A "rising tide" of funds in sustainable investments in New Zealand hit $180 billion last year - a massive 40 per cent increase over the previous 12 months.
Andrew Bascand, managing director of investment management company Harbour Asset Management says new figures show $183.4 billion was channeled into companies with sound environmental and social practices in the year to the end of August.
"This is 40 per cent above the 2016 figure and is more than the $170 billion in all term deposits in New Zealand – and compares to the $50 billion invested in KiwiSaver," he says.
"You can see the tide is coming in and it will increasingly be the case that those companies who don't incorporate sustainable and responsible practices in the future won't attract capital."
Responsible investing, also known as ethical or sustainable investing, is a holistic approach to investing where environmental, social and corporate governance (ESG) and ethical factors are considered alongside financial performance when researching, analysing, selecting and monitoring investments.
Bascand says in New Zealand the trend is being led by the millennial generation. "Most savers are aged over 60, they are happy with stability (in their investments). But when you look at those in the 25 to 35 age group you get a completely different view.
"Yes, they like to make money, but they also like to know they can make a difference – and gradually we are beginning to win the hearts and minds of older generations as well."
The trend appears to be bucking the traditional view that while socially responsible investing is important, making a profit is even more so.
A study conducted in the US by investment brokers Merrill Edge and reported on CNN Business earlier this year shows how entrenched that thinking can be. The study revealed that 88 per cent of Americans believe market performance is the most important factor in their investing with 60 per cent saying they would likely invest in a profitable company with values they disagree with.
But Bascand says this view is changing and he believes responsible investing is good for wealth. "It is something that makes sense because increasingly the public is interested in environmental issues. This is not just about global warming but includes factors like water quality and sustainability.
"They are also looking at social issues like working hours and conditions and policies around diversity in the workplace - and at business ethics such as the conduct of company executives, the independence of boards and transparency."
He says he believes an integrated approach - where companies are encouraged to improve in these areas - is preferable to screening out the stocks of organisations that don't meet these standards.
"Of course there are some companies we screen out," he says. "Those involved in armaments, war, weapons of mass destruction or those employing child labour for example. But most of the time our preference is to engage with companies to bring about real pressure for change."
According to the 2018 Responsible Investing Benchmark Report published by the Responsible Investment Association Australasia growth occurred in both ways: The integrated approach saw a nine per cent increase on 2016 to $97 billion while screened funds more than doubled the 2016 figure in reaching $86.4 billion.
Bascand says he believes these figures show that responsible investing helps make money for clients. "There is an argument about whether it (responsible investing) means you lose money when you have to skip investment opportunities because of your values or whether it actually helps you make money."
Companies who perform well on environmental, social and governance measurements are likely to be safer investments in the medium to long term and returns are beginning to prove this: "The tide is definitely coming in."
Bascand says there is no single certification that can be applied to determine what a responsible investment is.
"There is no gold standard and I don't think there will be a gold standard," he says. "It's an evolving approach; it's a process of continuing to understand governance, environmental and social issues and continuing to engage with companies and encouraging them to improve year by year."
He says one example of this is the move by some dairy factories to replace coal-fired boilers for drying milk into powder with electricity-powered boilers (Synlait Milk is installing one in its Dunsandel plant in Canterbury later this year).
Harbour Asset Management is a signatory to the United Nations Principles for Responsible Investment initiative (UN PRI) which has over 1200 signatories worldwide with an estimated US$80 trillion of assets under management.
# This article does not constitute advice to any person (Click here for our disclaimer) For more information go to our website. Harbour may own shares in companies mentioned in this report on behalf of its clients.