Report on the Mindful Money Conference: Investing in Sustainability, held at KPMG, 3rd September 2019

16th Sept. 2019

Finance has a central role in determining whether and how fast New Zealand and other countries transition towards net zero emissions, stronger sustainability and higher levels of well being. The conference saw financial industry leaders discuss the challenges in reorienting investment towards sustainability.

The conference was attended by a diverse audience of around 120, including representatives from the financial services sector, government, civil society, academia, media and individuals. Mindful Money is grateful to KPMG for hosting the event, the sponsors and the speakers, particularly the Minister of Finance. Details of speaker bios and conference sponsors are in the Programme brochure.

The programme included two keynote speeches and two panels. These brief notes were compiled by Barry Coates from Mindful Money using speakers’ notes and the video recordings. Please note that they are not an official transcript of the remarks from speakers.

Session 1: Setting the framework for Sustainable Finance

Keynote speech by Grant Robertson, Hon. Minister of Finance.

The Minister spoke from notes so there is no published speech available, but the following are some reflections.

The discussion around a well-being framework for the finance sector was interesting. He cited the crucial role of climate change in the mandate of the RBNZ and the work that the government is doing to follow up on the Productivity Commission recommendation for mandatory disclosure of climate information. As well as the direct investment mandate of the Green investment Fund, he mentioned well-being in the aims of the Venture Capital fund, as well as the work of NZSF and Crown Financial Institutions.

The Minister also showed a strong commitment to responsible investing, citing the 2018 survey of Mindful Money and RIAA showing the high level of public support, but the low level of proactive choice for responsible investing. He spoke in favour of more KiwiSaver investment in New Zealand markets and more responsible investing, referring to the Mindful Money analysis of more than $4 billion investment in companies that New Zealanders say they want to avoid. He invited submissions around issues of exclusions and disclosure into the review of default KiwiSaver funds, an important opportunity for change (due by 18 September).

Panel 1: A framework for Sustainable Investment

- Moderated by Joe Bishop, Kiwi Wealth General Manager of Customer Product and Innovation.

Simone Robbers, Assistant Governor and General Manager of Governance, Strategy and Corporate Relations at the Reserve Bank of New Zealand.

The RBNZ has released a climate change strategy and is building internal capability. As regulator of the banking and insurance sector they are active in analysing and reporting on climate change risks, and monitoring institutions. Their survey has revealed that, while there is awareness of the risks, little concrete action has yet taken place. On the monetary policy side, they are monitoring trends and analysing impacts of climate change. The RBNZ is a member of the Network of Greening Financial Institutions, a network of 45 central banks and regulators that is sharing best practice on integrating climate change into financial policy.

Robert Sloan, Head of FMA Capital Markets Disclosure.

Robert recognised there is growing demand for responsible investment. However, he expressed concern about the lack of clear definitions and standard. There is greenwashing and confusion in the market about different responsible investing claims. There are also inadequate disclosures.

The FMA is looking at whether the green, ethical, responsible and sustainable funds “do what they say on the tin”. They will release a consultation paper soon on guidance around disclosure. It will promote the responsible investment market through the FMA providing greater clarity about expectations from providers for information. And it will ensure that consumers have an understanding about what is being offered and the risks involved so they can make informed choices. Investors need timely, accurate and understandable information, which is largely provided by documents such as the PDS.

The FMA recognises there needs to be a joint approach between the sector and the regulators in developing the terminology and taxonomy for sustainable investing, building on international developments.

Anne-Maree O’Connor, Head of Responsible Investment for New Zealand Superannuation Fund and a leader in the Aotearoa Circle’s Sustainable Finance Forum.

There has been a quiet revolution in the development of sustainable finance. In the last few years the EU’s Sustainable Finance Action Plan, the UK’s Green Finance Strategy and the Canadian Sustainable Finance plan are moving towards action. The NZ Sustainable Finance Forum (SFF) can draw on the learning internationally and link with a parallel process in Australia.

New Zealand has a very different context. For example, the UK has more asset managers, while NZ has a lot of SMEs. The Aotearoa Circle is a group of CEOs and government Ministries to promote the importance of sustainable natural capital. The finance sector was considered crucial. The SFF’s Technical Working Group now has representation across banking, insurance, investment and corporates, as well as government representatives, civil society and academics.

The aim is to develop a roadmap towards sustainable finance, embodying two approaches: financing sustainability and making finance sustainable. It includes social and cultural considerations as well as financial and environmental. The interim report is due out at the end of October and the final report in 2020.

The key issues that have emerged from literature reviews, interviews and analysis include education and understanding, information and metrics, encouraging a long term approach, incentives, financial instruments, leadership and financial inclusion.

David Woods, Board director of New Zealand Green Investment Finance Limited (GIF) and Deputy Chair of the National Advisory Board for the Impact Investing Network.

Work has been undertaken on the establishment phase and the GIF is now ready to make investments. There have been four criteria set by Cabinet:

  • Any financing needs to reduce greenhouse gas emissions in New Zealand
  • A leadership role in market development
  • Commercial return
  • Crowding in private finance, so GIF will enable the private sector to invest, for example by investing over the longer term than the private sector is prepared to do.

GIF will not invest in large scale electricity generation or forestry because there are financial mechanisms available for those.

There is an active network of green financing institutions internationally and there is experience that can help GIF. The GIF Board has recognised that they will need to be proactive in helping to develop investable initiatives.

David has also learned from his work with the Impact Investing Network that there is a lack of knowledge and skills in bringing together high impact initiatives with the financial structures that can make them investible. The impact investing scene in New Zealand is developing rapidly, but scale is an issue. It is far easier to do small local projects with positive impact, but it has been hard to scale up to the level of around $200 million that is needed for higher impact.

Session 2: Engaging the public on Ethical Investing

Keynote speech by Barry Coates, founder and CEO of Mindful Money.

Barry’s slides are available online here.

Yesterday, at the second annual conference on the Sustainable Development Goals, there was a chance for over 200 of the conference attendees to vote on their priorities for different initiatives to take sustainability forward. The highest ranked issue was about ethical investment and ethical banking. There is appetite for change in the way the finance system works.

Urgent change is needed to address the climate crisis and the crisis of inequality and poverty. Short term profit maximising in finance, without consideration of the consequences for the planet and people, has been part of the problem. Our challenge is to help people understand how their actions can help make finance part of the solution.

New Zealanders want ethical investment. A survey that Mindful Money and the Responsible Investment Association of Australasia undertook with Colmar Brunton last year showed 72% of New Zealanders expect their KiwiSaver to be managed responsibly. The majority say they will shift if their provider doesn’t invest responsibly.

In 2016 there was an outcry over tobacco and cluster bombs. Earlier this year there was a concern over investments in firearms. Most funds have now divested from these sectors. But if we look at this list of issues the public is worried about it extends far further.

Mindful Money’s online platform has been developed to address the barriers identified in the survey. People want independent information; they want research and a simple presentation of the options; and they want to know there are good alternatives out there.

This is the tool that enables people to take action, but the world is full of good ideas that no-one knows about. Our challenge is to build a campaign that can take this message out to the public, inform and educate them and motivate them to act. We will undertake a strong digital online campaign, events and seminars, and actions with allies. Mindful Money is only one of the organisations that cares deeply about these issues.

We will deepen public education on these issues and encourage investors to move along an impact spectrum. Over the coming months, Mindful Money will be working with the impact investment (positive social and environmental benefit) community to profile opportunities for investment.

Ethical investing is at a tipping point. Fair trade grew by 45% per annum for a decade in NZ. The number of people who take their bags along with them shopping increased by over 50% in the last year to 84% of the population. Catch the wave.

Panel 2: Engaging the Public

- Facilitated by David Beattie, Principal of Booster Investments

Simon O’Connor, CEO of Responsible Investment Association of Australasia (RIAA).

In August 2016, New Zealanders signalled very clearly that they did not want their investments to be used unethically, with tobacco and cluster munitions as the example. These negative screens have now been adopted by around 70% of the New Zealand market and the assets under management that are being screened has grown 3x over the past five years. There is no other market internationally that has such a high proportion of funds screened.

But the job is far from done. People want to exclude other things, such as animal welfare violations, human rights abuses and fossil fuels. However, they aren’t necessarily going to go into their banks and ask for screening on animal welfare for example, even though they may care deeply about the issue. So, the financial sector must become smarter about listening to their clients.

Financial services have an impact on climate change, society and the environment – what gets funded, where money is lent, what is insured. There is a crucial role for certification to provide confidence in ethical standards. From the Mindful Money and RIAA survey, 73% of the public would like to see products that are certified and labelled.

Responsible investing is not just about negative screening. Investment managers need to vote with their shares, engage with companies and choose better companies to invest in. There is no way to simply divest away from the impacts of climate change for example.

Barry is right that we are at a tipping point. As another way of looking at it, we are seeing a snowball, growing as it rolls down the hill, and it is barely 10% of the way down the hill. We need to it to grow before climate change melts it!

Sam Stubbs, Founder and CEO of Simplicity.

To be real in the responsible investment field and avoid the greenwashing, you have to live it not just say it. If there are ethical funds, there are also unethical funds. They should be labelled as unethical funds. The authenticity about what we do matters. People are smart and they know the difference. Honesty is crucial. It involves difficult choices. Simplicity got criticised in the media for saying it is hard to screen out international human rights violations. Those fund managers that are serious about responsible investment know this.

If the investment sector wants to make a difference, it needs to scale up. Simplicity and Booster have been talking to international fund manager Vanguard about deepening their responsible investment criteria. When Vanguard brings out new funds, this has a huge impact across the market internationally.

The providers also need to get beyond the arguments about exclusions versus engagement. Simplicity excludes international companies but when it comes to New Zealand they engage with companies and at Board meetings and undertake research on issues like women on the Boards of New Zealand companies.

It is likely that responsible investment will become entirely mainstream. When Simplicity shifted to ethical investing, they asked Vanguard to back test their investments to find out what would have happened if they had excluded the companies ten years ago. The Growth fund would have outperformed the baseline by 1.5% per annum on average. There is no price to be paid for going ethical.

Niamh O’Flynn, CEO of 350 Aotearoa.

People want to know what they can do. Climate change is such a huge global issue that people don’t know where to start and they are bombarded by greenwash, so there is no surprise that many of them don’t trust the whole financial industry. 350 Aotearoa’s report estimated that ANZ had enabled 2.8 billion tonnes of CO2 emissions between 2015-17.

Divestment from fossil fuels is really the only viable strategy, since there is no way to engage meaningfully with the fossil fuel industry. Their business model is producing fossil fuels and engagement won’t make a difference to that. Divestment can remove the social licence to operate and show that there is a commitment to move away from fossil fuels. Later in September we are about to see the biggest mobilisation on climate change ever.

Molly Harris Olson, CEO of Fairtrade Australia and New Zealand (FANZ)

The question of how we engage consumers is really a question of who do we trust and why. Fair trade has painstakingly approached standards and the systems of tracing, certification and verification. Trust is also built through outreach and a sense of solidarity with communities and NGOs.

In a world where the terms change from ethical investment to responsible investment and impact investment, it is hard for people to have trust and confidence. We need to work out the key issues of terminology and accountability. 300 years ago, the Quakers started ethical investing as a way to stop slavery. Now we have more people living in modern slavery than ever before. There is no reason to trust any supply chain that doesn’t have the transparency to be able to see the slavery, wherever it occurs within the chain of contracting and subcontracting. If we can’t see it, we can’t trust it.

Engagement is about trust and trust needs information. Mindful Money is making a huge difference in providing that transparency and information for investors. There needs to be work in educating consumers about ethical investment. It can help build a stronger and more productive economy.