THE RISE OF STEWARDSHIP - WHAT NEW ZEALAND STANDS TO GAIN
Anne-Maree O’Connor (NZ Super Fund), Claudia Chapman (Financial Reporting Council) and Paul Chandler (PRI)
Investor stewardship is on the rise globally. Five years ago, it was seen as a way to secure the long-term sustainability of companies. Now, investors are increasingly recognising the value of stewardship as a tool to address systemic risks to their portfolio, and governments overseas are seeing it as an ingredient in reaching their green finance strategic goals.
Recently, the Aotearoa New Zealand Stewardship Code Secretariat hosted a discussion between Claudia Chapman, Head of Stewardship at the Financial Reporting Council UK, Paul Chandler: Director of Stewardship, Principles for Responsible Investment, and Anne-Maree O’Connor: Head of Responsible Investment, NZ Super Fund where the speakers shared what success looked like for them and how Aotearoa could also lead the way.
The United Kingdom set up the first version of its Stewardship Code in 2010, following the Global Financial Crisis. At that time, trust in banks and finance institutions was at a historic low, and the Code was seen as one of the tools to change this. Since the Code was launched, it has provided many lessons that other countries can apply; a significant one being the gap between commitment and action.
Claudia Chapman said, “We wanted to give the Code some teeth, so we started asking signatories to demonstrate both the quality and quantity of their engagement activity, and indicate the outcomes of that engagement, rather than simply their commitment to it.”
On New Zealand’s Stewardship Code, she said “Well done for not cutting and pasting what others have done, you’ve ended up with something that’s very much your own. You’re going to be able to leapfrog some of the mistakes others have made because of this.”
She recommended conducting wider education with companies about why investors want to engage with them. Responsible investors shouldn’t be seen as a thorn in their side, but rather an opportunity to learn from the expertise they have gained from engaging with so many different companies.
She also emphasised the importance of having the right skill sets. Now that the UK Stewardship Code has been around for a while, it has resulted in a flow of resources to governance and stewardship teams, meaning they are more highly regarded by investment firms than previously.
The PRI was established in 2005 to support responsible investors and create a sustainable financial system, based on the principle of being active owners.
Paul Chandler said “It doesn’t matter how well-constructed your portfolio, even if you’re selling out all your oil companies, you’re still going to face the impact of a long-term drought, or impact on supply chain issues from climate events. Asset owners and managers need to use their influence and voice to reduce overall emissions and therefore overall risk through stewardship”.
The influence of investors is also being felt more widely, becoming more actively involved in consultation or active policy engagement. PRI have launched a pilot in Australia where a group of investors are engaging as sovereign debt holders with climate policy, looking to align their investment activity with the Paris Agreement.
This engagement may seem like a daunting concept for smaller investors, but according to Paul, everyone can contribute by playing to their strengths. “Some of the smaller, nimbler funds can get stuck in where others can’t. Or they can contribute by signing a statement in support of an engagement without doing all the work.”
Anne-Maree O’Connor cited an example of collaborative engagement following the social media companies following the Christchurch terror attacks, where a group of smaller investors working together then attracted investors managing over 11 trillion dollars behind that engagement. “Collaboration is a way of managing the resource burden that engagement can otherwise create.”
The concept of having a Code in Aotearoa emerged from the Sustainable Finance Forum Roadmap for Action released by the Aotearoa Circle in 2020. The Aotearoa New Zealand Stewardship Code was launched in 2022 and is supported by the Responsible Investment Association Australasia and the Centre for Sustainable Finance: Toitu Tahua.
Simon O’Connor, CEO, RIAA, said “With 17 of New Zealand’s leading investors already becoming Signatories, stewardship is gaining momentum within Aotearoa. Given that about 25 countries have already signed up to some form of Code, embracing stewardship should now be a key part of any responsible investment strategy for investors based in Aotearoa.”