When it comes to sustainable investing, excluding sectors that cause harm is fairly standard practice—such as nuclear weapons, tobacco or mining for more fossil fuels. AMP New Zealand has been doing this for years, but a new wholesale Global Climate Fund that it is planning to launch is set to focus on the positive rather than simply avoiding the negative.
Aaron Klee, General Manager Investment Management & Services, says the new fund differs from AMP’s existing offerings because it intends to invest directly into promising companies from New Zealand and around the world that are looking to speed up the transition to a low-carbon economy.
“Owning shares in a good company doesn’t really give them the additional capital they need to drive change, just like excluding a company and selling a share in a company doesn’t influence any change, because other people are just going to buy those shares,” he says. “So we want to invest more into things that the world wants for the future and not into things the world is trying to move away from. We want to fund new initiatives that help with climate change.”
According to a recent survey by the Responsible Investment Association of Australasia (RIAA) and Mindful Money called Voices of Aotearoa: Demand for Ethical Investment in New Zealand 2023, almost three quarters of New Zealanders (74 per cent) expect their investments to be managed ethically and responsibly. The number of people willing to move their funds if the investments do not align with their values has increased by 4 per cent to 59 per cent. And 80 per cent of respondents would be prepared to invest in a KiwiSaver or investment fund that invests only in companies creating positive benefits for society and the environment—something often known as impact investing—up from 69 per cent last year.
Every investor has a slightly different set of values, but AMP’s Sustainable Investment Analyst Livvy Mortimer says surveys show the key areas of concern have remained fairly consistent over the years: climate change, human rights violations and labour rights violations.
Mortimer says Gen Z and Millennials do score higher when it comes to concern about environmental issues, but as we have started to see very clear evidence of the impact of climate change the gap is closing.
Klee says AMP already has a strong emphasis on the E in Environmental, Social and Governance (ESG) investing in its other customised funds, largely because it’s easier to see the potential costs than it is with other ethical issues.
“There is a lot of economic data that shows us what impact climate change will have on the economy,” says Klee. “You can model these scenarios and look at the impact it will have on GDP around the world. If you can model the potential economic impact, then you can model the impact on markets and returns, whereas some of the more social or ethical issues, like drinking alcohol or animal testing or pornography, it’s harder to model.”
Klee says the energy transition is the largest intentional reshaping of the global economy ever attempted and it is estimated that nearly US$200 trillion in invested capital will be needed by 2050. That adds up to more than $1 billion per day.
“The opportunities are immense, and we believe the time is right to invest in these innovations and technologies.”
Klee says the opportunities for the Global Climate Fund will primarily be in the private market, because “that’s where more of these technologies and evolutions are coming from and the greatest investment opportunities exist”. AMP customers won’t be able to invest directly into the Global Climate Fund, except it will make up part of all its various diversified funds and it expects to make its first investments through the fund in early 2024.
In 2022, AMP committed to achieving net zero carbon emissions for its investment portfolios by 2050 or sooner (its current best-case scenario will see that happening by 2040). It has already reduced its exposure to greenhouse gas emissions by approximately 70 per cent since mid-2021 and investment into assets that accelerate the shift is a key part of the net zero strategy.
“The focus is for companies to reduce their emissions themselves because it is widely accepted that carbon offsets won’t get us there,” says Mortimer. “Part of our framework is to do what we can do today with the knowledge and resources we have and then as the journey unfolds more things will become available that we can use.”
The Voice of Aotearoa survey showed greenwashing is still a major concern for investors and a lack of clarity over the definition of ethical investing has created uncertainty. But transparency is the antidote to that, Klee says, and AMP publishes what it will and won’t invest in, its methodology and its holdings.
“It offers quite a detailed recipe around what we’ll exclude [there are currently around 5000 restricted securities]. That’s how we get the RIAA certifications, because of the robustness of the process.”
Independent certification from parties like RIAA creates comfort among consumers, Mortimer says, and 23 of AMP’s funds have been certified by RIAA. AMP has also gained RIAA Leader status, which puts it in the top 20 per cent of 70 fund managers and asset owners in New Zealand for its sustainable investment policies.
AMP is working with the Science-based Targets initiative, a global body supported by the World Wildlife Fund, CDP and the UN Global Compact. This essentially certifies a company’s net zero strategy and looks at how it will reach its goals.
AMP is also taking decarbonisation seriously inside its own business, says Mortimer. “We are certified as net carbonzero by Toitū Envirocare. We’ve switched to [renewable electricity provider] Ecotricity, we’re switching our fleet to electric vehicles, and have an active focus to reduce all other emissions.”
Klee acknowledges that ESG funds have not all performed as well in recent years—due in large part to two major military conflicts, volatile oil prices and ongoing issues from the Covid pandemic—but investment is all about the long-term and evidence from MSCI shows that top-scoring ESG shares have performed better than comparative non-ESG shares over the past five years.
“We want to swim with the tide. But we also want to get into the new currents that will evolve. That’s what we believe in, but we also believe it will enhance returns. It’s quite an exciting time in the industry, and it’s evolving fast.”
While ESG investing has become something of a political issue, Klee says “consumers get it”.
“We’re thinking long-term as an intergenerational wealth provider. AMP has been around for 170 years, and we want to be here for 170 more. If we don’t solve this, what are we looking like as a world? And what does that world look like for our younger customers who are just joining KiwiSaver?”
Klee says there isn’t an absolute answer to net zero yet as an investor, but he’s confident humanity can come up with the required solutions to limit the impact of climate change as long as we focus intently on the problem and point the money in the right direction to help those solutions scale.
- Money is not being sought for the global climate fund and no one can apply to invest in it. When launched, it will be a wholesale fund that will be invested in by other AMP funds. Any launch of the fund
will be in accordance with all applicable legal requirements. See more at amp.co.nz