With COP26 underway in Glasgow, climate change is front of mind for many Kiwis wanting to ensure their money is invested in companies contributing to positive outcomes for the planet.
Last week, BT Funds Management NZ (BTNZ), Westpac NZ's Kiwisaver and investment arm, announced it's allocating funds to a new global index that adheres to a strict EU Paris climate regulation, including the reduction of greenhouse gas emissions in line with a 1.5C degree pathway.
It's thought to be the first KiwiSaver and NZ asset manager to do so, with an initial investment of $200m expected to rise to $300m in the next six months.
BTNZ Head of Investment Solutions Philip Houghton-Brown told Newshub that sustainable investing is something Kiwis are increasingly getting behind.
"We think New Zealanders across the board are increasingly vocal about wanting to invest in funds that align with their social and environmental principles. We certainly believe that is the same for the customers in our funds."
"This is just one way we can work together with our customers to help not only grow their investments and retirement funds but help them take action on issues that are important to them."
Houghton-Brown says BTNZ's investment into the new global index means more funds will be allocated to climate solutions and companies with high ESG standards, while less will be directed to poorer ESG performing companies.
The new index has been designed in partnership with, and managed by, global asset manager Legal & General (L&G) as part of Westpac's sustainable investment approach (also known as responsible investment). Sustainable investment for BTNZ means seeking to invest more in climate change solutions, biodiversity and water stewardship.
But that's not the only way Westpac is supporting climate action. BTNZ is committed to align all assets under management with a 1.5 degree C pathway and achieve net zero by 2050 or sooner. Houghton-Brown says, "we are reducing our climate risks and our greenhouse gas emissions to net zero by 2050 or sooner".
Sustainable investment for BTNZ also means embedding environmental, social and governance (ESG) factors when making decisions around investing in companies.
Environmental factors that may be evaluated include a company's contribution to emissions, its energy efficiency and how it's going about climate action. Social criteria may relate to the company's core values, its engagement with its employees and community, and how it champions human rights. Finally, good governance means transparency and upholding good business practices.
These factors are evaluated by BTNZ’s underlying investment managers and by BTNZ's investment team both before investing in a company and during regular reviews.
BTNZ's sustainable investment approach helps ensure Kiwis' funds aren't invested in companies who make their main share of profits from fossil fuel activities, companies in breach
of UN Global Compact principles, manufacturing of controversial weapons, predatory lending, whale meat processing, and tobacco products.
Houghton-Brown says sustainable investment is much more than just excluding some companies.
"It's also about the stewardship part, which is engaging with the investment managers that we use to manage some of our assets or other people in the industry to help drive positive change.
"It's also about engaging with existing companies that may not be performing that well on ESG factors, and encouraging them to improve across the board rather than just simply divesting from that company."
He says sustainable investment is a "key part of our philosophy" that it's our "responsibility" to drive positive outcomes for customers, communities and the environment.
"We believe that investing sustainably and responsibly helps us achieve that vision, but also importantly, we believe investing sustainably matters because companies that do this well will also perform well financially over the longer term and will exhibit less risk."
Sustainable investment isn't a separate scheme or offshoot of Westpac's investment strategy. Instead, it's "integrated into our investment process", Houghton-Brown says.
Westpac's investors can rest assured knowing BTNZ is not only growing their wealth, but supporting environmental and social outcomes, he says.
"It is part and parcel of what we do. But it is also a growing consideration for us as we move forward, and that's the case for all of the funds that we manage for our customers.
"It's not a case of some customers choosing a sustainable fund and others choosing a not so sustainable fund. We apply the same integrated approach to it."
"We believe we were the first to allocate to a global shares index that is managed along these lines. Westpac as a bank has been very focused on sustainability for some time and that's reflected in the path we're on for managing the funds on the behalf of our customers."
L&G, the manager of the portfolio, is rated as one of the leading global responsible investment managers by the UN Principles for Responsible Investment and ShareAction.
"They are known for their proactive approach on loudly encouraging companies to lift their performance on ESG factors. Under their Climate Impact Pledge, L&G excludes companies not meeting minimum climate expectations," says Houghton-Brown.
The index also applies a wide set of exclusions including not investing in the worst climate and biodiversity offenders and a large amount of fossil fuel activities.
Westpac's investors can rest assured knowing BTNZ is not only growing their wealth, but supporting environmental and social outcomes, he says.
This article was created for Westpac NZ.
