Our impact investing journey

21 November 2022 / Published in Your Money

When we launched our Positive Impact Fund in 2019, our vision was to offer a responsible investing option that invests in companies that have a positive environmental or social impact. This contrasts with other, more common approaches that primarily seek to exclude 'bad' companies.

The Positive Impact Fund was our first step into impact investing and has been around for more than three years now. So, what have been the main challenges, what have we learnt, and where do we see ourselves heading in the future?

Impact investing is still in its early stages

When we set out on our impact investing journey, we knew we'd face some fresh challenges and learn a lot. One of the earliest things we discovered was the small number of impact investment options that meet our, and our investors', requirements.

When we invest, we require investments that have high liquidity and can be valued frequently. This means as you invest or withdraw, you are able to do so quickly and at fair prices.

At present, most impact opportunities don't have these features because they are private equity structures. This means they require you to invest at the outset and hold the investment longer term or until maturity. They also often lack the necessary scale.

Because of these requirements, we decided to invest into existing funds offered by an investment manager, we call these third-party funds. These funds can offer great impact investing solutions, but give us limited control over the investment process. As a result, we are careful to select the right fund that best aligns with our investment philosophy and impact goals and objectives.

Impact investing also asks a bit more from the company than a traditional investment. It looks at both the financial performance of companies and the social or environmental impacts they are creating. Even if they're doing great things, we need to evidence the impact to call it impact. Not all ‘good’ companies have impact information available or report on it, which could exclude them from being eligible as an impact investment.

The good news is the companies we invest in are doing the mahi and tracking their impacts. This means we can report back to you the social or environmental good they are achieving. The Fund also invests in global companies that have operations right here in Aotearoa, so we can see the positive impact they are having right in our back yard. You can read more about these companies on our recent blog here.

Third-party funds and exclusions

A challenge we've faced with investing in third party funds is finding a fund that completely matches our exclusion definitions while investing in companies that are creating impact.

For example, we recently expanded our exclusions to include fossil fuel producers. This includes oil & gas, along with thermal coal. In contrast, our third-party fund excludes only thermal coal.

We recently discovered the third-party fund had invested in a green bond issued by a gas company with its proceeds being used to support new solar projects. Exclusions can be a blunt tool and even though we'd ordinarily exclude this company, this type of investment aligns to impact as it helps the energy company transition to a low carbon economy.

Even when our exclusions align, if the third-party uses a different research provider to monitor and identify companies to exclude, the excluded companies won’t always match ours.

For example, we recently found another green bond issued by a company that our research provider deemed as non-compliant with our global standards screen (which is largely influenced by the United Nations' Global Compact Principles). The third-party fund we invest in has a similar screen for ESG controversies, using a different research provider. The definition differences between screens means our Fund invests in a company we would have ordinarily excluded.

While we would have excluded this investment, our Fund’s investment is enabling environmental improvements. The proceeds of this green bond are being used to transition offices and data centers into green buildings.

We think these are great examples of how tricky it is to get things right when picking impact investments, how subjective responsible investing can be, and how opinions of research providers can conflict. From time-to-time these differences will pop up, and while we can share why they are on our exclusion list, we are unable to instruct our manager to divest at this time. 

So, what's next?

We are constantly looking to improve the way we invest our customers' savings. More and more people are looking to invest in a responsible manner and this has seen the Positive Impact Fund grow in size. This is great news as it gives us even more options.

More growth means we can explore local impact investments. We could also look to set up our own wholesale impact funds like what we have for our main KiwiSaver funds. This would enable us to have complete control on what investments are included (or excluded).

Until we get there, we'll keep you up to date with where we’re at and the impact the Fund is contributing to. We’re looking forward to publishing our first impact report in 2023.

Interests in the ASB KiwiSaver Scheme and ASB Investment Funds (Schemes) are issued by ASB Group Investments Limited, a wholly owned subsidiary of ASB Bank Limited (ASB). ASB provides administration and distribution services for the Schemes. No person guarantees interests in the Schemes. Interests in the Schemes are not deposits or other liabilities of ASB. They are subject to investment risk, including possible loss of income and principal invested. For more information see the ASB KiwiSaver Scheme Product Disclosure Statement or the ASB Investment Funds Product Disclosure Statement available from this website and the register of offers of financial products at www.disclose-register.companiesoffice.govt.nz (search for ASB).


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