playing more of a role in shaping financial markets.
This trend has also been reflected locally in a survey carried out by Hatch, a digital platform based out of Wellington and owned by Kiwi Wealth. It allows Kiwis to invest in over 2900 of the world’s best-known brands, such as Netflix, Slack, Apple and Nike. It recently commissioned a survey through Perceptive to understand the New Zealand investor landscape better.
The survey collected responses from 1500 New Zealanders over the age of 18 and found that 37 percent of Kiwis prefer to put their money into companies that support sustainable practices and exhibit good governance.
Social investing was more of a consideration for women, but both ranked it high in interest – 93 percent of women found it appealing, compared to 83 percent of men.
Hatch general manager Kristen Lunman said it was surprising to see socially responsible investing as such a big driver for New Zealanders across all demographics.
“Cynics may argue that socially responsible investing is just a fad, but a closer look at the forces that have driven the movement over the past 15 years suggest otherwise,” Lunman says.
“Firstly, technology and the rise of transparency are here to stay. Gathering and processing data will become even easier and cheaper. Smart algorithms will increasingly allow for better interpretation of non-traditional financial information, which seems to be doubling in volume every couple of years.
“Secondly, environmental changes, in particular, climate change, will with scientific certainty put a growing premium on good stewardship and low carbon practices as natural assets will appreciate in value over time. And thirdly, people everywhere are increasingly empowered by technology. ESG investing allows them to express their own values and to ensure that their savings and investments reflect their preferences, without compromising on returns.”
Hatch general manager Kristen Lunman
More so than being something that fills investors with warm fuzzies, many recognise that considering environmental, social and governance factors makes good business and financial sense, as it enables markets to be more sustainable and societies to have better outcomes.
This echoes trends in the angel investment community. Executive director of the Angel Association of New Zealand Suse Reynolds told Idealog earlier this year that angel investors are increasingly looking for companies with purpose that extends far beyond a commercial return.
“Good investors are acutely aware that looking after the planet and people is simply part of creating a sustainable, profitable, exponentially impactful business,” she said.
Executive director of the Angel Association of New Zealand Suse Reynolds
One infamous example of impactful business resulting in financial return is when Nike decided to run its controversial Colin Kaepernick campaign. While initially it seemed like a risky move, its stocks are now up and sales have boomed, while Forbes reported that more than 15,191 investors on investing app Robinhood added Nike to their portfolios when Kaepernick’s ad was released.
The trend seems likely to stick around, too: the world’s largest asset manager BlackRock has predicted that responsible funds that tick the box on EFT will increase dramatically, and top US$400 billion over the next decade.
But despite all the hum around socially and environmentally conscious investing, returns are still king. Hatch’s research found financial returns are still the primary driver of investment decisions over social implications for the majority of women and men.
Other interest findings from the research noted a trend towards self-directed investing, with a DIY platform being the most appealing way for New Zealanders to invest (72 percent). Among the investors without property, 62 percent of their portfolio assets were self-managed. Lunman says this trend might reflect the “can-do” Kiwi attitude.
She says overall, it’s been a fascinating process analysing New Zealanders’ approach to investing – and could point to areas where Kiwis are being underserved by the current state of play.
“This research presents an opportunity for the New Zealand financial community to better serve the modern investor and their needs and preferences.”
View the full results of the survey here.
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