Investment strategies for a turbulent future

Council for Socially Responsible Investment
www.csri.org .nz

8th September 2009

NEWS RELEASE

Investment strategies for a turbulent future

The Council for Socially Responsible Investment told delegates at its annual conference that increases in the trend to Socially Responsible Investment (SRI) are currently too small to provide a solution to ecological degradation yet unless this trend is significantly and quickly changed, then ecological disaster is likely.

Dr Robert Howell, CEO said that New Zealand’s response to SRI has been too little too late: “The SRI option via KiwiSaver has been a spectacular flop. The overwhelming majority of investment in New Zealand is not socially responsible or environmentally sustainable.

“To put it in perspective the New Zealand government manages funds worth over $32 billion including Superfund, ACC, earthquake commission etc and sets itself the worthy goal ‘to avoid prejudice to NZ’s reputation’. However only a very small part of the Kiwisaver fund can be said to be invested responsibly. So New Zealanders can trust the ethical performance of less than $5 million dollars of government funds.”

“The situation is better globally but not by much. Many SRI funds have a dubious claim to be ethical or sustainable. Using a most generous definition, 17% of funds could be classed as SRI in Europe, and 11% in the US. Yet perhaps 5% or less of funds are socially responsible and environmentally sustainable and this would be less than 1% if a strong sustainability definition is used.”

“However the evidence shows that SRI funds over a 3 year and 5 year term are outperforming “general” funds in terms of their returns. Responsible investment is good investment.”

Dr Howell also said that the SRI model of assessing the social and environmental impact and taking certain actions is flawed:

“How can you be interested in your funds’ social and environmental profile, if your fund has been stolen, lost or significantly reduced? People concerned about SRI need to also be concerned about the unethical and unsustainable behaviour of the finance sector. While investment in sustainable energy, transport, food and housing is necessary, at the best it is likely to reduce a catastrophic future to an adverse one and current indications from Copenhagen are not good.”

The Council for Socially Responsible Investment advocates the following measures:

 Investment in adaptation measures (as well as mitigation efforts) is necessary. Adaptation requires a much more regional and local focus.

 Investors should plan for considerable disruption to climate and weather, leading to increased floods, droughts, loss of physical infrastructure and productive agricultural land.

 If the scenarios about ecological disaster are only conservatively accurate, then major changes are coming, similar to the introduction of electricity, the manufacture of metal and steel at the beginning of the industrial revolution, and possibly the end of the most recent Ice Age.

 Markets and business as we know them, will be different, and will affect the risk of investments such as pension funds.

Dr Howell recommends that New Zealand politicians stop burying their heads in the sand:

“Ordinary investors no longer trust fund managers with managing their savings and their pensions. If the financial sector is going to regain the confidence of ordinary investors then it needs to address the medium to long term issues which it has largely ignored. This means moving investment away from those companies that harm the environment and society to those that are part of the solution. When there are businesses that are addressing climate change and resource depletion, helping produce food that is safe, protecting our water, providing houses that are ecologically sound; developing energy efficient products, why are we still investing in those who choose to ignore their responsibilities?”

ends

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