NZ Superannuation Fund chief executive Adrian Orr said long-term and responsible investing has become a groundswell globally, rather than a ripple.
Speaking at today's Responsible Investment Association of Australasia conference in Auckland, Orr said globally it had reached a tipping point where more asset owners were now having regard for responsible investment drivers such as environmental, social and governance issues.
The latest report from the RIAA showed in 2013 assets managed responsibly in New Zealand increased by 20 percent to just over $27 billion, around 40 percent of total assets under management, much of that due to the Super Fund.
Orr said there were a number of global initiatives underway including inclusive capitalism which aims to extend economic benefits to more people through economic opportunity, long-term company management and values-led corporate culture.
The World Economic Forum has established a Long Term Investing Council while the Canada Pension Plan and management consultant, McKinsey, have been generating papers advancing practical ways to focus asset managers and companies on ways of making long-term investments. The OECD has also now become interested in long-term investing with more private sector money going into areas that have been traditional public sector assets such as infrastructure and the provision of social housing and healthcare.
Orr has just returned from last week's meeting of the International Forum of Sovereign Wealth Funds in Qatar which involves funds that collectively have over $6 trillion in assets under management. Several years ago the forum produced what is known as the Santiago Principles, a list of 24 principles on responsible investing.
"Others now hold the very strong belief we hold that ESG matters do materially affect long-term returns of companies and investments we've made," Orr said.
Stewardship has become a buzzword in the UK, Europe and Japan, he said, where asset owners are demanding good corporate governance from people running the companies they invest and to shift their horizon from a near-term basis and next week's share price. It can be difficult though to hardwire into the DNA of company managers who are rewarded for near-term behaviour, he said.
"Japan is leading the charge with the giant Government Pension Fund in Japan, the world's largest fund, actively demanding stewardship," he said.
One of the most value-destroying activities was bribery and corruption where some companies advance bulging envelopes to the local defence force or government officials, and beyond that labour protection and human rights issues in supply chains were also common problems, he said.
The NZ Superannuation Fund is required by law to have policies on ethical investing but Orr draws a line between long-term and responsible investing and ethical investing which he said is based around individual investor choices on things related to religion or sin stocks.
"That is not our mandate. Our mandate is to ensure we maximise returns without undue risk and the second part is to invest without prejudicing New Zealand's global reputation."
The fund has come under flak in the past for some investments it has made but Orr said the New Zealand fund is a world leader in trying to persuade companies into better behaviour rather than simply selling out when it uncovers issues that don't meet its ESG guidelines. It participated in 518 such engagements during 2013/2014 with a two-prong approach: integrating ESG risk into company valuations and using shareholder influence to encourage new policies and practices.
"I'm tired of being criticised on this. Is the KiwiSaver industry doing anything seriously on what I'm talking about? We've chosen to be open and transparent and thought leaders in this groundswell," Orr said.