Taking a responsible approach to investing

Responsible investing has been around long enough for people to know it can be a powerful tool – but many still don’t know exactly what it entails.

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Late last year ANZ Investments – the investment arm of ANZ New Zealand – was recognised as a Responsible Investment Leader in the 2023 Benchmark Report by the Responsible Investment Association Australasia (RIAA). This recognition is awarded to investment managers who score in the top 20 per cent of RIAA’s Responsible Investment Scorecard.

"We may vote against the re-election of company directors because of their handling of identified risks, like those related to climate change.”

While there are many ways to go about allocating investment capital responsibly, unpacking our model can help explain what makes up a sound approach to responsible investing.

At ANZ Investments, we believe environmental, social and governance (ESG) factors are important drivers of long-term investment risks and returns and we integrate them into our day-to-day investment decisions.

We take a thorough approach to selecting and managing investments. We don’t just exclude certain companies, which some people may think responsible investing is all about.

We integrate ESG considerations into our evaluation of a company. We consider both financial and non-financial factors, going beyond the focus on financial criteria like revenue or earnings forecasts. Examples of ESG factors we may include are climate change, human rights, employee diversity and transparency.

Engaging for better performance

Getting responsible investing right is often a dialogue.

Stewardship – or seeking to use our influence as investment managers to shape the behaviour of the companies we invest in – is crucial to our approach. We believe this can encourage more sustainable business practices and better corporate behaviour.

So, how do we do this? We actively engage many of the companies we invest in – by interacting with stakeholders across different levels, including senior management and company boards.

This allows us to feed in our views on a company’s direction and increases our awareness of the ESG issues companies may face, including the way issues like climate change and modern slavery risk affect them. It also offers the opportunity to provide feedback and guidance on the company’s ESG initiatives.

This, in turn, improves our understanding of the risks and opportunities companies encounter, which guides our long-term decision making.

Another aspect of stewardship is voting on various matters across the companies we invest in. This can help support the issues we raise in engagement. For example, we may vote against the re-election of company directors because of their handling of identified risks, like those related to climate change.

It’s the ‘stick’ in the process and is another way to influence a company’s future direction. We may also vote on issues such as executive pay and company disclosures.

Across our funds, portfolio managers and analysts conduct more than 100 engagements every year on a range of ESG issues. For example, our engagements relating to climate might involve emissions or energy usage.

One of our external international equities managers engaged with a company that offers online payroll and human resources software and discussed if it planned to disclose the level of Scope 3 greenhouse gas emissions it produced (emissions not produced by the company, but indirectly by those in its value chain).

The company acknowledged it was working towards this and would disclose these in its Sustainability Report or next year’s financial performance report.

These disclosures will help our investment manager better understand the carbon footprint of the company and, in due course, track the company’s efforts to reduce emissions.

Learning more

While the changes arising from our engagements may not seem ground-breaking on their own, they encourage management teams to consider what investors look for when making investment decisions. Just as ANZ Investments is engaging these companies, so are other investors, further promoting responsible investment practices to create positive change.

You can find out more about our approach to engagement in the ANZ Investments Responsible Investment Framework. We also publish Stewardship Updates on the ANZ website, which provide more information about some of the other engagements.

Helen Skinner is Head of Responsible Investment at ANZ New Zealand Investments Limited

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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