Fiduciary duties highlighted as responsible investment increases

Wednesday 10th July 2019

Fund managers say the growing market for responsible investment may bring potential conflicts with their fiduciary duty toward clients.

The responsible investment market in New Zealand rose by 2.5 percent to $188 billion last year, the Responsible Investment Association of Australasia revealed in a report released in Auckland yesterday.

At the launch of its KPMG-compiled research into investments which take into account responsible environmental, social and governance principles - ESG - one participant expressed concern about obligations under fiduciary duties to act in their client's best interests.

KPMG director Erica Miles told the audience of about 50 investment professionals that the law was not clear on what current directors’ duties require, as managers are told simply to manage risk.

“You have a legal obligation to manage risk, but it doesn’t say ESG risk or what.”

Miles said that the issue was one taken up by industry group Sustainable Finance Forum. However, that group is not expected to report back until later this year.

Association chief executive Simon O’Connor suggested that markets were likely to change and impose a positive responsibility on fund managers, for example as the Australian Prudential Regulation Authority has done.

In March, the Australian regulator said it would step up scrutiny of how financial institutions manage the risks of climate change.

Kiwi Wealth chief investment officer Simon O’Grady told BusinessDesk that putting clients' best interests first means maximising outcomes. He advocates against sector exclusions and says truly responsible investments are more nuanced and should involve clients acting with their fund manager.

“There has been virtue-signalling that we are exclusionary therefore we are responsible,” he said.

“We have no right to use our clients' or investor money to drive social change agendas unless they ask us to or agree with us and that guides all KiwiSaver managers.”

The association's report found that there was modest growth in negative screening - eliminating 'sin' stocks from portfolios - but that other positive investment techniques were also emerging.

(BusinessDesk)

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