As a bank, we’re sometimes asked by customers about where we invest their KiwiSaver money.
It’s something we regularly revisit and have done so again recently with our investment funds arm, BT Funds Management NZ (BTNZ). The latest step is our Responsible Investment Strategy.
It excludes companies that manufacture controversial weapons like anti-personnel mines, cluster munitions and explosive nuclear devices, and also takes the same approach with tobacco manufacturers and the whaling industry.
But responsible investing is about more than keeping away from certain sectors, or just doing the right thing.
It’s also about looking to the future and making rigorous decisions on the basis of a range of environmental, social and governance (ESG) factors that could impact someone’s investments.
Done well, responsible investing should be good for the portfolio - as a source of opportunities and a way to control risk.
Simply put, the theory is that companies that perform well in terms of ESG, are more likely to perform well financially over the long term.
Environmental risks can include things like energy use, pollution and the conservation of natural resources.
Social risks refer to things like the protection of consumer and human rights, and the attention paid to health and safety.
Lastly, governance factors include the transparency and accountability of management, and relationships with employees.
Failing to meet these obligations can lead to serious negative consequences, with Volkswagen a recent high profile example.
The automaker has taken an estimated $42 billion hit in fines and investments after the company was found to have breached its ESG obligations in its diesel emissions tests.
At Westpac, we have reduced investment in companies with a poor track record of managing ESG risks. Through our institutional relationships with fund managers, we have also actively engaged with the boards and management of some of the companies we invest in to bring about positive change.
More widely, Westpac is dedicated to helping New Zealand tackle climate change.
We believe driving faster development and uptake of clean technologies through our banking services is the most effective way we can help accelerate the transition to a low carbon economy.
We are the only New Zealand bank to publish our exposure to both the CleanTech and fossil fuel industries.
We’re also the only one that has disclosed a strategy to increase our lending to climate change solutions, such as renewable energy, green buildings and forestry, and reduce our lending to fossil fuels.
In September, Westpac Group was ranked the world’s most sustainable bank in the Dow Jones Sustainability Index for a fourth year in a row, and the tenth time in total.
But, with so many financial products and complex disclosure statements, it can be hard for investors to separate one promise from another.
That’s why, in line with our approach, BTNZ is preparing to become a signatory to the UN Principles of Responsible Investing, which provides an independent benchmark and yardstick.
We are also closely watching the International Taskforce on Climate-Related Financial Disclosures in regard to its proposed voluntary disclosure regime for companies.
We are supportive of standardised disclosures by companies so that investors can compare apples with apples, and make better-informed financial decisions.
We have started the process of benchmarking and monitoring climate risk in our investment portfolios and you can expect to hear more from us in this space in the future.
Our Responsible Investment strategy has already been implemented and covers both KiwiSaver and managed funds.