Home' Superfunds : Superfunds June 2018 Contents stress, extreme rainfall and sea-level rise. Finally, a large-scale transition
to a low-carbon economy has the potential to mitigate some of the
largest impacts of rising global temperatures.
5. Globalisation and connectivity (7 per cent)
Since 1950, global trade has grown at a faster rate than GDP but we
believe that this expansion has reached its peak and trade growth will
slow. However, capital market integration and data flows are, and will
continue to become more important. Global market integration and the
floating of currencies led to an explosion in capital flows between 1990
and 2007. With the opening up of China’s capital markets we expect
this trend to continue.
SHOW ME THE EVIDENCE
The momentum behind sustainable investment has been driven from multiple
angles, resulting in its promotion up the agenda for many asset owners.
Momentum is a great thing but translating that into investment actions is
something else entirely.
While it’s tempting to focus on “best practice” and what leading asset
owners are doing, it’s important to highlight what all asset owners can and
should be doing to result in real change.
It is not unusual to see mainstream media headlines highlighting
sustainable investment issues – corporate scandals such as Wells Fargo and
Uber, as well as industry-wide topics such as executive compensation, board
diversity and supply chain management. Indeed, many sustainability-related
issues are very much in the general public consciousness, perhaps none more
so than climate change, which was recently described as “the single biggest
urgency” for investors by NZ Super CEO Adrian Orr.
Investors often ask what evidence there is to support the financial value
of sustainable investment, and the increasing body of evidence for the risk-
return benefits of this area is compelling. Asset owners across the world are
taking note and making significant portfolio responses. For example, Japan’s
Government Pension Investment Fund (GPIF)—the world’s largest pension
fund—has been a very vocal proponent over recent years, and is heavily
contributing to the wave of stewardship and ESG activity in that country and
NZ Super announced its climate change policy last year and, alongside
many other institutions, often in Northern Europe, is making major portfolio
changes especially around low carbon investing.
With all this activity, other asset owners are exploring what sustainable
investment can mean in practical terms for their portfolios. This is an
important contribution to successful long-term outcomes. Further, integrating
sustainable investment into the entire investment process from mission and
objectives, through asset allocation and portfolios construction, to monitoring
and reporting, is the best way to realise the full value on offer here.
Sustainable investment is sometimes dismissed as a topic only large asset
owners can accommodate but we believe there are minimum standards that
all asset owners should adopt:
1. undertake training and education to build your understanding on
sustainable investment, including the regulatory and legal context
2. determine your fund’s position on sustainable investment and articulate
that in key documents (such as the Statement of Investment Principles or
3. incorporate material sustainability-related themes into asset and liability
assumptions, and your strategic asset allocation process
4. factor sustainable investment and stewardship criteria into your
manager selection, monitoring and reporting processes
5. communicate your position and activities to relevant stakeholders (for
example, regulatory bodies, your members, sponsors, service providers,
and wider society)
While individual asset owner actions will likely have significant positive
impacts, we believe there is also great power in collective action raising
standards across the industry and improving outcomes. Many investors take
a similar view, and multiple collaborative initiatives now exist which drive
important change and offer asset owners the opportunity to extend their
sustainable investment actions and impact alongside like-minded investors.
Superfunds June 2018
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